EU HomeMemberState Property
For the EEA major rules, one of the key factors in determining the jurisdiction where a particular security should be disclosed is the home Member State.
The phrase Member State refers to a particular country/state which is a member of the EEA. The word home describes the country (and corresponding regulatory body) that governs the disclosure obligations for an issuer's securities. This is distinct from the host Member State which is any other EEA jurisdiction where an issuer's shares are admitted to trading. Any Transparency Directive (as Amended - TDA) related disclosure will be made to the relevant competent authority (RCA) of the issuer's Home Member State (HMS). This is captured in Rapptr using the property HomeMemberState_v2 and its counterparts, CalculatedHomeMemberState and DeterminedHomeMemberState.
How does Rapptr determine the home Member State for an issuer?
Firstly, we provide the input property HomeMemberState_v2 to allow clients to populate any known home Member State at an instrument level. This will always be the prioritized country code used when determining an instrument's home Member State. If clients need to update the HMS then they can make use of our Data Overrides feature to create a default value or override HMS for each instrument. While HMS is an issuer property, it is calculated at the instrument level, please make sure all instruments belonging to an issuer have the same HMS value, otherwise, there is a risk that the aggregation can be split across multiple rule results.
If it is not possible to source the HMS value for each and every issuer (see the section below, "Why doesn’t ESMA produce one golden source for the appropriate home Member State related to the TDA obligations?", for some common sourcing difficulties), then we have provided a property called CalculatedHomeMemberState. As its name implies, Rapptr takes advantage of other input properties and publicly available regulatory data to calculate a proxy value for the Issuer's home Member State.
How does Rapptr calculate a home Member State?
Clients now have the option to choose between FIRDS or MarketsListedIn to determine if an instrument is traded on an EEA Regulated Market. To use FIRDS please contact email@example.com and request that the global property “IsUsingFIRDSMarkets” be switched on. If left off, the rules will continue to use MarketsListedIn as the primary source.
There are two ways that Rapptr can infer a Home Member State value depending on whether the Issuer is incorporated in an EEA country or outside the EEA. Initially, Rapptr checks whether the relevant instrument is admitted to trading on an EEA Regulated Market. To determine this, Rapptr uses either the values you’ve declared in the input property MarketsListedIn or if you have elected to use the “IsUsingFIRDSMarkets” property checks the FIRDS list to determine whether an instrument is traded on a regulated market. If using MarketsListedIn we compare the list of markets that you provide inMarketsListedIn against the list of EEA markets that ESMA has designated as “Regulated Markets.” If the instrument is not listed on an EEA Regulated Market you will not get a result.
If Rapptr determines the relevant instrument is admitted to trading on an EEA Regulated Market as described above, one of these will happen;
1) Issuer incorporated in the EEA:
If an Issuer's CountryOfIncorporation input property is set to an EEA country then CalculatedHomeMemberState is set to the CountryOfIncorporation.
Let’s take a look at the regulatory framework for this...
EU Major Shareholding - EU Transparency Directive and Amendment (TDA)
Although there is no specific reference to the MiFID regulation as seen in the EU Short Selling regulations, the TDA (Directive 2013/50/EU) clarifies (in sections 19-21) that, where an issuer has not chosen a home Member State, the home Member State is the country of incorporation of the issuer if they are traded on an EU regulated market.
2) Issuer from outside the EEA ("third country issuers"):
If an issuer's CountryOfIncorporation is outside the EEA then, as a proxy, Rapptr will use the RCA for that share from the ESMA FIRDS database to obtain a country for CalculatedHomeMemberState.
ESMA is the EU authority that maintains the Financial Instruments Reference Data System (FIRDS) which contains a listing of RCAs for securities traded in the EEA. We scrape this data regularly (on a daily basis). The FIRDS database contains all shares that are traded on any trading venues in the EU (Regulated or not) and their related competent authority. It exists due to other regulation such as MIFID II but is used here to approximate the HMS for third country issuers given that the latter is not available in consolidated, machine-readable form. For "third-country issuers" (non-EU incorporated companies), issuers are obligated to choose their home Member State. While Rapptr does not include any absolute logic in determining this country for non-EU issuers, we expect many would be incorporated into the FIRDS database.
If a market (MIC) that you’ve provided in the MarketsListedIn input property is identified as a "Regulated Market" (RM) on ESMAs list of EU markets and the ISIN (or underlying ISIN for derivatives) matches an ISIN in the FIRDS database, we use the country of the RCA from FIRDS.
Important: for depositary receipts (DRs):
- DRs can be treated differently between EEA countries with respect to what “instrument” - the Depositary Receipt or its underlying Equity - is evaluated for being“ admitted to trading on an EEA Regulated Market.
- In most cases, DRs are in scope purely based on the underlying instrument. This means that the relevant instruments for purposes of the analysis outlined above would be the DR’s underlying equity and shown in the property CalculatedHomeMemberState.
- If you have set HomeMemberState_v2 for the underlier of a depository receipt this value will be used for the receipt as well.
- In many cases, DRs can also be in scope based on characteristics of the Depositary Receipt itself. This means that Rapptr will calculate another variant called CalculatedHomeMemberStateDRs for DRs only and return a value for it based on where the DR is trading (in addition to the underlying issuer’s incorporation). Rules which include this nuance will have the property DeterminedHomeMemberStateDRs in their code.
If the issuer falls under neither of these categories, or a FIRDS value cannot be found for that instrument, then CalculatedHomeMemberState (or CalculatedHomeMemberStateDRs if relevant) will return 'Unable to calculate'. Keep in mind, you are always able to declare a value for an instrument’s home Member State via the property HomeMemberState_v2 in your file if you have reason to be certain about the home Member State for a particular security. Please also let our support team know if your information differs from the ESMA FIRDS database or is not present.
Why doesn’t ESMA produce one golden source for the appropriate home Member State related to the TDA obligations?
Note that the TDA now makes it obligatory that each issuer discloses their choice for home Member State to the relevant competent authority in the home Member State and via press release.
In fact, Article 22.1 of the TD itself includes a requirement that guidelines and plans be created by ESMA and each country’s regulatory authority to work in "facilitating public access to information" in relation to the TD, including the EU Member State that is associated with each issuer. Much of this detail is described in the Draft RTS on the European Electronic Access Point (EEAP) (PDF), and the section “Financial Reporting” on ESMA’s TDA website which mentions the EEAP. Unfortunately, the RTS hasn’t been finalised and the EEAP has been delayed.
In January 2018, FundApps asked ESMA specifically why the EEAP is not yet available as planned and when it might be completed. They have noted that the “ESMA Board of Supervisors has decided beginning of last year  to de-prioritise the EEAP project and pause it. It has not yet been decided when the next go-live date will be.”
At the point when the EEAP is created (which will likely include the LEI as the standard identifier for issuers) FundApps will automate its use in our rules as the official source for the home Member State as it relates to the TDA. Until then, the process as described in the above article remains the most prudent course of action.