How Do Contracts for Difference (CFDs) Relate to Transaction Reporting?
Why are CFDs Subject to Transaction Reporting?
Contracts for Difference (CFDs) are derivative contracts that allow traders to speculate on the price movements of an asset without owning the underlying asset. CFDs involve counterparty risk and are traded over-the-counter (OTC), so regulators require firms to report such transactions to enhance market transparency and mitigate systemic risk.
Under European and global financial regulations such as the European Market Infrastructure Regulation (EMIR), Markets in Financial Instruments Regulation (MiFIR), Securities Financing Transactions Regulation (SFTR) and the Australian Securities and Investments Commission (ASIC), firms must submit detailed transaction reports. These reports help authorities such as the European Securities and Markets Authority (ESMA) to monitor market activity, assess risk exposure and detect potential market abuse.
Which Regulatory Frameworks Govern CFD Transaction Reporting?
Regulatory frameworks across regimes can vary in their approach to reporting requirements for CFDs. Firms operating in multiple jurisdictions must ensure compliance with the specific reporting obligations outlined by the relevant regulatory authority.
European Market Infrastructure Regulation (EMIR)
Under EMIR, CFDs are classed as derivatives contracts and must be reported to trade repositories (TRs) in line with the reporting requirements. Reports must include information such as counterparty details, trade volume, price and clearing status. These reports are important to enhance market transparency and reduce systemic risk in OTC trading.
Markets in Financial Instruments Regulation (MiFIR)
MiFIR mandates real-time, post-trade transparency reporting for CFD transactions unless they are executed on trading venues. Firms must submit detailed reports, including information such as price, volume, execution time, counterparty details and trading venue to the Financial Instruments Reference Data System (FIRDS) for regulatory oversight.
While OTC CFD trades may be exempt from pre-trade transparency rules, investment firms, systematic internalisers (SIs) and trading venues must still ensure full post-trade reporting compliance. MiFIR’s trade reporting operates alongside EMIR and SFTR, ensuring a comprehensive regulatory framework for CFDs in financial markets.
Securities Financing Transactions Regulation (SFTR)
SFTR is designed to increase transparency in securities financing transactions (SFTs) such as repo agreements, securities lending and margin lending. CFDs are not classified as SFTs and, therefore do not fall directly under SFTR’s reporting requirements on their own.
However, if a CFD position is linked to a collateralised trade or margin lending arrangement that qualifies as an SFT, reporting obligations may arise. Firms must assess whether they have any CFD exposures through rehypothecation, collateral reuse or securities lending, all of which could trigger SFTR reporting requirements.
Australian Securities and Investments Commission (ASIC)
ASIC enforces strict reporting requirements for CFDs to ensure market transparency and investor protection. Firms offering CFDs in Australia must report key information such as trade execution details, pricing and client exposures to comply with regulatory obligations.
Additionally, ASIC imposes leverage limits on retail traders and margin close-out protections to reduce the risk of excessive losses. These measures aim to enhance transparency, prevent misleading practices in CFD trading and ensure firms operate within the regulatory guidelines.
Transaction Reporting Obligations for Firms Trading CfDs
Firms trading CFDs must comply with strict transaction reporting requirements under EMIR, MiFIR, SFTR, ASIC and other global regulations. Non-compliance can result in penalties, regulatory scrutiny or trading restrictions. Firms must ensure accurate and timely reporting to remain compliant and must implement robust reporting solutions to reduce errors and maintain regulatory alignment.
Novatus En:ACT is the market-leading SaaS platform, built in conjunction with a major global banking group, to ensure you meet your G20 regulatory reporting obligations in an accurate, timely and complete manner. Get in touch today and one of our experts will be happy to assist.
