The European Commission’s (EC) Directorate-General for Financial Stability, Financial Services and Capital Markets Union announced a targeted consultation on OTC derivatives identifier for public transparency purposes.
Under the review of the Markets in Financial Instruments Regulation (MiFIR), which is expected to be published in the first quarter of 2024, all trading venues that offer trading in over-the-counter (OTC) derivatives that are subject to pre- and post-trade transparency requirements (in-scope OTC derivatives) will be obliged to provide the European Securities and Markets Authority (ESMA) with identifying reference data that are globally agreed for the purpose of public transparency reporting under MiFIR.
The consultation covers two issues:
- what is the most suitable unique product identifier to be used for compliance with the transparency requirements applicable to in-scope OTC derivatives
- whether there any “additional identifying reference data” to be considered in addition to the unique product identifier
Two OTC derivatives identifiers are considered: the International Securities Identification Number (ISIN – ISO 6166),which is used in the EU today for both price transparency and market abuse detection purposes, and the Unique Product Identifier (UPI – ISO 4914), which will be reported in the EU under EMIR from April 2024, explained Sassan Danesh, member of the Management Team and Catherine Sutcliffe, director of Regulatory Affairs, at the Derivatives Service Bureau (DSB) in an emailed statement.
The consultation is focused on which OTC derivatives identifier and reference data should be used for trade transparency across the EU and is another major step towards setting up an EU-wide OTC derivatives consolidated tape with the end goal of creating greater competitiveness for EU businesses. It considers technical options and identifier attributes; and touches on the matter of system changes that will be required to implement either option. This will impact both regulators, in particular ESMA, and market participants.
The target audience of this consultation are participants in the in-scope OTC Derivatives value-chain. This comprises:
- companies that use interest rate and credit derivatives to hedge interest rate and credit risk that arises in the course of their business
- investment firms and asset managers that use interest rate and credit derivatives to hedge investment portfolios
- investment firms that act as counterparties to the two categories above
- investment firms that invest in interest rate or credit derivatives
- trading venues that offer trading in interest rate and credit derivatives, trade reconciliation service providers as well as CCPs that clear interest rate and credit derivatives
Danesh added in an emailed comment: “As the designated issuer of both the UPI and the OTC ISIN, the DSB can support both options presented in the consultation. We are ready to provide technical advice to all our stakeholders on the operational implications of each option to help market participants, ESMA and the EU Commission reach an informed view of which option is best.”