Background
On 3 January 2018, a new Directive 2014/65/EC (“MiFID II”) and Regulation (EU) No 600/2014 (“MiFIR”) became effective, introducing significant changes to the transaction reporting (“MiFIR Transaction Reporting”) framework that was created in 2007 with the Markets in Financial Instrument Directive (“MiFID I”).

Interactive Brokers has implemented a new transaction reporting system that will enable clients that have direct reporting obligations under the new Regulation to comply with the new MiFIR requirements.

Scope of MiFIR Transaction Reporting Obligations

MiFIR Transaction Reporting applies to European Economic Area (“EEA”) and United Kingdom ("UK") Investment Firms ("Investment Firms") and also to Investment Firms that use a broker within the IB Group ("IB Group") to execute orders. As a client of an Investment Firm that uses the IB platform, you may be required to provide additional information to allow the proper transaction reports to be filed.

Investment Firms are obliged to report complete and accurate details of transactions executed in financial instruments covered by MiFIR to the relevant National Competent Authority (“NCA”) no later than the close of the next working day.

MiFIR has widened the scope of reportable financial instruments to cover those that are traded on EEA/UK Regulated Exchanges, Multilateral Trading Facilities (“MTFs”) and Organised Trading Facilities (“OTFs”). In addition to transactions executed on EEA/UK exchanges, MiFIR will capture Over the Counter (“OTC”) transactions and transactions of EEA/UK listed financial instruments that are executed on non-EEA/UK trading venues, e.g., a stock listed on the LSE traded on NYSE. (see financial instruments covered by MiFIR).

MiFIR Transaction Reporting Solutions for IB Clients that are EEA Investment Firms: Enriched and Delegated Transaction Reporting
IB clients that have confirmed that they are an Investment Firm subject to MiFIR transaction reporting obligations will be offered the option to delegate their reporting obligations to their relevant IB Broker.

Some transactions executed by these Investment Firms will be reported under “Enriched Reporting” obligations. For these trades the IB Broker will add details about the Investment Firm to its own reports, satisfying the reporting obligations of the Investment Firm. Other transactions will only be reported on behalf of Investment Firms on a delegated basis, as separate reports in addition to the IB Broker's own reports. Clients will only need to sign one agreement with their IB Broker to cover both types of reporting.
 

Information to Be Reported
The reporting fields increased from 23 under the MiFID I regime to 65 under MIFIR. The new information requirements now include, among other items:

• Detailed identification of the buyer and the seller for each transaction. In particular, the Regulation requires the provision of Legal Entity Identifiers (“LEI”) for legal entities and National Identifiers for natural persons (based on their countries of citizenship).
• Identification of the Decision Maker for the buyer and the seller when a third-party exercises discretion:
  • A person other than the account holder on an individual or joint account, or a third-party entity.
  • A third-party other than the authorised traders on the account for an organisation account (e.g. a Financial Advisor trading for its clients’ subaccounts).

This information is not required where the account holder is self-trading or where authorised traders are trading for their own organisation.

• Identification of the person or algorithm that is responsible at the reporting firm for making the investment decision or for the execution of a transaction. This information is required for EEA Investment Firms that use our reporting services.
• For Commodity Derivatives Transactions, an indication as to whether such Commodity Derivatives Transactions reduce risk in an objectively measurable way in accordance with Article 57 of MiFID II; This is applicable to organisation accounts only when the holder is a non-financial entity.

The new information affects Interactive Brokers clients in different ways depending on whether the client is an EEA Investment Firm, or an organisation/person that is not an Investment Firm, and also depending on whether the financial instruments being traded are received and/or transmitted by their IB Broker or another Interactive Brokers Group affiliate.
 

Implications for IB Clients that are not Subject to MiFIR Transaction Reporting Obligations
In order to meet its own reporting obligations, each IB Broker is obliged to identify and report its immediate client for each transaction executed. The reporting must contain the new client identifiers mandated by the Regulations.

Therefore, each IB Broker will need to obtain and report a client identifier for:

• The IB Broker's direct clients that hold an account to trade financial instruments received and/or transmitted by the IB Broker;
• Clients that are EEA Investment Firms and utilise the Interactive Brokers reporting services;
• Clients that are subaccounts of an EEA Investment Firm that uses the Interactive Brokers platform and utilises our reporting services.

See KB2976 for further details on the information required from account holders that are not directly subject to MiFIR.

Note: For a listing of common MiFIR definitions and terms, see KB2980

THIS INFORMATION IS GUIDANCE FOR INTERACTIVE BROKERS CLEARED CLIENTS ONLY. THIS GUIDANCE DOES NOT APPLY TO EXECUTION ONLY ACCOUNTS.

NOTE: THE INFORMATION ABOVE IS NOT INTENDED TO BE A COMPREHENSIVE OR EXHAUSTIVE GUIDANCE AND IT IS NOT A DEFINITIVE INTERPRETATION OF THE REGULATION, BUT A SUMMARY OF MiFIR TRANSACTION REPORTING OBLIGATIONS.
 

Background

Effective October 3, 2016, securities exchanges registered with the SEC will operate a Tick Size Pilot Program ("Pilot") intended to determine what impact, if any, widening of the minimum price change (i.e., tick size) will have on the trading, liquidity, and market quality of small cap stocks.  The Pilot will last for 2 years and it will include approximately 1,200 securities having a market capitalization of $3 billion or less, average daily trading volume of 1 million shares or less, and a volume weighted average price of at least $2.00.

For purposes of the Pilot, these securities will be organized into groups that will determine a minimum tick size for both quote display and trading purposes. For example, Test Group 1 will consist of securities to be quoted in $0.05 increments and traded in $0.01 increments and Test Group 2 will include securities both quoted and traded in $0.05 increments.  Test Group 3 will include also include securities both quoted and traded in $0.05 increments, but subject to Trade-at rules (more fully explained in the Rule). In addition, there will be a Control Group of securities that will continue to be quoted and traded in increments of $0.01. Details as to the Pilot and securities groupings are available on the FINRA website.

Impact to IB Account Holders 

In order to comply with the SEC Rules associated with this Pilot, IB will change the way that it accepts orders in stocks included in the Pilot.  Specifically, starting October 3, 2016 and in accordance with the phase-in schedule, IB will reject the following orders associated with Pilot Securities assigned to Test Groups:

• Limit orders having an explicit limit that is not entered in an increment of $0.05;
• Stop or Stop Limit orders having an explicit limit that is not entered in an increment of $0.05; and
   
• Orders having a price offset that is not entered in an increment of $0.05.  Note that this does not apply to offsets which are percentage based and which therefore allow IB to calculate the permissible nickel increment

 Clients submitting orders via the trading platform that are subject to rejection will receive the following pop-up message:

 The following order types will continue to be accepted for Pilot Program Securities:

• Market orders;
• Benchmark orders having no impermissible offsets (e.g., VWAP, TVWAP);
• Pegged orders having no impermissible offsets ;
• Retail Price Improvement Orders routed to the NASDAQ-BX and NYSE as follows:
  - Test Group 1 in .001

      - Test Group 2 and 3 in .005

Other Items of Note

• GTC limit and stop orders entered prior to the start of the Pilot will be adjusted as allowed (e.g., a buy limit order at $5.01 will be adjusted to $5.00 and a sell limit at $5.01 adjusted to $5.05).
• Clients generating orders via third-party software (e.g., signal provider), order management system, computer to computer interfaces (CTCI) or through the API, should contact their vendor or review their systems to ensure that all systems recognize the Pilot restrictions.
• Incoming orders to IB that are marked with TSP exception codes from other Broker Dealers will not be acted upon by IB. For example, IB will not accept incoming orders marked with the Retail Investor Order or Trade-At ISO exception codes.
• The SEC order associated with this Pilot is available via the following link: https://www.sec.gov/rules/sro/nms/2015/34-74892-exa.pdf
• For a list of Pilot Program related FAQs, please see KB2750

Please note that the contents of this article are subject to revision as further regulatory guidance or changes to the Pilot Program are issued.

Introduction

The following article is intended to provide an overview of U.S. Securities and Exchange Commission (“SEC”) Sections 13(d) and 13(g) Filing Requirements. The overview is general in nature, and readers are encouraged to review the specific regulations and/or consult with a compliance professional to determine the applicability to their particular situation.

Background on Schedules 13D and 13G

These rules apply to anyone who “beneficially owns” Section 12 securities as defined in the Securities Exchange Act of 1934 (the "Act"). This generally includes shares you own or manage. Specifically, you are deemed to “beneficially own” for purposes of Section 13(d) a security if you have, either directly or indirectly:
• The power to vote or direct the voting of a security;
• The power to dispose or direct the disposition of a security; or
• The right to acquire “beneficial ownership” of such security within 60 days through the exercise of an option or warrant or the exercise of a conversion right in a convertible security.

To determine whether you “beneficially own” more than 5% of a class of equity security, measure the amount you are deemed to “beneficially own” against the total amount of outstanding securities of that class. You may rely upon the issuer’s most recent quarterly or annual report (10-Q or 10-K) filed with the SEC and any current report (Form 8-K) filed later in identifying the amount of outstanding shares. You must include any equity securities you may obtain within 60 days through the conversion or exercise of options, warrants or other as outstanding shares in this calculation. But you do not need to include similar non-exercised or converted shares held by anyone else.
 

What filings you must make

Your initial Schedule 13D filing must be made within 10 days of the trade date on which you first exceeded the 5% threshold. Disclosures in Schedule 13D must be current through the date of filing.

Schedule 13D filings must also be promptly amended, within two business days, to reflect any material changes. This includes the acquisition or disposition of 1% or more of the reported securities or significant changes in any intent you may have to control the issuer.

Some traders may be able to file an abbreviated filing—called a 13G—instead of a 13D. This option is available to passive investors owning less than 20% of the security or exempt investors owning more than 5% of an issuer’s shares before the issuer’s registration of the class of securities. In addition, SEC or state-registered advisors can only file a Schedule 13G if they have acquired the relevant securities in the ordinary course of the firm’s advisory business and not for the purpose of or with the effect of influencing control of the issuer. Also, the advisor must have notified any discretionary account owner on whose behalf the advisor holds more than 5% of relevant equity securities of his potential reporting obligation. Very specific filing thresholds and deadlines apply to initial and amended Schedule 13G filings.
 

Important Notes

• Please keep in mind that your clients and your firm’s direct and indirect control persons (which may include partners, shareholders and parent companies) may have their own independent reporting obligations.

• You should independently review your Schedule 13D and 13G filing obligations. There are many factual determinations that may impact whether you must make a filing or amend a prior filing, which Schedule you must file (or amend), and when you must make your filing.

• Interactive Brokers will provide you, on a best efforts basis, with notices only when you cross certain thresholds (5%, 10%, 20%) or a significant change in the percentage of shares you manage occurs. There may be other situations that give rise to the need to file a Schedule 13D or 13G for which you will not receive an alert from Interactive Brokers.

• Interactive Brokers will only send you one initial filing alert for each threshold you cross. We will only resend you an initial filing alert if you cross one of the three thresholds (5%, 10% or 20%) that is higher than the threshold you have crossed before. (i.e., we will not tell you if you crossed the 5% threshold if you have already crossed the 10% threshold.) Therefore, please continually monitor your positions and make the appropriate filing(s) after you receive an initial filing or amendment notice.

• You should monitor holdings of specific classes of issuer equity securities in the accounts you manage to ensure compliance with your Schedule 13D or 13G filing and amendment obligations.

• Notices do not cover (nor will they take into account) certain securities not commonly traded through Interactive Brokers, namely equities in:

a. an insurance company that would have to be registered except for the exemption from registration in Section 12(g)(2)(G) of the Act;

b. a closed-end investment company registered under the Investment Company Act of 1940; or

c. a Native Corporation pursuant to Section 1639c(d)(6) of title 43.

You should therefore separately account for and analyze any holdings of such equity securities you may have to comply with Section 13(d) of the Act.

• Alerts sent are based exclusively on the beneficial ownership of relevant securities of the specific advisor identified. The alerts will not account for any group aggregation rules that may apply when two or more persons agree to act together for the purpose of acquiring, holding, voting or disposing of the equity securities of an issuer.

• Alerts sent relate solely to holdings in accounts maintained at Interactive Brokers and not any accounts maintained elsewhere. But you should take any accounts you maintain elsewhere into consideration when determining whether you must file or amend a Schedule 13D or 13G and what information to include in those schedules.

• Alerts sent will not take into consideration your Schedule 13D or 13G filing obligations arising prior to the date of Interactive Broker's implementation of this alert program.

• The data we receive about US Micro-Cap securities—generally OTC listed stocks, as well as Nasdaq or NYSE American stocks with a market cap of less than $300MM that trade under $5 per share--from our data provider is not consistently reliable so we have removed those securities from this program. As a result, you will not receive Schedule 13D/13G alerts when you come close to crossing or cross thresholds triggering filing obligations regarding U.S. Micro-Cap securities. You should separately review your holdings in US Micro-Cap stocks to determine your related filing obligations for those holdings.
 

For Additional Information

For more information on Schedules 13D and 13G, please visit the SEC website at:

http://www.sec.gov/answers/sched13.htm  and 

https://www.sec.gov/divisions/corpfin/guidance/reg13d-interp.htm
 

Overview