UK: Derivatives Trading Under MiFID II: Data, Reporting And Optimisation

Last Updated: 17 April 2018
Article by David Strachan, Matt Ranson, Roberto Jimenez-Fernandez and Coco Chen

Almost a decade ago at the 2009 Pittsburgh Summit, G20 Leaders committed to reform the OTC derivatives markets with the objective of reducing systemic risks, improving transparency and protecting investors against market abuse.i To fulfil this commitment in the EU, MiFID II introduced specific requirements to the derivatives markets in order to bring more trading onto venues and increase the level of price transparency in these financial instruments as of 3 January this year.ii MiFID II also significantly enhanced the transaction reporting regime, designed to provide information to enable regulators' monitoring and detection of market abuse. As a consequence firms subject to MiFID II have to report much more information about their derivative transactions.

While there are several initial operational challenges in the new market data regime, we expect the European Securities and Markets Authority (ESMA) to further clarify its expectations for reference data reporting, including the pre- and post-transparency and transaction reporting requirements for OTC derivatives that are "Traded on a Trading Venue".iii Over the next few months, we expect market data to become more consistent and reliable with the harmonisation of reporting practices, particularly in the OTC and derivatives markets, for which data quality has been lower historically due to a lack of transparency. Firms should view this as opportunity to optimise their analytical capabilities so that they can identify how to utilise the higher quality and more consistent data as they become increasingly available in the market, and optimise their trading and services on behalf of their clients.iv

Challenges with market reference data

Several issues currently arise from a lack of uniformity in market reference data for OTC derivatives. This is mostly due to firms' reliance on International Security Identification Numbers (ISINs) as instrument identifiers to understand whether a derivative instrument is ToTV, and national regulators' different interpretations as to whether the OTC derivative has to have an ISIN (among other data fields) that matches the on-venue derivative reported in ESMA's central Financial Instrument Reference Data System (FIRDS).

As the requirement is new, ISINs are not yet available for all OTC financial instruments. ESMA's market reference database also records evidence of duplicative ISINs produced for the same instrument, as a result of firms giving different descriptions to the same derivative instrument. Another issue is that because market participants face the challenge of not knowing whether a product is ToTV as they trade, they may under-report or over-report their transactions, which may add to the inaccuracy of market reference data for some derivatives.

For regulators, pricing transparency for OTC derivatives for investors is a key objective of MiFID II to ensure that investors get the best possible market price. If firms continue to experience uncertainty around the reporting requirements, and market reference data remains incomplete to provide a full view of all instruments that should be included, we fully expect ESMA to issue more guidance on the subject. In its Supervisory Convergence Work Programme for 2018, ESMA has already signalled that it may review its opinion on ToTV based on market developments in the first months of MiFID II application.v

What does this mean for industry participants?

As supervisory expectations around transaction reporting, pre- and post-trade transparency and best execution become more stringent over 2018, firms must first address areas where their implementation may have fallen short before national regulators begin to contemplate enforcement actions. While the first months of MiFID II have presented some data and reporting challenges for firms and regulators alike, firms should look to the coming months as an opportunity to move beyond achieving compliance with their regulatory obligations and enhance their analytical capabilities to enable them and their clients to benefit from the broader range of data that will be available.

Data quality sits high on the pan-EU capital markets regulatory agenda, and we expect it to continue to be a priority for ESMA, which over the course of 2018 is looking to develop and apply detailed data quality methodologies under MiFIR, such as for transaction reporting, reference data and transparency calculations. vi In its priorities for wholesale financial markets for 2018/19, the FCA also confirmed that its supervision work for the year ahead will focus on ensuring that firms are complying with changes under MiFID II.vii

To get ahead of the curve, firms could find solutions to leverage the new and more abundant market data to formulate their post-MiFID II strategies for trading, while bearing in mind that such solutions should enhance investor protection and market integrity, and not compromise data privacy. In particular, firms should develop tools to help validate their reporting data, and use the data they collate for reporting purposes to analyse client trading patterns, as well as where to trade to get the best prices. The data also increases the scope of monitoring that can be done for derivatives trading, and enables better best execution monitoring for instruments for which previously the breadth of data was too limited to be drawn upon to demonstrate execution quality. This will particularly be important as regulators start scrutinising firms' compliance with regulatory obligations under MiFID II.


Financial Stability Board's Review of OTC derivatives market reforms (2017):

ii Trading venue is defined under MiFID II/MiFIR as a regulated market, multilateral trading facility, organised trading facility or equivalent third-country venue.

iii In order to determine whether the transparency and transaction reporting requirements apply, firms subject to MiFID II are required to assess whether derivative contracts are considered to be "traded on a trading venue" (ToTV), regardless of whether the transaction was concluded on a trading venue or over the counter (OTC). In its May 2017 Opinion on OTC derivatives traded on a trading venue, ESMA opined that OTC derivatives sharing the same reference data details as derivatives for which trading venues submitted reference data are considered to be ToTV.

iv At the end of last year, we explored how capital markets participants can respond strategically to using and reporting data in 2018.

ESMA 2018 Supervisory Convergence Work Programme:

vi ESMA 2018 Supervisory Convergence Work Programme:

vii FCA Business Plan 2018/19:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions