In Q1 2012 ESMA issued its eight guidelines ‘Systems and controls in an automated trading environment for trading platforms, investment firms and competent authorities’ ESMA/2012/122.

MTFs, Asset Managers and Brokers that provide direct market access (“DMA”) or sponsored access (“SA”) are covered extensively in the guidelines. Detailed governance requirements are placed upon these entities in terms of the capacity and resilience that their systems must demonstrate and in relation to the business continuity arrangements that must be in place.

A key focus of the guidelines is market abuse, and the platforms are required to have sufficient tools to allow them to monitor the activities of their participants (and the end users if applicable) for suspicious or illegal activity. The guidelines specifically refer to trading platforms having the ability to detect “Ping Orders”, “Quote Stuffing”, “Momentum Ignition” and “Spoofing”. In particular, the focus is on having staff with sufficient skills to be able to monitor trade flow and detect any abuses.

Brokers must be able to block or cancel orders that do not meet certain parameters – for example, size or price. They must also be able to block orders in specific instruments if they are aware that the client to which they are providing access does not have permission to trade that particular instrument. The brokers too are required to have skilled staff that monitor the trading activity in real time or as close to it as possible and to alert the regulators to any suspicious transactions. Ultimately they must be able to halt a trade if they suspect it to be market abuse.

CESR’s template for the Key Investor Information document can be found here: http://www.esma.europa.eu/system/files/10_1321.pdf

Big Data can be used to model employee behaviour and show a contextual relationship between email, spreadsheets, instant messages, phone calls, voice mail, tweets, Facebook status updates and expenses, thus building a digital character for each employee. The digital character is then mapped against a model of the organization’s normal behaviour and as a result deviations from normality are detected. Examples of deviations from normality can be detected in language used by employees, instances of switching communication channels and taking communications off line, trading in excess of limits and falsifying book entries to hide positions.

Today instead of the slow “schema on write” and slow ETL process where data needs to be modeled before it’s put into a data warehouse, financial institutions can make use of “schema on read” processes to dump raw, untouched data into a clusters where the data is contextualised when it needs to be read, on an on-demand basis. Unlike traditional data warehouses Big Data technology acts as storage and compute engines, and are highly optimized for analytical workloads.

Complex Event Processing, or CEP, is event processing that combines data from multiple sources to infer events or patterns that suggest more complicated circumstances.

The markets covered by AQMetrics Best Execution surveillance service are the equities market, fixed interest (including gilts and bonds), foreign exchange and derivatives and also the commodities markets.

Layering involves entering relatively large orders on one side of an exchange’s order book, which has the effect of moving the share price as the market adjusts to the fact that there has been an apparent shift in the balance of supply and demand. This is then followed by a trade on the opposite side of the order book which takes advantage of, and profits from, the share price movement. This is in turn followed by a rapid deletion of the large orders which have been entered in order to cause the movement in price, and by a repetition of this behavior in reverse on the other side of the order book.

Filing Form PF is a three-step process:

1. Data Identification: Verifying the quantity and quality of internal data as well as data required by fund administrators, prime brokers, custodians, and counterparties.
2. Data Verification: Testing and reconciling the accuracy of data collected from external sources and retaining the evidence of data verification for SEC examinations and inquiries.
3. Data Aggregation: Aggregating the data in the format prescribed by SEC and filing it within the timeframe outlined.

AIFMD-CDR is the Commission Delegated Regulation (EU) No 231/2013 of 19 December 2012 supplementing Directive 2011/61/EU of the European Parliament and of the Council with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision

An above threshold AIFM is an AIFM that manages portfolios of AIFs whose assets under management in total exceed the thresholds under article 3(2) of the Law of 2013

Under Dodd-Frank, the SEC and CFTC have divided swaps into four different categories of “Title VII” swaps: Swaps, Security-Based Swaps, Mixed Swaps, and Security-Based Swaps, while the securities that fall under EMIR are defined by MiFID (the Markets in Financial Instruments Directive). In the U.S., certain types of derivatives in the Swaps and Security-based swaps categories are excluded from clearing and other requirements, whereas in the EU, only spot foreign exchange contracts, and some physically-settled commodity swaps are excluded.

Equalisation is an accounting methodology that tries to ensure the equitable allocation of incentive fees to each investor in a fund,
a) to make sure that the Hedge Fund Manager gets paid the right amount, and b) to ensure that one shareholder is not effectively subsidising another.

Two commonly used methods are described below:

1) Series of Shares

This involves issuing a new Series of Shares each time that there is a subscription and calculating the NAV per share, including incentive fee accruals for each Series of Share. These Series are consolidated into the Lead Series, which is usually the first Series to be issued, when a new High Watermark is achieved and an incentive fee is paid. This may be quarterly, or half-yearly or annually.

2) The Equalisation Method

This involves issuing or redeeming shares to accommodate the incentive fee adjustments.

The directive AIFM is a European directive which aims at supplying a regulatory framework and supervision harmonized for the managers of alternative investment funds within the European Union. It defines rules regarding organization and operation management for the funds industry, it imposes new requirements to alternative funds and it allows the cross-border commercialization of funds to professional investors.

It can take 1 to 3 months to set up a risk report in the Open Protocol format.

Open Protocol has defined two reporting formats, an excel spread sheet and an XML schema (which can be used for machine-to-machine dialogue). PDF reports are not permitted since they do not allow for systematic aggregation.

Side pockets are included under the following OPERA reports sections only:

  • 1.2 Total Firm Assets under Management
  • 1.3 Total Fund Assets under Management
  • 1.7 Investor Break Down
  • 1.8 Investor Liquidity

Open Protocol follows the OECD (www.oecd.org) definition of G10 countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States. Please note there are 11 countries in G10.

These translate to only 7 different currencies as there are 5 countries using Euro. Currencies which should be included in the section, “Non USD G10 Currencies” are Euro, GBP, CHF, JPY, CAD and SEK.

Insider dealing consists of a person trading in financial instruments when in possession of price-sensitive inside information in relation to those instruments. Market manipulation occurs when a person artificially manipulates the prices of financial instruments through practices such as the spreading of false information or rumours and conducting trades in related instruments. Together these practices are known as market abuse.

Adopted in early 2003, the Market Abuse Directive (MAD) has introduced a comprehensive framework to tackle insider dealing and market manipulation practices, jointly referred to as “market abuse”. The Directive aims to increase investor confidence and market integrity by prohibiting those who possess inside information from trading in related financial instruments (“insider trading”), and by prohibiting the manipulation of markets through practices such as spreading false information or rumours and conducting trades that result in abnormal prices (“market manipulation”).

In essence, market abuse may occur when investors have been unreasonably disadvantaged, directly or indirectly, by others who:
• have used information that is not publicly available to trade in financial instruments to their advantage (insider dealing);
• have distorted the price-setting mechanism of financial instruments; or
• have disseminated false or misleading information.

The MAD creates some tools to prevent and detect market abuses, like insiders’ lists, suspicious transaction reports and the disclosure of managers’ share transactions. It also obliges issuers of financial instruments traded on a regulated market to make public as soon as possible inside information that they possess, with limited possibilities to delay.

In order to promote enforcement, the Directive gives national competent authorities powers of investigation (such as access to data or on-site inspections) and the power to take administrative measures or impose “effective, proportionate and dissuasive” sanctions.

The MAD introduced a framework to harmonise core concepts and rules on market abuse and strengthen cooperation between regulators. However, a number of problems have been identified by the Commission and these can be broadly categorised in five groups:
• gaps in regulation of new markets, platforms and over-the-counter (OTC) trading in financial instruments;
• gaps in regulation of commodities and commodity derivatives;
• regulators cannot effectively enforce the MAD;
• lack of legal certainty undermines the effectiveness of the MAD; and
• administrative burdens, especially for small and medium-sized companies (SMEs).
This is why the Commission has adopted proposals to replace the MAD with a Regulation on Market Abuse (MAR) and a Directive on criminal sanctions for market abuse.

The Regulation aims to update and strengthen the existing framework to ensure market integrity and investor protection provided by the Market Abuse Directive. The new framework will ensure regulation keeps pace with market developments, strengthens the fight against market abuse across commodity and related derivative markets, reinforces the investigative and administrative sanctioning powers of regulators and harmonises certain key elements while reducing administrative burdens on SME issuers where possible.

The Regulation includes a number of measures to ensure regulators have access to the information they need to detect and sanction market abuse. The Regulation extends suspicious transaction reporting to orders and to OTC transactions. A number of powers are granted to supervisory authorities to ensure that they have access to the information they need to detect and sanction market abuse (e.g. access to premises, access to existing data traffic records held by telecommunication operators, access to existing telephone records held by investment firms), in accordance with national law and subject to adequate and effective safeguards. It also requires Member States to provide for the protection of whistleblowers and accused persons. Finally a new offence of “attempted market manipulation” is introduced to make it possible for regulators to impose a sanction in cases where someone tries to commit market abuse.

Pursuant to article 19(11) of the Law of 12 July 2013 regarding alternative investment fund managers, transposing Directive 2011/61/EU of the European Parliament and of Council of 8 June 2011 on Alternative Investment Fund Managers, only safe-keeping functions  of article 19(8) of the Law can be delegated: cash flow monitoring can thus not be delegated. The depositary therefore has to implement a procedure for   reconciliation of cash flows. In this context, the depositary may rely on  material tasks executed by a third party with respect to cash flow monitoring  for the execution of its own obligations or may use information received with  respect to cash flow reconciliations performed by a third party, provided  that the depositary obtains all information it needs to comply with its own  cash monitoring obligation and has performed an adequate due diligence of the  reconciliation processes performed by the third party.

As per paragraph 12 of chapter VII. of the ESMA Reporting Guidelines “AIFMs should start reporting as from the first day of the following quarter after they have information to report until the end of the first reporting period. For example, an AIFM subject to half-yearly reporting obligations that has information to report as from 15 February would start reporting information as from 1 April to 30 June.

Depending on the frequency of the reporting as prescribed by article 110(3) of the AIFMD-CDR, AIFMs shall transmit their first reporting in accordance with the following table (yyyy stands for the respective year). The information in the table hereafter illustrates the timing for a first reporting for an AIFM authorised on 15 February of a given year and is applicable as long as there is no shift in the obligation for the frequency of the reporting of that AIFMD.

Authorisation date


Quarterly reporting

Half-yearly reporting

Annual reporting



01/04/yyyy –


01/04/yyyy –





01/07/yyyy –


01/07/yyyy –


01/01/(yyyy+1) –



01/10/yyyy –


01/01/(yyyy+1) –


01/01/(yyyy+2) –



01/01/(yyyy+1) –


01/07/(yyyy+1) –


01/01/(yyyy+3) –


On the basis of the above table, an Authorised AIFMs subject to half-yearly reporting obligations and having received its authorisation on 15 February of a given year has to submit its first reporting covering the period of 1st April to 30 June on 31 July of the same year at latest (15 August of the same year at latest where the AIF is a fund of funds). The next reporting following the initial one then has to be done on 31 January of the following year at latest (15 February of the following year at latest where the AIF is a fund of funds) for the period of the 1 July to 31 December of the current year.

Registered AIFMs have to report according to the last column since they are subject to annual reporting obligations.

As per paragraph 11 of the ESMA Reporting Guidelines, any AIFM that has been authorised or registered and has received confirmation from the CSSF concerning their autorisation or registration, but has no information to report for the respective reporting period has to submit a reporting file using a special field. If an AIFM has not yet any AIF to report, an AIFM file has to be sent to the CSSF, indicating that the AIFM has not information to report yet. If a specific AIF has not yet been launched although the AIF has been authorised by the CSSF, the AIFM has to send an AIF file for this specific AIF indicating that the AIF has not information to report yet.

The CSSF AIFMD reporting channels are e-file and SOFIE


The CSSF will require from AIFMs all information indicated in the ESMA Opinion on Reporting under Article 24(5).

AIFMs should submit the last AIF report not later than one month after the end of the quarter in which the AIF has been liquidated or put into liquidation.

Under Questions 148 and 149 of the consolidated report, AIFMs should aggregate the market value of all securities traded and report the percentage of the market value of securities traded on a regulated exchange and OTC. Regulated exchanges include regulated markets, multilateral trading facilities and organised trading facilities.  Securities that are not traded on regulated exchanges should be considered as traded OTC. This means that the total should equal 100%.

For the European Union, regulated markets and multilateral trading facilities (MTFs) are published on ESMA’s website

The Central Bank has issued the following table which details the first submission dates:

Frequency of Reporting Dates of first reporting period Dates of first submission
Quarterly 01/04/2014 – 30/06/2014 11/08/2014 – 11/09/2014
Semi-Annually 01/04/2014 – 30/06/2014 11/08/2014 – 11/09/2014
Annually 01/01/2014 – 31/12/2014 01/01/2015 – 31/01/2015

All trades beyond spot value fall within the scope of the reporting obligation – including foreign exchange products such as FX forwards. Money market products such as deposits and repo transactions are, however, not covered. From a legal perspective, the legal definition of what is a derivatives contract covered by the reporting obligation can be found in the MiFID directive (EU directive 2004/39/EC, Annex 1, Section C, no( 4)-(10)).

Yes. Reporting is also required for intra-group trades between different legal entities. These trades can be exempt from clearing and margining obligations, but they are still covered by the reporting obligation. Internal trades between two different divisions within the same legal entity are not covered by the obligation.

Financial regulators are expected to make inquiries when identifying inconsistencies in trade reporting data. AQ Metrics workflow monitors for potential discrepancies in order to identify and possibly correct the cause of such discrepancies.

A UCITS is an open-ended European investment fund established in accordance with the UCITS Directive. UCITS are typically domiciled in tax-neutral jurisdictions. UCITS must be organised under the laws of an EU member state and subject to regulation by the EU member state in which it is domiciled. Once registered in one EU country, the fund can be marketed throughout the EU and other jurisdictions that recognise UCITS, subject to local marketing requirements. Although subject to a pan-European regulatory regime, the legal structures and form of organisation of UCITS vary considerably and are governed by the laws of the UCITS’ country of domicile.

  • A Key Investor Information Document (KIID) must be approved in the country of domicile, translated for cross-border marketing in the host country’s language, and made available and delivered to investors at
    pre-contract stage
  • A full prospectus is required as part of the regulatory filing
  • Annual and Semi Annual Reports must be filed
  • A UCITS fund must publish its share price each time it issues, sells or redeems shares, or at a
    minimum, twice monthly

The Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to Undertakings for Collective Investment in Transferable Securities, (UCITS) is a European Union Directive that has the objective to allow collective investment schemes to operate freely throughout the EU on the basis of a single authorization from one member state.

Software as a service (SaaS), sometimes referred to as “on-demand software”, is a software delivery model in which software and associated data are centrally hosted on the cloud. SaaS is typically accessed by users using via a web browser. Surveillance as a Service is AQMetrics on demand market surveillance software.

Cloud Computing is the use of computing resources (hardware and software) that are delivered as a service over a network (typically the Internet).

Big Data Analytics is the process of examining large amounts of data of a variety of types (big data) to uncover hidden patterns, unknown correlations and other useful information.