Deals on own account
An investment firm is said to be trading in DEAL capacity when it ‘deals on own account’. Dealing on own account is defined in Level 11 text as ‘trading against proprietary capital resulting in the conclusion of transactions in one or more financial instruments’.
When a firm trades in DEAL capacity, it should be reported as either a buyer or seller in the corresponding transaction report.
An investment firm may trade in DEAL capacity when executing either its own proprietary trades or acting on own account with a view to filling client orders. Where the firm executes client orders, both the market side transaction report and the client side transaction report should reflect its trading capacity as DEAL. Time and price values on both sides can be different.
Riskless Principal – DEAL applies when an investment firm is acting to fill a client order.
Principal – DEAL applies when an investment firm undertakes a risk facing trade. When firms act as Systematic Internalisers (SI), they will trade in a Principal - DEAL capacity.
ESMA Guidance confirms that Direct Electronic Access (DEA) providers cannot report trades executed via DEA in DEAL capacity – they may only report MTCH or AOTC.
Matched Principal Trading
An investment firm is said to be trading in MTCH capacity when it conducts matched principal trading. Matched Principal Trading is defined in Level 13 as “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, with both sides executed simultaneously”.
Therefore, firms executing in MTCH capacity should not appear as the buyer or seller in the transaction reports to reflect that such trades have not resulted in any risk positions.
For purposes of transaction reporting, the client on whose behalf the transaction was undertaken should be reported in the buyer/seller field and the venue or counterparty (e.g. CCP of the exchange) should be indicated as the corresponding seller/buyer in the transaction.
Transaction reports will need to be submitted on a market fill basis.
MTCH-X - Matched Pricipal Exchange Trading
A marketplace where assets (securities, commodities, etc) are traded.
The core function of MPXT is to ensure fair and orderly trading and the efficient dissemination of price information for any assets trading on that marketplace.
MTCH-C - Matched Pricipal CFD Trading
A marketplace where CFDs are matched principal traded.
Any other trading capacity
All other activity which is not characterised as DEAL or MTCH is required to be reported as “any other trading capacity” – AOTC. This includes trading taking place on an agency basis.
Transaction reporting of agency trades is similar to trading in MTCH capacity where the client is reported as the buyer/seller and venue or counterparty (e.g. the CCP of the exchange) is reported as the corresponding seller/buyer. The differentiating factor is the capacity of the executing firm – MTCH (matched principal) vs AOTC (agency).