Article 2 of RTS 22 outlines what does and does not constitute a ‘transaction’ for the purposes of transaction reporting under Article 26 of MiFIR. What’s interesting is that only seven bullet points make up what is deemed a ‘transaction’ and therefore potentially reportable, whereas there are twice as many exclusions.
It would be easy to assume that the shorter list is more important. However it should be remembered that not only does over-reporting constitute a rule breach, determining what must not be reported is where most of the complexity sits.
Many of the reporting problems we see in our quality assurance testing sit within the world of corporate actions and events. So the importance of documenting which actions and events are included and excluded from a firm’s reporting (including the rationale) cannot be over-stated.
ESMA Q&A update
ESMA has recently added to the list of examples of what does not constitute a reportable transaction by updating its MiFIR data reporting Questions and Answers (Q&A) document as part of its May 2021 publications. The key point to note is that “a voluntary switch to risk-free rates” is not transaction reportable under Article 26 as it would fall under the RTS 22 Article 2(5)(i) exemption. This means firms have some clarity around the impact of the decommissioning of LIBOR: there will not be a need to re-report LIBOR based swaps, including equity swaps that have a LIBOR component, as well as LIBOR-based interest rate swaps.
This specific exemption covers the creation, expiration or redemption of a financial instrument as a result of pre-determined contractual terms, or as a result of mandatory events which are beyond the control of the investor where no investment decision by the investor takes place at the point in time of the creation, expiration or redemption of the financial instrument.
All other minor changes to the Q&A also relate to section 18 which covers the ‘reporting of rates not included in RTS 22 and RTS 23’.