MiFID II is set to come into effect in January 2018. MiFID II will govern all aspects of the financial markets, including derivatives trading and reporting.
Transaction reporting obligations are contained in the MiFIR regulation, which means that there cannot be differing implementation between nations. The regulations impose reporting obligations in respect of OTC derivative transactions where the underlying instrument is traded on an EEA trading venue.
Which instruments are caught by the new regulations?
MiFID II has expanded the scope of the reporting regime to include:
- financial instruments admitted to trading or traded on an EEA trading venue or for which a request for admission to trading has been made;
- financial instruments where the underlying financial instrument is traded on a trading venue; (Guidelines state ‘underlying’ means immediate underlying instrument rather than ‘ultimate’ underlying instrument)
- financial instruments where the underlying instrument is an index or a basket composed of financial instruments traded on a trading venue.
Which entities need to report?
- MiFID II extends derivative transaction reporting obligations to:
- investment managers providing advice and portfolio management to individuals;
- credit institutions;
- market operators;
- all financial counterparties under EMIR;
- central counterparties and persons with proprietary rights to benchmarks; and
- third-country firms providing investment services or activities within the EU.
What information needs to be reported?
Currently MiFID transaction reporting only applies to financial instruments admitted for trading on a regulated market (and to OTC derivative contracts linked to those instruments).
Under the new regime, the scope of reporting fields has increased from 23 to 65 and includes:
- Identification of the relevant parties – the legal entity, natural person or algorithm which submitted the order, made the investment decision or executed the order.
- Identifying information – a legal entity identifier (LEI) for legal entities and personal identification information for natural persons
Where should reports be made?
Firms can report directly to their National Competent Authority, or indirectly through an Authorised Reporting Mechanism (ARM) or a third-party assisted reporting solution.