Critical information and analytics provider IHS Markit has launched a cross asset class registry of systematic internalisers (SIs) to help firms understand their trade reporting obligations under the Markets in Financial Instruments Directive (Mifid 2).

The launch comes in response to new trade reporting rules set by the European Securities and Markets Authority (Esma), and providing a data service that helps the industry understand their trade reporting obligations was a natural extension of the counterparty manager service from IHS Markit, according to Brie Lam (pictured), director of regulatory and compliance services at IHS Markit. "We already have a community of more than 10,000 firms, including over 150 dealers, using Counterparty Manager to exchange regulatory information and other documentation required to establish and maintain trading relationships."

According to Lam, adding SI data to the firm's service doesn't add a new system or workflow for the firms already interacting with our service every day. "Also, because the data are available to investment firms on demand, we offer a pre-trade view on SI status," said Lam. "It's an advantage to know in advance of the trade, which party will have the obligation to report."

The service covers all asset classes covered by Esma Regulatory Technical Standards (RTS 2), including bonds, all classes of OTC derivatives, equities, equity-like instruments and structured products.

Structured products are among the multiple asset classes covered by Esma RTS 2 and subject to the SI regime, according to Lam. "Any investment firm that trades structured products (off venue) will need to know if its counterparty is an SI for those instruments," said Lam. "If the dealer is an SI, then it's the dealer's obligation to report (in a dealer-client trade). If the dealer is not an SI, the investment firm could be responsible for reporting. That's why it's important to know the full scope of the dealer's SI registration at a granular level that we will provide."

The service was developed in consultation with the International Swaps and Derivatives Association (Isda), broker-dealers, Approved Publication Arrangements (APAs) and other industry groups. SIs are investment firms that fill a significant number of client orders internally.

According to Mifid 2, when one party to a transaction executed off-venue or on a non-European venue is an SI, that party is responsible for reporting trades on a near real-time basis through an APA. This makes knowing the SI status of counterparties a key determinant in trade reporting workflow. Trade reporting rules and the ability to opt in to the SI regime take effect on January 3, 2018.

Dealers "are likely" to adopt a range of strategies in complying with the SI regime with some opting to register broadly, across multiple asset classes and others registering on a granular basis for only the products in which they have significant trade volume, according to Lam.

"Our registry provides on demand access to SI status, giving firms full pre- and post-trade transparency for whether they are subject to reporting rules on any given trade," said Lam. "We see firms declaring their intent to register with their National Competent Authorities (NCAs) as SIs and indications are that up to 100 firms could register."

However, just knowing whether a dealer is an SI is not sufficient for trade reporting compliance, according to Lam. "Investment firms need to know whether the dealer is an SI for the specific instrument they want to or have traded so that they understand which counterparty must report," said Lam.

'We expect regulators to publish a list of firms that are SIs at an entity level, but to fully understand their trade reporting obligations, firms need more granular information about the specific instruments covered by an SI's classification,' said James Roberts, director, European Public Policy at Isda, in a statement. 'By offering a central registry of SI classifications that offers this level of granularity, Counterparty Manager supports market participants by helping to remove uncertainty around their Mifid 2 trade reporting obligations.'

The IHS Markit solution is provided by Counterparty Manager, a platform used by more than 10,000 firms for managing regulatory disclosures and account onboarding documentation. Counterparty Manager will provide a single source of SI data to support trade reporting workflow and also give investment firms an efficient mechanism for disseminating SI status to APAs and their clients.

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