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29 January 2010

How to report transactions on OTC derivative instruments: CESR consults on guidance


Competent authorities (CAs) say there is a range of OTC derivatives used for the purposes of market abuse. Some CAs have extended the collection of transaction reports to include OTC instruments. CESR has decided to exchange transactions, among others, on options and complex derivatives.

Competent authorities throughout the European Economic Area are committed to detecting market abuse and maintaining the integrity of their markets. The receipt and examination of transaction reports are essential elements in enabling CAs to detect market abuse and the Market in Financial Instrument Directive (MiFID) gives CAs the power and obligation to collect transaction reports on instruments admitted to trading on regulated markets. However, many CAs have noted that there are a range of OTC (over-the-counter) financial instruments that mirror instruments admitted to trading on regulated markets that can equally be used for the purposes of market abuse. Some CAs extended the collection of transaction reports to include OTC instruments whose value is derived from instruments admitted to trading on a regulated market to enhance their ability to detect suspicious activity and maintain the integrity of their markets. Many other competent authorities are currently investigating this option as well.

 
In November 2007 CESR implemented an IT system to facilitate the exchange of transaction reports amongst regulators. The system, called the Transaction Reporting Exchange Mechanism (TREM), was built based on the request from the MiFID level 2 Regulation to organize the exchange of transaction reports amongst European financial regulators.
 
TREM is currently limited to the scope of the MIFID Level 2 regulation, e.g. exchange of transaction reports on instruments admitted to trading in Europe. After one and a half years of running and observing the different practices within CESR membership, CESR decided to amend TREM to facilitate the exchange of transaction reports on OTC derivative instruments amongst CESR members.
 
The consultation takes into account CESR's decision on the technical standards for classification and identification of OTC derivative instruments for the purpose of the exchange of transaction reports amongst CESR members (via TREM) (Ref. CESR/09-1036).
 
CESR ran a consultation on these standards from July until October 2009 (Ref. CESR/09-618). The responses to CESRs consultation paper on the classification and identification of OTC derivative instruments drove the corresponding choice (Ref CESR/09-987).
 
CESR acknowledges that other initiatives are running in parallel in this area. Hence, those guidelines might be changed and/or replaced by new ones depending on the future outcomes of those studies in case it is agreed that they are more appropriate.
 
The consultation paper is accompanied by a feedback statement on the consultation on “Classification and identification of OTC derivative instruments for the purpose of the exchange of transaction reports amongst CESR Members” and a second paper summarising decision on the technical standards by CESR Members
Deadline for comments is 1 April 2010.


© CESR - Committee of European Securities Regulators

Documents associated with this article

09_768.pdf


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