By Arsalan Shahid
Since the start of the financial crisis, the Securities and Exchange Commission (SEC) has attempted to regulate the US financial markets to eliminate fraud, increase market transparency and restore investor confidence in the financial services industry. Increasingly, rule filings have focused on the role of technology as both the source and solution to current market issues. In order to assist the industry in understanding and addressing implementation issues with recent SEC and FINRA filings, FPL joined forces with the Financial Information Forum (FIF) to create the FIF/FPL Regulatory Reporting Working Group.
The Financial Information Forum is an industry association that resolves open implementation issues that impact compliance with industrywide initiatives. Through comment letters and informal discussions, FIF members offer regulators insight into the impact of proposed rule filings on operations and technology; often offering alternative solutions to achieve the regulator’s policy objective. The purpose of the FIF/ FPL collaboration is to leverage FPL’s electronic trading and FIX Protocol expertise and FIF’s practical knowledge of regulations to better coordinate timelines and proactively address rule changes. Rather than reacting to filings after they have been approved, the joint working group seeks to establish FIX support for new rule filings as part of the approval process. Having an approved FIX business practice at the start of the implementation process makes for a more efficient and less error-prone implementation for broker dealers, asset managers, exchanges, vendors and regulators.
The initial focus of the group was the implementation of away market indicators on non-tape report, as discussed in FINRA Regulatory Notice 09-54. The joint group focused on order management and trading issues that could be addressed by standardizing FIX tags and values for reporting the execution venue. There was consensus within the group that even though this regulatory requirement originated in the US, it was conceivable that any country or region with multiple markets and Trade Reporting Facilities (TRFs) may similarly desire such transparency, and a standard means for indicating such transparency would be a helpful addition to the FIX Protocol. As a result, the Parties block was updated utilizing ISO 10383 MIC codes:
- A new PartyRole of “Reporting Market Center” could be used by brokers, exchanges, and ATS’s in Execution Reports to indicate where a trade printed.
- A new PartyRole of “Related Reporting Market Center” could be used by brokers submitting nontape reports to TRFs. A number of proprietary methods for conveying this information have been adopted by the TRFs, but the purpose of this was to create a single interoperable standard, which may, in the future, be adopted by the TRFs.
Most recently, the group has discussed implications of the SEC proposed Large Trader Reporting System, Consolidated Audit Trail (CAT) and Short Sale Amendments. Both FIF and FIX Protocol Ltd. submitted comment letters to the SEC on CAT, supporting standardization utilizing FIX for reporting purposes, highlighting quicker implementation times and simplified data aggregation utilizing FIX.
The group has also identified areas where the FIX Protocol can assist broker dealers in complying with the upcoming Short Sale restrictions, which go into effect on Nov 10, 2010. Specifically, the group believes adding functionality and standardizing Short Sale reason codes for internal use and Order Audit Trail System (OATS) reporting could benefit broker dealers, especially during regulatory inquiries. A draft gap analysis discussing the introduction of Short Sale reason codes will be published shortly.
The recently enacted Dodd-Frank Bill will revolutionize financial services, and with the SEC and other regulatory agencies working on regulatory responses to the May 6 Flash Crash, the FIF/ FPL Regulatory Reporting WG expects to address new regulatory filings on an ongoing basis.