Interest Rate Swaps (IRS) and Their Transaction Reporting Requirements

Interest rate swaps (IRS) represent one of the most commonly traded derivatives in financial markets. These financial contracts involve two counterparties agreeing to exchange interest payment flows for a set period based on a specific notional principal amount. IRS are commonly used to manage interest rate risk and are subject to comprehensive reporting requirements across multiple regulatory frameworks.

What are Interest Rate Swaps (IRS) and Why are they Regulated?

An IRS is a financial derivative where two parties agree to exchange interest payment obligations. In a “plain vanilla” swap, one party agrees to pay a fixed interest rate in exchange for a floating rate payment from the other party which is commonly tied to reference rates such as the Secured Overnight Financing Rate (SOFR). Principal amounts are not exchanged between parties in these types of IRS, only the interest rate differentials are settled between parties.

IRS can serve essential market functions by allowing financial entities to:

• • • Convert floating-rate liabilities to fixed-rate or vice versa
    • Indirectly access preferred markets
    • Hedge against interest rate fluctuations
    • Speculate on interest rate movements

The 2008 financial crisis revealed significant transparency gaps in OTC derivatives markets and as a result, IRS transactions became subject to stricter regulatory oversight to enhance market transparency, mitigate systemic risk and prevent market manipulation.

How are IRS Transactions Reported Under EMIR?

The European Market Infrastructure Regulation (EMIR) establishes the primary framework for derivatives reporting in the EU. Under EMIR, all counterparties must report IRS transactions to an authorised trade repository (TR) by the close of the following working day (T+1).

EMIR reporting covers both cleared and non-cleared IRS transactions, with applicable reporting obligations regardless of whether the IRS is subject to the clearing obligation. Reports must include key information about:

• • • Contract type and classification
    • Counterparty details
    • Trade and valuation data
    • Clearing status and arrangements
    • Risk mitigation techniques applied

The EMIR Refit implementation refined these requirements by introducing a single-sided reporting mechanism for certain transactions. Under this approach, financial counterparties assume reporting responsibility for both parties when trading with non-financial counterparties below the clearing threshold, reducing the reporting burden for smaller firms.

How are IRS Transactions Reported Under MiFIR?

When IRS are executed on regulated markets (RMs), multilateral trading facilities (MTFs) or organised trading facilities (OTFs), they fall under the reporting requirements of the Markets in Financial Instruments Regulation (MiFIR).

MiFIR introduces two distinct obligations for IRS traded on regulated venues:

• • • Transaction reporting: firms must submit detailed transaction reports to their National Competent Authority (NCA) by T+1. These reports require up to 65 data fields, including instrument details, execution details and decision-maker identification
    • Post-trade transparency: trading venues must publish near real-time information for executed IRS transactions, including price, volume and time of execution with a maximum delay of 5 minutes as specified in Article 7 of the Regulatory Technical Standards (RTS) 2

IRS that are executed OTC but subject to the trading obligation may trigger both EMIR and MiFIR reporting requirements, so firms executing IRS transactions must carefully determine which regulatory framework applies based on the trading method and venue.

The dual reporting frameworks for IRS reflect the regulatory focus on transparency and risk monitoring in derivatives markets. EMIR provides comprehensive reporting requirements for all IRS transactions to TRs, while MiFIR adds specific obligations for venue-traded swaps, including transaction reporting to NCAs and post-trade transparency requirements.