What are the Transparency Requirements for Interest Rate Options Under MiFIR?
The Markets in Financial Instruments Regulation (MiFIR) establishes transparency requirements for interest rate options traded on regulated venues. These requirements are designed to enhance market efficiency and reduce systemic risk through increased transparency.
Interest rate options executed on regulated markets (RMs), multilateral trading facilities (MTFs) or organised trading facilities (OTFs), fall under MiFIR’s post-trade transparency requirements. This means trading venues must publish details about the price, volume and time of transactions as close to real-time as technically possible and within 5 minutes, as specified in Article 7 of the Regulatory Technical Standards (RTS) 2.
The information published includes instrument identification, price, quantity, time and date of execution and the trading venue of execution, allowing market participants to make more informed decisions based on full transparency.
How do Transaction Reporting Requirements Differ from Post-Trade Transparency?
While post-trade transparency provides market-wide visibility, transaction reporting serves a different purpose by giving regulators detailed insights into market activity. Under MiFIR Article 26, investment firms must report complete and accurate details of interest rate options transactions to their national competent authority (NCA) by the close of the following business day (T+1).
Transaction reports are very detailed and contain up to 65 fields including:
- Information about the buyer and seller
- Details of the decision maker
- Price and quantity information
- Trading capacity whether principal or agent
- Instrument identification details
These reports enable regulators to monitor for market abuse and assess potential systemic risks.
How are OTC-Traded Interest Rate Options Reported under EMIR?
Interest rate options that are traded OTC do not fall under MiFIR transparency and transaction reporting requirements, but are instead governed by the European Market Infrastructure Regulation (EMIR). EMIR requires counterparties to report OTC derivative transactions, including interest rate options, to authorised trade repositories (TRs) by T+1. While the reporting timelines are similar to MiFIR, the data fields and reporting processes differ significantly, reflecting the regulatory distinctions for OTC trading.
The regulatory distinction between interest rate options traded on-venue and OTC interest rate options highlights the tailored requirements of the EU to ensure comprehensive oversight and transparency across European markets.
