ESMA consults on revisions RTS 22 on transaction data reporting and RTS 24 on order book data under MiFIR
Key takeaways
- The European Securities and Markets Authority (ESMA) consults on draft revised regulatory technical standards under Articles 25 and 26 of the Markets in Financial Instruments Regulation (MiFIR), namely RTS 22 and 24, following the adoption of the market transparency amendments amending the Regulation.
- The proposed rules go beyond mere technical changes to reflect the amendments to the Regulation. In both sets of standards, ESMA proposes various enhancements to promote efficiency and gather more information from market parties. The most important change is the revised transaction reporting obligation for OTC derivatives in Article 26(2) MiFIR.
- ESMA expects to publish the final draft standards in the first quarter of 2025.
On 3 October 2024, ESMA published a consultation paper on the review of the regulatory technical standards on transaction data reporting under Article 26 (Commission Delegated Regulation (EU) 2017/590, RTS 22), and the regulatory technical standards on order book data under Article 25 (Commission Delegated Regulation (EU) 2017/580, RTS 24), of the Markets in Financial Instruments Regulation (Regulation (EU) 600/2014, MiFIR). Articles 25 and 26 MiFIR were amended by the MiFIR Review (Regulation (EU) 2024/791), which entered into force on 28 March 2024. These amendments, which aim to enhance market transparency, include new mandates for ESMA to prepare regulatory standards. For this reason, ESMA consults on revisions to RTS 22 and RTS 24.
The review of RTS 22 is particularly anticipated, as it makes important changes to the transaction reporting regime.
Changes relating to transaction reporting (RTS 22)
The MiFIR Review made significant revisions to the transaction reporting obligation of Article 26. One of the key changes relates to the reporting of transactions in derivatives.
A new class of derivatives
Prior to the MiFIR Review, Article 26 MiFIR required investment firms to report their transactions in any financial instrument traded on a trading venue (TOTV), or where the underlying is traded on a trading venue (uTOTV), or is an index or basket composed of financial instruments that are traded on a trading venue, regardless of whether the transaction is executed on or off venue. In practice, the TOTV concept has proven problematic for certain over-the-counter (OTC) derivatives, due to their lack of fungibility and the lack of appropriate identifying reference data, according to the EU co-legislators.
To address this situation, the MiFIR Review introduced pre-trade transparency requirements for certain derivatives (Article 8a(2) MiFIR). In addition, it modified the scope of transactions to be reported with regards to the transactions in derivatives. Article 26(2) MiFIR now sets out that:
- transactions in OTC derivatives other than those referred to in Article 8a(2) MiFIR shall be reported only when executed on a trading venue (Article 26(2)(a) MiFIR), and
- the transactions in OTC derivatives referred to in Article 8a(2) MiFIR shall be reported irrespective of whether such transactions are carried out on the trading venue (Article 26(2)(d) MiFIR).
The derivatives set out in Article 8a(2) are OTC derivatives denominated in euro, Japanese yen, US dollars or pounds sterling which: (i) are subject to the clearing obligation, are centrally cleared, and, in case of IRS have a contractually agreed tenor of 1, 2, 3, 5, 7, 10, 12, 15, 20, 25 or 30 years, (ii) are single-name credit default swaps that reference a global systemically important bank and that are centrally cleared, or (iii) are credit default swaps that reference an index comprising global systemically important banks and that are centrally cleared.
To accommodate these derivatives under Article 8a(2) MiFIR, ESMA proposes to amend Article 16 RTS 22 by introducing new rule for the determination of the competent authority of the most relevant market in terms of liquidity (MRMTL).
Other changes and additional enhancements
In addition to these changes, ESMA proposes other necessary changes to RTS 22, such as amending Article 16 to align the MRMTL implementation between Articles 4(1)(a) and 26(1)(a) MiFIR for other financial instruments, the introduction of new fields under revised Articles 26(3) and 26(9) MiFIR and amendments to align MiFIR with EMIR and SFTR (see below).
Next to necessary changes, ESMA also proposes additional enhancements, such as rules to identify transactions in distributed ledger technology-based (DLT) financial instruments that fall under the scope of Article 26. Finally, the Authority also proposes to change the perimeter of exempted transactions defined in Article 2 of RTS 22.
Divergence
The UK transaction reporting regime remains governed by UK MiFIR and RTS 22 as onshored in the UK. However, transaction reporting is part of HM Treasury's 'Smarter Regulatory Framework' process and will be reviewed by the Financial Conduct Authority (FCA). The FCA intends to publish a discussion paper on the topic by the end of this year, followed by a consultation paper in the first half of 2025. In sum, the transaction reporting regimes of the EU and the UK may diverge in the future.
Alignment with EMIR and SFTR
Article 26(9) MiFIR, as revised by the MiFIR Review requires ESMA to take into account international developments and standards agreed at Union or international level, and the consistency of those draft regulatory technical standards with the reporting requirements laid down in Regulations (EU) No 648/2012 (European Market Infrastructure Regulation, EMIR) and (EU) 2015/2365” (Securities Financing Transactions Regulation, SFTR).
To fulfil this mandate, ESMA proposes to adopt a number of ISO standards in RTS 22, which are already employed in the technical standards on reporting under EMIR and SFTR, to align the frameworks and ensure adherence to the relevant international standards (also for newly proposed fields in RTS 22).
ESMA also conducts a field-by-field consistency assessment to compare RTS 22 with the transaction data elements with the EMIR 43 and SFTR 44 technical standards on reporting (also for newly proposed fields in RTS 22).
Changes relating to order record keeping for operators of trading venues (RTS 24)
The MiFIR Review made minor amendments to the record-keeping obligation for operators of trading venues regarding order book data in Article 25. Specifically, the review added that the relevant data relating to the orders should be stored in a machine-readable format, using a common template. ESMA is tasked with preparing revised technical standards, in particular on the formats of the order book data. To fulfil its mandate, it proposes a definition of the machine-readable format (JSON), as well as other technical changes for efficiency and transparency reasons.
Next steps
The consultation runs until 3 January 2025. ESMA will consider the feedback received to this consultation in Q4 2024 and expects to publish a final report and submit the revised draft technical standards to the European Commission for endorsement in Q1 2025.
For more information, please contact our European Financial Services Regulatory Team, who closely follows the developments in this space.
