ESMA RTS 22 Consultation Paper: Key Changes and Implications

RTS 22: Transaction Reporting Enhancements

RTS 22 governs transaction reporting requirements under MiFIR Article 26. The proposed changes emphasise precision, alignment with global standards, and adaptation to market complexities. Key updates include:

Rules for Determining the Competent Authority

ESMA proposes clearer rules to identify the most relevant market in terms of liquidity for regulatory oversight.

New Reporting Fields

• Effective Date: Specifies when the obligation under a transaction becomes effective (e.g., settlement date for debt instruments, contract effective date for derivatives).
• Entity Subject to the Reporting Obligation: Identifies the firm responsible for reporting, particularly in cases involving third-party submissions.

New Identifiers and Changes to Existing Ones

• Transaction Identification Codes (TIC and TVTIC):
  1. TVTIC: Standardised codes for transactions on trading venues are now extended to non-EEA venues.
  2. TIC: For off-venue (OTC) transactions, responsibility for generation is assigned to the market-facing seller.
• INTC Identifiers: Introduced to link aggregated orders, ensuring accurate reporting without requiring clients to share codes.

Scope of Transactions

The revised MiFIR narrows the reporting scope for OTC derivatives:

• Only derivatives traded on trading venues or linked to indices traded on such venues must be reported.
• Certain OTC derivatives (e.g., those denominated in major currencies and centrally cleared) remain reportable under Article 8a(2).

Distributed Ledger Technology (DLT) Instruments

A new DLT identifier will capture transactions involving financial instruments issued or tokenised on blockchain platforms.

Alignment with EMIR and SFTR

The updates aim to harmonise reporting requirements across EU frameworks, simplifying compliance for firms subject to multiple regulations:

• Buyer/Seller Identification: Enhanced definitions for derivative transactions, aligning with EMIR.
• Price Reporting: Streamlined reporting of price information based on instrument types.

Key Takeaways from RTS 22 Consultation Paper

The updates to RTS 22 bring significant changes which firms must navigate carefully to ensure compliance and capitalise on potential benefits.  Below are the most notable impacts:

Transaction Reporting Scope

Firms will need robust processes to determine whether OTC derivatives fall within the new scope.ESMA’s decision trees and diagrams offer guidance, but firms may require new tools to ensure compliance.

Divergence Between UK and EU Frameworks

Firms operating in both jurisdictions must prepare for increasing divergence between MiFIR and UK regulations. The FCA recently issued DP24/2: Improving the UK transaction reporting regime, highlighting potential misalignment with EU MiFIR changes.   Centralised reporting frameworks may need to be decentralised or adapted.

New Execution and Decision-Making Fields

Enhanced reporting for execution details (e.g., TVTIC and TIC codes) and decision-making processes will necessitate updates to internal systems, validation rules, and external reporting frameworks.

Standards for Reporting Derivatives

The alignment with EMIR-like standards for identifying buyers and sellers in derivatives transactions will impact systems and processes. Firms must adapt to changes in reporting direction and complex trade components.

Data Schema Overhauls

The alignment with EMIR and SFTR will require updates to internal and external data schemas, and reporting frameworks, including the ESMA XML schema.

Opportunities and Challenges

These updates to RTS 22 present opportunities to enhance reporting accuracy and regulatory compliance.  However, they also pose challenges, particularly for firms trading OTC derivatives or operating in multiple jurisdictions. 

The revised standards promise significant improvements in data quality, thanks to enhanced field definitions and identifiers. These enhancements will lead to more accurate, consistent reporting, benefiting regulators and firms alike, by reducing ambiguities and improving transparency. Additionally, the alignment of RTS 22 with EMIR, SFTR, and international standards simplifies compliance for global players, making it easier to manage reporting obligations across multiple jurisdictions.

However, the challenges cannot be overlooked. The introduction of new codes, such as TIC and TVTIC, and the expanded scope for Distributed Ledger Technology (DLT) instruments, add layers of complexity to the reporting process. These changes demand sophisticated technology capable of handling intricate requirements. Moreover, firms will face a substantial resource burden, including the need for system upgrades, staff training, and adjustments to reporting frameworks, which could disproportionately impact smaller organisations.

Next Steps for Stakeholders

ESMA’s review of RTS 22 marks a critical step toward refining transaction reporting requirements under MiFIR. While the proposed changes are ambitious, they reflect a commitment to improving transparency, harmonising regulations, and addressing technological advancements.

Timeline for Feedback

Stakeholders can provide feedback on the consultation paper until January 3, 2025.  Following this, ESMA aims to submit the final draft of technical standards to the European Commission in Q1 2025. The changes will be implemented alongside updates to MiFIR RTS in the same period.

Practical Steps for Firms

To prepare for these updates, firms should take a comprehensive approach that begins with conducting a gap analysis to assess their existing reporting processes against the proposed changes. Next, it is essential to adapt reporting technology to accommodate the new fields, codes and validation rules introduced by the revised standards. Equally important is training teams to ensure they fully understand the updated reporting requirements and associated timelines. Collaboration with vendors, including Approved Reporting Mechanisms (ARMs), will further support firms in aligning their processes with the updated standards and maintaining seamless operations.