Member Readiness Global Market Operations 1 MiFID II Member - PowerPoint PPT Presentation

MIFID II - ORDER RECORD KEEPING Member Readiness Global Market Operations 1 MiFID II Member Readiness

DISCLAIMER: All information contained herein is obtained by Nasdaq from sources believed to be accurate and reliable. However, the Markets in Financial Instruments Directive and Regulation and related level 2 and level 3 texts (“MiFID II/R”) have not yet b een fully adopted and/or implemented. Neither Nasdaq Nordic Exchanges nor any of its affiliates or subsidiaries (collectively “Nasdaq”) assumes any responsibility for any errors or omission contained herein. The information herein is not intended to provide legal advice on any matter, nor is it intended to be comprehensive. All information is provided “as is” without warranty of any kind. Whil e the information has been prepared on the basis of the best information available, Nasdaq accepts no liability for decisions taken by any party, based on this information. 2 MiFID II Member Readiness

ORDER RECORD KEEPING - BACKGROUND • New regulations with MiFID II has given trading venues (Nasdaq) the responsibility to store all order records and make the data available to the National Competent Authority (NCA) upon request • Nasdaq's responsibility is only to store the data: It is the trading members responsibility by law to provide correct data. 1 ) Trading Member submits an order in Nasdaq’s trading system and provides ORK-information 2 ) Nasdaq stores the data 3 ) The NCA has the possibility to and provides it upon review and investigate all order request to the NCA data submitted by members. 3 MiFID II Member Readiness

ORDER RECORD KEEPING – BACKGROUND • Most of the required Order Record Keeping data already exists in the order message. However, the following new fields needs to be reported with each order (if applicable): • Client Identification Code (LEI*, National ID *, ‘NONE‘*, ‘AGGR‘*, ‘PNAL‘*) • Investment decision within firm (National ID* or Algorithm ID) • Execution within firm (National ID, Algorithm ID or ‘ CLIENT ‘ • Party Role Qualifier (LEI*, National ID* or Algorithm ID) • Order Capacity • Trader ID (for human traders and technical flows) • MiFID II also requires this data (and additional ORK data) to be included in Transaction Reporting. * See slide 12 for ”Glossary” 4 MiFID II Member Readiness

NASDAQ´S SOLUTION  Short Codes: To avoid the orders from containing sensitive and confidential data, members will be required to submit orders with short codes, or the order will automatically be rejected by the system. • Short codes needs to be created by the member for Client ID , Investment Decision Within Firm , Execution decision within firm. e.g. Client A – short code 4567  Long Codes: Each short code that has been used on a specific trading day needs to be mapped up, by the member, to a long code corresponding with the required real value (i.e. LEI/National ID). • This will be done in a separate application, Member Portal. • Long codes must be supplied at the end of trading day – e.g. Client A – long code or members will be in breach of Nasdaq Exchange rules 549300KBQIVNEJEZVL96 5 MiFID II Member Readiness

ORDER WINDOW NOVEMBER 20TH – TRADING WORKSTATION EXAMPLE – TRADING ON OWN ACCOUNT • Trader ID: Mandatory, Individual. Can be JONSMI found in the Member Portal for all authorized traders • Client ID: Optional for Principal/DEAL • Client ID Qualifier: Optional for principal/deal. However can still be populated without effect • Invest Dec: Short Code corresponding to person within member firm who is responsible for the investment decision. • Exec Dec: Short code corresponding to person within member firm who executed the trade Please note that we expect all members to test this new functionality in our avaliable test systems. 6 MiFID II Member Readiness

ORDER WINDOW NOVEMBER 20TH – TRADING WORKSTATION EXAMPLE – TRADING ON BEHALF OF A CLIENT • Trader ID: Mandatory, Individual. Can be JONSMI found in the Member Portal for all authorized traders • Client ID: Short code corresponding to the member firm’s immediate client. • Client ID Qualifier: Firm / Personal. In this case the client is a Firm. • Invest Dec: Optional for Agent / AOTC, since the investment decision is made by the client • Exec Dec: Short code corresponding to person within member firm who executed the trade Please note that we expect all members to test this new functionality in our avaliable test systems. 7 MiFID II Member Readiness

TRADING / ORDER CAPACITY • Trading Capacity: Is a MiFID II term to describe the type of order. This will be mandatory to populate. 3 options according to MiFID II: • DEAL* • MTCH * • AOTC* • Order Capacity: The following table describes the corresponding values for MiFID II Trading Capacity: • Order Capacity decides which other fields are mandatory to populate: * See slide 13 for ”Glossary” 8 MiFID II Member Readiness

SHORT CODE SYSTEM • The Short code is a numerical value between 0 and 4,294,967,295 • Reserved Short Codes: The values 0, 1, 2 and 3 are reserved for NONE*, AGGR*, PNAL* and CLIENT, respectively. These can only be used in certain situations according to MiFID II. It is the member responsibility to use them correctly. • Orders without the required short codes will be rejected The usage of short codes can be tested in our test systems and will be mandatory to populate on orders November 20th. * See slide 13 for ”Glossary” 9 MiFID II Member Readiness

LONG CODES • There are 3 different ways to upload long codes to Member Portal • WEB Based REST API – Machine to Machine • SFTP file upload • Member Portal GUI – Manual upload • Reconciliation: Each day after market has closed, Nasdaq will perform a reconciliation of all short codes used in orders that day against all entered long codes in the Member Portal. • Nasdaq will notify each member by email of unmapped short codes so the members can map them. • The deadline for members to have all short codes mapped is the end of T-day. (trading day) • Please note that the reconciliation is meant as a double check and the support after the trading day will be limited. Members are expected to upload long codes during the day. Uploading of long codes can currently be tested in our test systems. Upload of long codes in production will be possible November 20th. The reconciliation process will start January 3 2018. 10 MiFID II Member Readiness

IMPLEMENTATION TIMELINE FOR MEMBERS • Oct-Nov 20: Test order entry and order Trader ID’s • Analyze your flow to determine correct order capacity and short codes • Nov 20: Trader ID mandatory on orders and trade reports • Nov 20: Short codes mandatory on orders. • Validations for format only – dummy codes accepted • Oct-Dec: Test upload long codes – reconciliation features • Nov 20-Dec: Upload long code mapping in production • Jan 3 : Correct short codes on order entry • Jan 3: Long code mapping required for all submitted short codes • Reconciliation process starts – members to complete mapping at the latest End of day. 11 MiFID II Information Seminar

MORE INFORMATION • More detailed guide for Order Record Keeping • Nasdaq Member Portal Short Code Management API Manual • Nasdaq Member Portal Short Code Management CSV File Format Specification • Guide on Transaction reporting for non-investment firms. Navigate to the tab ”Transaction reporting”. • ESMA Guidelines to Order Record Keeping • Nasdaq Technical Information For questions, please contact MiFID2readiness@nasdaq.com 12 MiFID II Member Readiness

GLOSSARY • LEI : Legal Entity Identifier (i.e. 549300KBQIVNEJEZVL96) • National ID : Differs between countries (i.e. Personal Number in Sweden) • NONE : Reserved Short code: 0. • AGGR : Reserved Short code: 1. Aggregated. To be used when multiple clients are behind an order. • PNAL : Reserved Short code: 2. Pending Allocation. To be used according to what is allowed by your local FCA. Generally for situations where client is unknown at order entry. • DEAL: Trading on own account (house/principal) • MTCH: Matched Principal Trading; Transaction where the facilitator interposes itself between the buyer and the seller to the transaction in such a way that it is never exposed to market risk throughout the execution of the transaction. • AOTC: Any Other Trading Capacity: All other activity that does not come under the definitions of own account trading or matched principal trading should be reported with a trading capacity of ‘any other capacity’ which includes where the activity is taking place on an agency basis. 13 MiFID II Member Readiness