ESMA MiFIR Review: Key changes proposed to MiFIR Transaction Reporting (RTS 22)

ESMA has launched a consultation on Level 2 measures under the MiFIR Review, seeking feedback on transaction data reporting (amended RTS 22) and order book data (amended RTS 24).

What’s the background to the consultation?

ESMA published a report in March 2021 on the functioning of the transaction reporting regime under Article 26 of the Markets in Financial Instruments Regulation (MiFIR). This led to a set of legislative proposals included in the review of MiFIR. The final legislative amending text of the ‘MiFIR Review’ was published in the Official Journal of the European Union and entered into force on 28 March this year. This included an updated version of the provisions for transaction reporting (Article 26).

In this latest regulatory milestone, ESMA is asking for input on its amendments to the regulatory technical standards (RTS) 22, the section of MiFIR which sets out the transaction reporting obligations and reportable fields. The deadline to submit comments is 3 January 2025. We are certain that clients will want to engage with their trade associations and also respond themselves.

Some of these proposals are far reaching and will be complex to implement. This now feels almost as significant a package of change as the shift from MiFID to MiFID II in 2018.

From first sight of the initial report through to the publication in the Official Journal, we said that the devil will be in the detail. 

What are the key changes proposed to RTS 22?

1. Instrument Scope

Not a major change but for OTC Derivatives where the underlying is not ToTV or an index made up of instruments that are ToTV then these will only have to be reported if Traded on a Trading Venue unless they are specifically included in Article 8a(2) of the revised MiFIR Text. The consultation includes two diagrams that makes this scope easy to visualise. For firms understanding exactly what is in and out of Article 8a(2) will be the challenge.

2. Additional Field – Effective Date

Further details will become clear after consultation but so far for debt instruments, the effective date should be the date when the transaction will be settled and for derivatives it should be the date when the obligation under the contract becomes effective, which may be in the future (forward starting date).

3. Additional Field – Entity subject to the reporting obligation

The field will provide added value in the limited instances where the executing and submitting entity differs from the firm with the obligation to report.

4. TIC or TVTIC, that is the question

Here is where we start to see significant implementation challenges – the existing challenges of TVTIC will remain i.e. what format and where is the venues “TVTIC” to be found and there is to be more legislation for the extension of “TVTIC” to “negotiated” trades, a new “TIC” for trades executed on Non EEA trading venues. ESMA is also consulting on a proposal for the generation and dissemination of a “TIC” across the entities involved in OTC/XOFF transactions.

5. Improvements to INTC

There are proposals to introduce a new identifier to link market side executions to the ultimate fills to multiple clients where a firm aggregates client orders. Fortunately this requirement begins and ends with the executing firm – there is no mention of sharing this code with the clients themselves. So far so good, but ESMA doesn’t stop there.

6. A new code to link to the same sequence of report chains resulting in the execution of a transaction

A catchy title with a less than catchy implementation challenge. ESMA proposes to include a new and unique code (Chain Identifier) that is transmitted across all counterparties involved in a chain. All involved parties must make sure to transmit the code to its direct counterparty until the ultimate reporting entity. The introduction of such new identifier would also imply the identification of the primary entity responsible for the creation of the code and responsible for disseminating it. We assume though only to its immediate counterparty.

The code should be transmitted across the counterparties along with the sequence of confirmations chains. The firm executing the transaction would have the obligation to pass the code down the chain. The firm executing the order should provide a unique code to the client that pertains to the executed transaction that allows the client to produce its own transaction report. Again, more detail will come in the Level 3 (L3) so firms won’t really know what they don’t know until it is completed.

7. Less complex new asks but more data will be required:

• Date transactions should be reported – fortunately this is to be a “fixed” date which will be equal to the date of application of the revised RTS 22.  Here ESMA adds further detail “The application date should also ensure sufficient time for implementation, which… should be ideally 12 months from when the technical documentation is available”. Our question is does the “technical documentation” include all Level 3 – as a lot of Level 3 will be required to clarify some of the additional requirements specifically relating to the TIC/Chain and INTC requirements.
  
• Additional data to identify indexes, aligns to the benchmark regulation and splits the field into two components.
• Alignment of Buyer /Seller /Price /Complex trades and packages to EMIR. There is a lot of detail as to the changes required for Buyer/Seller identification for derivative transactions which at least if aligned to EMIR, firms will be able to cross reference interpretation already recently undertaken for EMIR Refit.
• Inclusion of a DLT identifier in transaction reports for financial instruments that are natively issued on a blockchain and for financial instruments that are re-issued in a tokenised form.
• Client categorisation.

There are a number of other changes as to Order Transmission/exclusion of some additional transaction types and some adjustments to field definitions and names, but I leave you with this one hidden in the revised text of the RTS:

8. No 1st Priority Identifier – No Trade

“The highest priority identifier shall be obtained by the investment firm from the client/relevant party prior to trading”. This is the MiFIR Review equivalent of ‘No LEI No Trade‘ of 2018. We know firms do and have made significant efforts to capture Level 1 identifiers but have relied on the fall back if they don’t have it. ESMA is proposing to remove that fall back altogether.

What happens next?

Following the consultation period, ESMA will publish a final report and submit the draft RTS to the European Commission for adoption in Q1 2025. 

For Kaizen clients, our ReportShield quality assurance testing will continue on the basis of the current regulations, rules and guidance. We will be following the consultation process closely with our clients and partners and will provide further updates as the changes crystalise in early 2025. 

• For more information on the MiFIR Review, see ESMA’s website.