ESMA’s spotlight on data quality – Part 2: the use and quality of MiFIR transaction data

ESMA’s spotlight on data quality – Part 2: The use and quality of MiFIR transaction data image

MiFIR transaction reporting data was a surprise inclusion in ESMA’s recent data quality report which has previously focused on EMIR and SFTR. The report includes some noteworthy updates around the key developments affecting data quality and colour on additional use cases that go beyond the traditional uses of the data. One notable area is where National Competent Authorities (NCAs) are using transaction reporting data to understand the behaviours of retail investors.

This work is contributing to ESMA’s wider work on retail risk indicators, again highlighting the importance of complete and accurate identification of natural persons.

The report also details ESMA’s consistent approach to monitoring data quality and reminds readers that the cornerstone for the efficient and effective fulfilment of the authorities’ mandate is high-quality data.

ESMA hopes that based on the lessons learnt and the development of a revised strategic approach to supervisory convergence on data quality, there will be further strengthening in its outcome-focused, data-driven, and risk-based approaches to supervising the reporting regimes.

Key developments and the supervisory actions affecting data quality across MiFIR

  • ESMA becomes the supervisor of significant Data Reporting Service Providers (DRSPs)

To meet the need for improved data quality convergence across the EU, ESMA became the direct supervisor of the most significant DRSPs in January 2022. In total, this accounts for almost 99% of reported transactions amongst registered ARMs. In the second half of the year, the volumes stabilised at around a monthly average of 650m transactions, but this was preceded by some volatility in the first half of the year, with the first quarter having an average of over 900m. Approximately half of the reports received by NCAs were received directly, ie. they were not reported through an ARM.

  • Insights from the analysis of CDS prices

ESMA is looking to provide clarifications or modifications to the reporting of certain fields, with the aim of improving consistency. It provides a clear use case when highlighting the reporting of the price of Credit Default Swaps (CDS). Out of 260k reported CDS transactions, 200k were reporting with basis points as the applicable price type. Out of this population of 200k, 89% of the trades were reported with a standardised coupon and the remaining 11% were reported as a quoted spread.  This should give firms food for thought and the opportunity to review how they are reporting CDS transactions.

  • Lessons learnt from the analysis of MiFIR transactions data for the Carbon Market Report

Another use-case comes from the Carbon Market Report where MiFIR transaction reports were used to provide important insights into the trading of emission allowances from H2 2021. The reported data was supplemented with information from other sources which will be familiar to many: ANNA, MiFIR Reference Data (FIRDS), GLEIF and ESMA counterparty data based on the EMIR trade repository data and public registers of counterparties. ESMA notes “unprecedented analysis” and the “multiple challenges associated with reconciling the various data sources”.

This could point to areas of inconsistency with the transaction reporting data. In addition, other challenges called out were duplicated buy-sell chains and aggregation of the data. What is particularly interesting about this line is that ESMA may be proactively addressing this challenge through the proposed changes to the legislative text: “(j) the conditions for linking specific transactions and the means of the identification of aggregated orders resulting in the execution of a transaction.”

  • Consistency of transaction and transparency data

ESMA has also undertaken a project to analyse the data from transaction reporting and post-trade transparency reporting to identify gaps in completeness in either domain. To add to this, ESMA has initiated ad-hoc supervision to assess the consistency between APA and ARM data from transaction and transparency reporting.

ESMA’s focus on transaction reporting data quality is clear, so too is the emphasis on using the data to go beyond investigating market abuse. MiFIR transaction reporting data is increasingly providing ESMA the opportunity to delve deeper into tangible use-cases assessing and supporting the functionality of the market. Increasingly, transaction reports are cross-referenced and supplemented by additional data sources, which helps ESMA to highlight poor data quality and increasingly shape policy developments across transaction reporting and beyond. We can also see examples of this approach in the UK.

  • Read the full report on ESMA’s website
  • Read our blog on the EMIR aspects of the report
  • If you would like to discuss your MiFIR reporting data quality with Robert or one of our regulatory experts, please contact us.