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How to populate Venue of Execution (field 2.15) – EMIR and UKMIR

2021-04-16 01:04:14

Definition of OTC derivative contract

As per Article 2 (7) of EMIR the definition of OTC derivatives is the following: “‘OTC derivative’ or ‘OTC derivative contract’ means a derivative contract the execution of which does not take place on a regulated market as within the meaning of Article 4(1)(14) of Directive 2004/39/EC or on a third- country market considered as equivalent to a regulated market in accordance with Article 19(6) of Directive 2004/39/EC.” Consequently as per OTC Question 1 of EMIR Q&A :

  1. Derivative contracts traded on MTFs or OTFs are OTC derivatives in the context of EMIR.
  2. Derivative contracts executed on a third-country market which has been considered to be equivalent to an EU regulated market by the European Commission in accordance with Article 2a of EMIR, are not OTC derivatives under EMIR and do not count for the purpose of the determination of the clearing threshold under Article 10 of EMIR. However, derivative contracts executed on third-country markets which have not been considered to be equivalent to an EU regulated market, will count for the determination of the clearing threshold.
  3. Derivatives transactions, such as block trades, which are executed outside the trading platform of the regulated market, but are subject to the rules of the regulated market and are executed in compliance with those rules, including the immediate processing by the regulated market after execution and the clearing by a CCP, should not be regarded as OTC derivatives transactions. Therefore, these transactions should not be considered for the purpose of the clearing obligation and the calculation of the clearing threshold by NFC that only relates to OTC derivatives.
  4. New derivative contracts, the execution of which takes place in a UK market after such a market has become a third country market not considered to be equivalent to a regulated market (according to Article 2a of EMIR), are considered OTC derivative contracts under Article 2(7) of EMIR. However, outstanding derivative contracts, the execution of which took place in a UK regulated market that was not yet a third country market at the time of execution do not fall in the definition of OTC derivatives under EMIR.

Identification of the venue where the transaction was executed (Annex I, Field 36 (Venue)).

  • Use the ISO 10383 segment MIC for transactions executed on a trading venue, Systematic Internaliser (SI) or organised trading platform outside of the Union. Where the segment MIC does not exist, use the operating MIC.
  • Use MIC code ‘XOFF’ for financial instruments admitted to trading, or traded on a trading venue or for which a request for admission was made, where the transaction on that financial instrument is not executed on a trading venue, SI or organised trading platform outside of the Union, or where an investment firm does not know it is trading with another investment firm acting as an SI.
  • Use MIC code ‘XXXX’ for financial instruments that are not admitted to trading or traded on a trading venue or for which no request for admission has been made and that are not traded on an organised trading platform outside of the Union but where the underlying is admitted to trading or traded on a trading venue.

In addition to the above, ESMA in its Final Report on Technical standards on reporting, data quality, data access and registration of Trade Repositories under EMIR REFIT added the following:

  • The venue of execution of the derivative contract shall be identified by a unique code for this venue.
  • Where a contract was concluded OTC and the respective instrument is not admitted to trading or traded on a trading venue, MIC code ‘XXXX’ shall be used.Where a contract was concluded OTC and the respective instrument is admitted to trading or traded on a trading venue inside of the Union, MIC code ‘XOFF’ shall be used. ESMA proposed to align this field with MIFIR, hence for MTFs, OTFs, SIs and organized trading platforms outside of the Union, the specific MIC code will be required even if the derivatives concluded on these venues are OTC derivatives under the definition set out in EMIR.
  • ESMA recalls that in the EU all instruments admitted to trading or traded on a trading venue are made publicly available on ESMA’s website, therefore the counterparties are expected to be able to determine whether they should report ‘XOFF’ or ‘XXXX’.
  • Following feedback to the Consultation Paper regarding the scenario where two SIs face each other and then those two counterparties will need to determine which SIs MIC code is to be reported, ESMA confirms that each counterparty should report from its own perspective, i.e. populate the field with the MIC of the other counterparty and that, consequently, the trades concluded on SI should be excluded from the reconciliation.

Possible Scenarios

Scenarios Venue of execution (field 2.15) Product identification Type (Field 2.5) Clearing obligation (Field 2.34) Cleared (Field 2.35) CCP (Field 2.37) Details
OTC trade executed XXXX {blank} Y/N N {blank} OTC transactions should be considered for the purpose of the clearing obligation and the calculation of the clearing threshold
OTC trade executed (admitted to trading or traded on a trading venue) XOFF ISIN Y/N N {blank} 342. ESMA recalls that in the EU all instruments admitted to trading or traded on a trading venue are made publicly available on ESMA’s website, therefore the counterparties are expected to be able to determine whether they should report ‘XOFF’ or ‘XXXX’.
Out of EU (Brexit) XLON ISIN Y/N Y CCPID ESMA consider this as an OTC contracts and they need to check the thresholds (Margin Requirements) and then if they should become under a clearing obligation
Out of EU DUMX ISIN Y/N Y CCPID ESMA consider this as an OTC contracts and they need to check the thresholds (Margin Requirements) and then if they should become under a clearing obligation
OTF AFSI ISIN Y/N N {blank} Transactions should be considered for the purpose of the clearing obligation and the calculation of the clearing threshold
MTF FMTS ISIN Y/N N {blank} Transactions should be considered for the purpose of the clearing obligation and the calculation of the clearing threshold
SI BPSX ISIN Y/N N {blank} Transactions should be considered for the purpose of the clearing obligation and the calculation of the clearing threshold
EU RM XFAR ISIN N Y CCP ID Transactions should not be considered for the purpose of the clearing obligation and the calculation of the clearing threshold
Approved 3rd country Venues XCME ISIN N Y CCP ID Transactions should not be considered for the purpose of the clearing obligation and the calculation of the clearing threshold

 

2.15 Venue of execution

  • Until the date of application of [ MiFIR RTS on reference data]:
    MIC Code shall be validated against MiFID Database of Regulated Markets and MTFs. If it is a MIC code listed in the MiFID Database, it shall be accepted.
    If the MIC is not listed in the MiFID database, it shall be validated against the list of MIC codes maintained and updated by ISO and published at: http://www.iso15022.org/MIC/homepageMIC.htm (column “MIC” in table “MICs List by Country” of the respective Excel file). In case the MIC pertains to a venue in a non-EEA country, the report shall be accepted. Otherwise the report shall be rejected.
  • After the date of application of [ MiFIR RTS on reference data]:
    This field shall be populated with a MIC code included in the list maintained and updated by ISO and published at: http://www.iso15022.org/MIC/homepageMIC.htm (column “MIC” in table “MICs List by Country” of the respective Excel file).

2.05 Product identification type

  • Until the date of application of [ MiFIR RTS on reference data]:
    • If field 2.15 is populated with (i) MIC listed in the MiFID Database that pertains to a Regulated Market for which instrument identifier specified in that database is ISIN, or with (ii) code “XOFF”, this field shall be populated with “I”.
    • If field 2.15 is populated with MIC listed in the MiFID Database that pertains to a Regulated Market for which instrument identifier specified in that database is AII, this field shall be populated with “A”.
    • If field 2.15 is populated with (i) MIC listed in the MiFID Database that pertains to a Regulated Market for which instrument identifier is not specified in that database, or with (ii) MIC listed in the MiFID Database that pertains to a MTF, or with (iii) MIC that pertains to a trading venue in non-EEA country, or with (iv) code “XXXX”, this field can be left blank.
  • After the date of application of [ MiFIR RTS on reference data]], i.e. for the reports where the date in the field 1.1 Reporting timestamp is 03-01-2018 or later:
    • If field 2.15 is populated with (i) a MIC that pertains to a trading venue in EEA country or with (ii) a code “XOFF”, this field shall be populated with “I”, unless:
      • the date populated in the field 2.27 Maturity date is earlier than 03-01-2018,
      • the date in the field 2.25 Execution timestamp is 02-01-2018 and the date in the field 1.1 Reporting timestamp is 03-01-2018, in which cases this field can be populated with “I” or “A”.
    • Otherwise, (i.e. if the field 2.15 is not populated with (i) a MIC that pertains to a trading venue in EEA country or with (ii) a code “XOFF”) this field can be left blank.

2.34 Clearing Obligation

  • If field 2.15 is not populated with a MIC code of a trading venue that was a regulated market or a third-country market considered as equivalent to a regulated market at the time of the conclusion of the derivative, this field shall be populated and shall contain one of the following values “Y” or “N”. ‘X’ is accepted when the actual value is not available. 1 alphabetical characters.

2.35 Cleared

  • Shall contain only one of the following values “Y” or “N”. 1 alphabetical character.

2.37 CCP

  • If field 2.35 is populated with “Y” this field shall be populated with a valid LEI included in the GLEIF database maintained by the Central Operating Unit. The status of the LEI shall be “Issued”, “Lapsed”, “Pending transfer” or “Pending archival”.
  • If field 2.35 is populated with “N”, this field shall be left blank.

Point 9 View

OTC ETD
General principle:
– If traded on a venue, report the MIC code of the venue.
– If trading on an SI, populate as “XOFF” or “XXXX” as appropriate (do not report a MIC).
For transaction-level and position-level reports, firms should populate this field with the relevant Segment MIC code.

 

The correct value to be populated in the field ‘Venue’ (2.15) was always confusing for the entities responsible to report under EMIR especially when it comes to non-EEA trading venues where some of them use ‘XXXX’ instead of the actual MIC code. In accordance with the ESMA ‘EMIR validation rules’ if the MIC code pertains to a trading venue in a non-EEA country, field ‘Product identification type’ (2.5) can be left blank, and the actual MIC code should be provided for the non-EEA venue derivatives trades. Additionally the ‘EMIR validation rules’ states that if the MIC is not listed in the MiFID database, it shall be validated against the list of MIC codes maintained and updated by ISO and in case the MIC pertains to a venue in a non-EEA country, the report shall be accepted.
The next point which underpinning P9 opinion not to use ‘XXXX’ as the venue code is ISDA ‘EMIR Reporting Best Practices’ which outlines that ‘MIC of Trading Venue if available, otherwise XOFF (if instrument is ToTV) or XXXX (if instrument is not ToTV, in which case an ISIN may be provided or may not)’

Please note that if you have some doubts The European Securities and Markets Authority (ESMA) launched in 2017 Q&A tool, providing easy access to stakeholders to consult existing Q&As and submit new questions. To read the updated EMIR Q&A, visit the ESMA website.

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