Transactions in financial instruments For Investment firms

Investment firms must meet certain obligations when effecting transactions in financial instruments.

Post-trade transparency for OTC transactions in listed shares

If a transaction in listed shares is effected outside a regulated market or multilateral trading facility (in other words, over the counter, or OTC), the parties to the transaction are legally obliged to publish the details of the transaction. Listed shares are defined as shares that are admitted to trading in a regulated market. The publication of the details of an effected transaction is known as post-trade transparency.

Post-trade transparency is particularly important for OTC transactions, since these transactions usually involve high volume. For proper price formation, it is essential that the market is aware of all transactions effected in a share.

What is post-trade transparency?

Investment firms that effect transactions in listed shares outside a regulated market or multilateral trading facility (OTC) must make the details of these transactions public. This obligation is pursuant to the Markets in Financial Instruments Directive (MiFID) and Section 4:91l of the Financial Supervision Act (Wft). The purpose of this provision is to encourage correct formation of share prices. In practice, this means that an investment firm that effects an OTC transaction in a listed share must publish the time, price and volume of the transaction concerned.

What does the AFM classify as an OTC transaction?

An OTC transaction is a transaction agreed between two parties outside a regulated market or multilateral trading facility. A determining factor is that the parties to the transactions have themselves participated in the determination of the price. If an investment firm passes a client order to a regulated market, a multilateral trading facility or an executing broker, this does not qualify as an OTC transaction. In this case there is no transaction effected between the client and the investment firm. The transaction is merely facilitated by the investment firm. Further explanation with examples can be found in the Handbook Transaction Reporting published by the AFM.

What shares are admitted to trading in a regulated market?

A list of shares admitted to trading can be found on the European Securities and Markets Authority website at overview.

How does one publish OTC transactions in listed shares?

The law does not prescribe a method for publishing details of these transactions. Investment firms may decide how they will do this themselves. Section 4:91l Wft states that the information relating to the transaction must be easily accessible.

Reporting OTC transactions in listed shares to the AFM

In addition to the provision of post-trade transparency, under Section 4:90e (3) Wft investment firms are obliged to report any transactions they effect in a listed financial instrument to the AFM. This therefore also applies to OTC transactions.

The Handbook Transaction Reporting gives full details of how to report transactions to the AFM. The Handbook also gives the contact details of officers of the AFM who are available to answer queries or give further explanation.

Transaction reporting

Investment firms are obliged to report transactions they have effected in financial instruments admitted to trading in a regulated market to the AFM. The Handbook Transaction Reporting is available for guidance.

The AFM’s intention with the Handbook is to provide clear guidance to investment firms that should lead to improved quality and consistency of transaction data. This is also the method by which changes, additional information and developments at European level will be centrally communicated.

The Handbook gives answers to the following questions (among others):

  1. Does the transaction reporting requirement apply to my investment firm?
  2. How do I register my investment firm with the transaction reporting system (TRS) and how do I meet the technical specifications for reporting all the effected transactions?
  3. How can I construct and improve my reporting tool?
  4. Which transactions must I report, and which transactions do not have to be reported?
  5. What do I need to do to satisfy the AFM’s expectations with regard to data quality (completeness, accuracy and timeliness)?
  6. Who can answer my questions?

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