Finance Denmark, the association for banks, mortgage institutions, asset management, securities trading and investment funds in Denmark, has responded to the ongoing European Commission consultation into replacing the public identifier of over-the-counter (OTC) derivatives by arguing for the use of an international standard rather than an EU one.

The consultation launched on 29 November in response to the review of the Markets in Financial Instruments Regulation (MiFIR), which is expected to be published in the first quarter of 2024.

According to the consultation: "All trading venues that offer trading in over-the-counter (OTC) derivatives that are subject to pre- and post-trade transparency requirements (‘in-scope OTC derivatives') will be obliged to provide [the European Securities and Markets Authority, ESMA] with identifying reference data that are globally agreed for the purpose of public transparency reporting under MiFIR. The MiFIR review requires the Commission to adopt a delegated act, within three months after the date of entry into force of the Regulation amending MiFIR, to specify such identifying reference data, including a unique product identifier and any additional identifying reference data. This consultation covers two issues: 1. What is the most suitable unique product identifier to be used for compliance with the transparency requirements applicable to in-scope OTC derivatives; 2. Whether there any "additional identifying reference data" to be considered in addition to the unique product identifier."

Instruments affected include interest rate derivatives and credit default swaps (CDS). Earlier in 2023, the International Swaps and Derivatives Association (ISDA) pegged the global CDS market as worth around $3.8trn.

In the EU context, the reason for addressing the 'public identifier' is that while ESMA's Financial Instrument Reference Data System (FIRDS) currently uses the ISIN, the Commission has already stated that "the current ISIN is not effective for compliance with the pre- and post-trade transparency obligations for in-scope OTC derivatives".

The Commission has illustrated the amount of data required by ESMA going forward via the example of a fixed-to-float interest rate swap. In this case, the data required for the mandated reference data library (FIRDS) include: "the asset class (interest rates); the instrument type (swap); product type (e.g., fixed-float); the notional schedule (e.g., constant or amortising); the notional currency (e.g., EUR); the delivery type (e.g., cash); the reference rate (e.g., EUR-EURIBOR); the reference rate term (e.g., 6 months); the term of contract (e.g., 5 years)."

The Commission's consultation document refers to alternatives to ISIN to achieve such data gathering, such as the ISO 4914 Unique Product Identifier (UPI)

In response, the Danish association says:

"Finans Danmark sees an addition of two attributes to UPI as the best way forward in connection with transparency when reporting OTC derivatives under MiFIR. It is, however, a prerequisite that these extra attributes are reported separately, as UPI is an international standard and not reserved for the EU alone. This does not create a discrepancy in relation to reporting under other jurisdictions. In the long term, efforts should be made to ensure that the selected extra attributes are extended to all OTC derivative products and that it becomes an international standard."

The deadline for responses to the consultation is 9 January 2024.

Further information can be found here: https://finance.ec.europa.eu/regulation-and-supervision/consultations-0/targeted-consultation-otc-derivatives-identifier-public-transparency-purposes_en