The Derivatives Service Bureau (DSB) will open a user acceptance testing environment on July 7, 2019 to help financial institutions within the scope of MiFID II and MiFIR meet ESMA guidance on changes to interest rate derivatives reporting set out in RTS 23 field 41.
ESMA updated its Q&A on MiFIR Data Reporting in September 2018, noting inconsistency in data provided for the interest rate terms of contract – field 41 – and suggesting that the field might be better served if it were populated with the term of the contract. It went on to note that if a contract duration fits a ‘standard term’ this should populate field 41. If the term is not standard, the term of the contract must be calculated.
The DSB has since worked to support the ESMA guidance and through its product committee has reached a consensus view on the meaning of ‘standard term’. When requesting an ISIN for interest rate swap products that have a ‘standard term’, the committee has agreed fixed values that should be used to populate the term of contract field. These values run from one to six days, one to four weeks, one to 23 months, and one to 999 years.
Where contracts have a standard term, this data can be sent directly to the DSB for the creation of an ISIN. If the term is not standard, a value must be calculated. To avoid differences in calculation across the industry, the DSB has set up an open source calculator that can accept required variables, run a calculation following ESMA’s guidance, and use the resulting term to populate field 41 as part of creating an ISIN.
The calculator is included in the DSB’s testing environment and will be delivered as a product on September 22, 2019, when amended reporting becomes mandatory. Malavika Solanki, a member of the DSB management team, describes the change as ‘forward looking’ with no changes required for ISINs already reported. She comments: “As more and more ISINs are reported including the new attributes, this will drive consistency and provide better oversight for regulators.”
Additional DSB developments
As well as reviewing MiFID II RTS 23 field 41, the DSB is working on a number of other industry interests and concerns. A recent study of DSB data creators and consumers shows five creators and fifteen consumers. Solanki suggests the imbalance is the result of consumers getting ISIN data from the DSB to back up data from counterparties and trading venues, questioning whether different amounts of data are provided by these organisations. She also notes that buy-side firms often come into the DSB database to search and consume data, but adds: “The spread suggests consumption across a broader range of participants. We need to be mindful of this as we develop our service.”
The DSB is also in discussion with industry about the European Central Bank’s Euro Short-Term Rate (€STR) and related reference rates, how they may be changed as a result of IBOR reform, and when and how the DSB will need to react in terms of ISIN data and templates.
The product committee is considering how to align the ISIN and the UPI, which the DSB will distribute once it is a recognised ISO standard, while work is also ongoing in developing additional product templates and reviewing data quality.
Meantime, feedback on the DSB’s Q2 consultation paper designed to understand enhancements industry would like the DSB to make is due to be published in a couple of weeks – watch this space!
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