ISINs Hamper MiFID II Transparency

Shanny Basar

The errors in trade reporting under new European Union regulations have decreased in the last six months but transparency in the over the counter derivatives market is being hampered by new identification codes.

MiFID II regulations went live in the EU at the start of this year and introduced new transparency and trade reporting requirements across asset classes.

Chris Dingley, sales director at CME Regulatory Reporting, told Markets Media that the first six months were a soft go-live and there were some bugs in data quality and reporting models.

Chris Dingley, CME Regulatory Reporting

“During the second six months, the number of rejections has fallen in trade reporting and the process has settled down more quickly than when Emir came into effect,” he added.

However, in order to increase transparency in the over the counter derivatives market, MiFID II mandates the use of ISINs. International Securities Identification Numbers are a code that uniquely identifies a specific security, and are being generated for derivatives for the first time under MiFID II. Many derivatives also have long tenors and many ISINs can be generated over the life of one transaction due to the way the European Securities and Markets Authority has said the ISINs need to be generated.

Dingley said: “Trade reporting via APAs (Approved Publication Arrangements) still has issues and market participants find the ISINs for derivatives very difficult to use.”

Amir Khwaja, chief executive of analytics provider Clarus Financial Technology, said in a blog last month that more than more than 15 million ISINs have been created under MiFID II.

“We know that these unreasonably large numbers are simply down to the fact that the ESMA requires a fixed maturity date for an ISIN definition, when it should instead require a tenor period e.g. 10Y and not 2028-11-08,” said Khwaja.

He calculated that such a change would cut the number of ISINs required to just 0.1% of the existing number.

“For an instrument identifier scheme to be of any use, it should have an order of magnitude less than the number of trades on these instruments, as even for OTC derivatives there can be hundreds of trades a day in the same instrument,” Khwaja added. “Whichever way you look at it, ISINs for OTC derivatives are bad for transparency.”


Transparency will also be affected when the UK leaves the European Union next year.

Dingley said: “Brexit is the number one priority for 2019 as clients set up offices in new jurisdictions and may need to report to 16 national component authorities from the end of March.”

Robert Ophèle, AMF

Robert Ophèle, chairman of Autorite des Marches Financiers, the French regulator, said at a conference in October that the reporting thresholds in MiFID II will need review after Brexit.

Ophèle said at the AFME Legal and Compliance conference in London that 500 million transaction reports are exchanged monthly between national regulators but 72% of these are sent by the UK to other EU members, which will cease after Brexit.


Another potential focus for next year is SFTR, the incoming EU regulation covering securities lending and repos. SFTR will increase trade reporting requirements and has been described as the equivalent of Emir for the securities lending and repo market.

“It is anticipated that the regulatory technical standards for SFTR will be released very soon,” added Dingley. “BrokerTec is part of CME Group so we are in a strong position to provide straight-through processing from execution, and through the trade life cycle with triResolve.”

BrokerTec is a dealer to dealer trading venue. CME Group completed its acquisition of BrokerTec’s owner, Nex Group, last month.

In order to help the industry meet the SFTR reporting requirements, the US Depository Trust & Clearing Corporation announced today it has partnered with Xceptor, which provides intelligent automation software.

The DTCC said the partnership will significantly lessen firms’ operational burden by enabling them to enrich, normalize and validate data in their existing trade file format before submitting it to a trade repository.

Val Wotton, managing director, product development & strategy, derivatives & collateral management at the DTCC, said in a statement: “Our partnership with Xceptor will enable firms to significantly streamline their operational processes and help simplify the SFTR compliance process. We look forward to helping the industry prepare for SFTR in 2020.”

Andrew Kouloumbrides, chief executive of Xceptor, said in a statement: “End-of-day books and records reconciliation is also native to the new service ensuring that clients have full transparency of their submissions.”


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