MiFID II Reporting Decision Maker Status - What Brokers Need to Know

Under MiFID II MiFID II MiFID II stands for the Markets in Financial Instruments Directive, and is the second iteration of a sweeping directive. As such it is known as MiFID II. The original Markets in Financial Instruments Directive (MiFID) became effective in November 2007. It was intended as the foundation of the EU’s Financial Services Action Plan, a comprehensive project to create a single European market in financial services. MiFID is intended to create a level playing field for firms to compete in the EU’s fina MiFID II stands for the Markets in Financial Instruments Directive, and is the second iteration of a sweeping directive. As such it is known as MiFID II. The original Markets in Financial Instruments Directive (MiFID) became effective in November 2007. It was intended as the foundation of the EU’s Financial Services Action Plan, a comprehensive project to create a single European market in financial services. MiFID is intended to create a level playing field for firms to compete in the EU’s fina Read this Term, transaction reporting will expand from 24 to 65 fields of reportable data. The result is that unlike MiFID I which was rather straightforward with what needed to be reported, MiFID II adds a lot of new field language that didn’t exist before.

One of the new fields that specifically affects the FX and CFD brokerage industry is ‘Decision Maker’. In addition to stating underlying buyer or seller of trade, MiFID II transaction reporting requires clarification if there is a third party involved that was granted authority to initial the transaction.

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Who are the decision makers?

According to ESMAs Transaction Reporting Guidelines (link) published on October 2016, a ‘Decision Maker’ is any third party authorized to transact for a client.

Within the FX/CFD space, this covers a few examples that brokers should be aware of:

• External Money Manager – has power of attorney (POA) to control an account held at an investment firm and place trades at their discretion. Could be in the form of an MAM.
• External Individual – similar to a money manager, this would be an individual that has POA to trade someone else’s account. This often happens in a ‘friends and family’ structure where one individual is trading multiple accounts without being a formal money manager or incorporated entity. Could be in the form of a MAM.
• Internal Broker – an investment firm can also be a decision maker. This occurs under a discretionary account where a client allows their broker to trade on their behalf.
• Internal Money Manager/Copy Trading – an investment firm may also have a money manager license which allows them to invest client funds. Potentially falling under this category are brokers providing copy trading services.

Another potential example where Decision Maker comes up is in relation to ‘Margin Closeouts’. In this example, a broker automatically closes out client positions when their account balance drops below Margin Requirements Margin Requirements A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities presen A margin requirement is defined as the minimum equity sum that investors must keep in their margin account preceding a trading transaction. Margin requirements may be referred to as maintenance margin, minimum maintenance, or maintenance requirement. This is a requirement for broker trading in any asset class.In terms of equities, the New York Stock Exchange (NYSE) and Financial Industry Regulatory Authority (FINRA) have a fixed margin requirement of 25% of the sum value of the securities presen Read this Term. As the executions aren’t initiated by the broker, feedback from some brokers has been that Margin Closeouts would also fall under the Decision Maker field.

Data for decision makers

Understanding that the Decision Maker is a relevant field for brokers, the next step for investment firms is having a process in place to identify these trades.

Some platforms such as MetaTrader allow for trade comments. In the case of MAMs that are used to manage multiple accounts, many systems will include a comment in the MetaTrader trade reports that identifies if a trade was opened by a manager. In this case, the comments can be used by brokers to identify the third party decision maker to populate the relevant transaction reporting fields.

The bottom line is that there are several different instances of how and when the Decision Maker fields will need to be filled by brokers. As we are now less than 40 days away from the start of MiFID II, it’s important to identify not only which of your operations fall under Decision Maker status, but also how they can be captured in your trade data.