New MiFID requirements for the reporting of Exchange Traded Derivatives (ETD) and other complex derivatives.

Since November last year, firms have been required to submit defined transaction reports to a Competent Authority (regulator), therefore, firms have been reporting transactions with an ISIN (International Securities Identification Number) and Over the Counter (OTC) transactions through Approved Reporting Mechanisms (ARMs) to Competent Authorities.

While ISIN codes are recognised as the international standard for identifying securities, there are problems when ISIN codes are used to identify derivatives on certain markets.

As a result, the Committee of European Securities Regulators (CESR) decided that in addition to ISIN codes, Alternative Instrument Identifier (AII) codes would be introduced as a way of identifying transactions in derivatives on certain markets. The obligation to report transactions in Exchange Traded Derivatives that could not be described using ISIN codes was waived by CESR pending further discussion and development.

CESR stipulated in paper CESR/07¬627b that the AII code will be composed of six mandatory elements:

• Exchange Code – Four character ISO 10383 MIC code of the regulated market that admits the derivative to trading
• Exchange Product Code –Code maintained by the derivative exchanges. It is between one and 12 characters long and is uniquely associated with a particular underlying instrument and settlement type, and other characteristics of the contract
• Derivative Type – Single character field identifying whether the instrument is an option or a future
• Put/Call Identifier – Single character field identifying whether the derivative is a Put or a Call Option
• Expiry/Delivery/Prompt Date – Exercise date/maturity date of a derivative contract. ISO 8601 YYYY-MM-DD standard
• Strike Price – The strike price of an option or other financial instrument. There is no strike price for futures.
  

Many of these elements already form part of the existing transaction reports.

AII reporting is applicable to transactions executed on the following exchanges:

• ATHENS EXCHANGE DERIVATIVES MARKET
• EURONEXT AMSTERDAM     
• EURONEXT LISBON       
• EURONEXT PARIS
• EUREX
• LIFFE
• LIFFE BRUSSELS

Transactions executed on these exchanges will be reportable to the relevant Competent Authority and various considerations will be required in respect to the execution of the transaction, requirements related to home or host reporting and the relevant Competent Authorities requirements to require additional client side transaction reports related to such activity.

CESR have mandated AII Transaction Reporting from November 1, 2008. FSA, however, have recognised the challenges already presented by transaction reporting under MiFID and have targetted an implementation date of end Q1, 2009.

Please note the following:

• TRAX, the leading regulatory reporting hub will be compliant with this additional element of the Markets in Financial Instruments Directive (MiFID) for reporting to the FSA (UK), click here to learn more about what we are doing.

• To learn more about this subject matter and to review CESR documents click here.

Firms who fail to meet transaction reporting obligations under MiFID may find themselves subject to enforcement action by the relevant Competent Authority.