MiFID II and MiFIR in the foreign exchange world have generated much confusion. It feels like the regulations are shoehorning the FX market into regulations that are not ideal for the purpose.
Finally, solutions are beginning to emerge to some of the conundrums that must be welcome news for market participants.
A classic case has been regarding “RTS 2” and “RTS22” as per the below MiFIR articles.
- MiFIR Articles 10 and 21, with the Commission Delegated Regulation (EU) 2017/583, which illustrates technical standards on transparency requirements for trading venues and investment firms in respect of bonds, structured financial products, emission allowances and derivatives (“RTS 2”); and
- MiFIR Article 26, with the Commission Delegated Regulation (EU) 2017/590, which illustrates technical standards for the reporting of transactions to competent authorities under MiFIR (“RTS 22”).
The issue was that the technical standards for RTS 2 contain one field for “price currency” and one field for “notional amount”. However, FX Forwards and NDFs have, by definition, two notionals and two currencies.
For RTS 22 it is a very similar problem. The technical standards for RTS 22 contain one field for ‘quantity’ (i.e. notional) and one field for ‘quantity currency’ (i.e. notional currency). However, as stated above, FX Forwards and NDFs have two notionals and two currencies.
The GFMA Global FX Division has come up with a proposal regarding the field standards in the required MiFIR reporting. This will facilitate the reporting of both currencies, and to allow the consumer of the report to calculate the second notional using the exchange rate for RTS 2.
In the second case RTS 22, the GFXD proposes field standards that allow the consumer of the report to calculate the second notional from the exchange rate. Given that, where an ISIN is populated in Field 41, there is only one currency field available, the consumer of the report must infer the second currency from the ISIN. The proposal has been created so that each reporting party can generate its report in accordance with the way in which the trade has been booked in its own system.
These proposals allow the reporting party to generate their reports in accordance with the way in which the trade has been booked into their own systems. A rational resolution to some of the confusion arising from the detailed practicalities of MiFID II compliance. We look forward to further such clarifications in the coming months.