Just over one year since MiFID II came into effect, TRAction still gets asked whether Rolling Spot FX and Spot Precious Metals are reportable under MiFIR. Here we explain why we consider Rolling Spot FX and Spot Precious Metals are not reportable under MiFIR.
Financial instruments that are subject to MiFIR
Article 26 of MiFIR sets out the reporting obligations that apply where one of the following is traded, irrespective of whether or not such transactions are carried out on a Trading Venue:
- financial instruments which are admitted to trading or Traded on a Trading Venue (“ToTV”) or for which a request for admission to trading has been made;
- financial instruments where the underlying is a financial instrument traded on a Trading Venue; and
- financial instruments where the underlying is an index or a basket composed of financial instruments traded on a Trading Venue,
With regards to Over-The-Counter (“OTC”) derivatives, ESMA’s opinion is that “only OTC derivatives sharing the same reference data details as the derivatives traded on a Trading Venue should be considered to be ToTV, hence, subject to the MiFIR transparency requirements and to transaction reporting”.
Thus, if the instrument is traded on a Trading Venue but the transaction took place outside of the exchange (OTC derivatives), it will be reportable under MiFIR if it shares the same reference data as the instrument which is ToTV (except for the venue/issuer related fields).
Traded on a Trading Venue
Following the launch of MiFID II, Multilateral Trading Facilities (“MTFs”) and Organised Trading Facilities (“OTFs”) have been classified as Trading Venues, which has widened the scope for instruments that are ToTV and thus reportable under MiFIR.
Prior to 3 January 2018, there was some uncertainty as to whether derivatives on Spot FX products offered by a CFD/FX broker would be subject to MiFIR, given that some venues such as LMAX (an MTF) and Eurex (a Regulated Market) offer a Rolling Spot FX product which could have the same reference data details as an OTC instrument.
Financial Instruments Reference Database System (“FIRDS”)
After monitoring FIRDS for a year and the transactions reported on behalf of our clients, we have come to the conclusion that Rolling Spot FX contracts offered by LMAX or Eurex are not reportable under MiFIR. The rolling Spot FX instruments offered by Eurex and LMAX no longer appear in the FIRDS database under the International Securities Identification Number (“ISINs”) provided by the two entities. As a result, we are unable to report these transactions as reporting results in receiving rejections from the regulators.
Therefore, even if the same reference data was shared between a CFD/FX broker and the venue, any OTC instruments based on these products would not reportable.
How can TRAction help?
TRAction Fintech has been closely monitoring the regulatory reporting environment and ensures our clients stay compliant with their reporting obligations under MiFID II and EMIR. If you would like to discuss further on this topic, please contact us.