On Friday 24 January, the European Commission adopted a delegated act setting out the identifying reference data for Over-The-Counter ('OTC') derivatives that should be used for the purposes of the transparency requirements laid down in Article 8a(2), and Articles 10 and 21 of MiFIR (attached for reference). The Delegated Act states that (i) reference data for OTC interest rate swaps and credit default swaps should include the ISO 4914 Unique Product Identifier (‘UPI’), to allow for the cross-border aggregation of transparency reports; and (ii) it is desirable for the Derivatives Service Bureau to make publicly available and regularly review an inventory of the standard business terms associated with underlying rates not covered in Article 8a(2) of MiFIR.

The MiFIR Review encourages identifying reference data to be based on globally agreed unique product identifiers, such as the UPI, noting the unsuitability of ISO 6166 International Securities Identifying Number (‘ISIN’) in the context of transparency reporting due to its inclusion of a daily expiry date. The MiFIR Review mandated the European Commission to adopt, by June 2024, a delegated act specifying all types of identifying reference data that should be used for transparency reporting of OTC derivatives, be it a unique product identifier or any other transparency-relevant identifying reference data. The European Commission sought to bring the ISIN as close to UPI as possible while building a bridge to data management continuity. It framed its proposal around three features: (i) creating ISINs with no daily maturity dates; (ii) including standard business (market) conventions to identify price forming swap contracts; and (iii) ensuring appropriate distribution of data between the identifier (standard contract terms) and the mandatory fields in trade and transaction reports (for forward starting or effective dates).

The Delegated Act notes that market participants held different opinions on the OTC derivatives identifier with (i) buy-side representatives expressing support for the removal of the daily expiry date while maintaining an ISIN-based OTC derivatives reporting; and (ii) other market participants, in particular representatives from the sell-side, reiterating their preference for an UPI-based reporting for OTC derivatives. The Delegated Act adds that most of the respondents that favoured UPI-based reporting invoked international alignment of reporting standards, though also acknowledged that the proposed reforms of the ISIN would address some of the drivers for ISIN proliferation and could be considered as a viable compromise solution for transparency reporting of OTC derivatives in the scope of Article 8a(2) of MiFIR. The European Commission shares that most Member States in the Expert Group of the European Securities Committee (EGESC) were in favour of retaining the OTC ISIN while simplifying the attributes that form part of this identifier. Most respondents expressed a preference to replace the itemised list of standard business conventions with a single Boolean value field distinguishing the “standard” conventions from the “non-standard” ones.

In terms of next steps:

• The Delegated Act will be subject to scrutiny by co-legislators until 24 March 2025, before it is published in the Official Journal of the EU.
• The European Securities and Markets Authoroty will develop draft regulatory standards to specify the data standards and formats for the financial instrument reference data, including the form and content of the data and methods and arrangements for supplying the data to ESMA. When developing the draft regulatory technical standards, ESMA will have discretion to require that all the identifying reference data set out in the Delegated Act are reported as part of a unique identifier or comprising some of the identifying reference data and accompanied with the other transparency-relevant identifying reference data.
• The Delegated Act will apply from 1 September 2026, to allow enough time for ESMA to specify how identifying reference data should be reported and for necessary adjustments to IT systems. Until then, OTC interest rate swaps and OTC credit default swaps are to continue to be identified in accordance with the rules currently in place.

If you have any questions on the Delegated Act, please email Aniqah Rao.