European Swaps Regulation - White Paper - Guidance to Report Transactions on OTC Derivative Instruments - CESR - February, 2010

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In February, 2010, the Committee of European Securities Regulators (CESR) published a consultation paper, listing several methods for transaction reporting of OTC derivatives, which they see as necessary for regulating and ensuring stability in the market. The main points that the paper covers are:

  • Transaction reporting in Europe - The Market in Financial Instrument Directive (MiFID) gives regulatory authorities the power and obligation to collect transaction reports on financial instruments traded in regulated markets in order to prevent market abuse. However, many regulatory authorities recognize that there are a range of over-the-counter (OTC) financial instruments that can also be used for the purposes of market abuse, and would like to extend the collection of transaction reports to include these OTC instruments.
  • The Transaction Reporting Exchange Mechanism - In November of 2007, CESR implemented an IT system to facilitate the exchange of transaction reports amongst regulators called the Transaction Reporting Exchange Mechanism (TREM). While TREM was originally limited to reports on regulated markets, CESR decided to amend TREM to include OTC derivative instruments.
  • Scope of Transaction Reporting on OTC derivative instruments - CESR decided that only transactions on derivatives whose underlying instrument is traded on a regulated market should be exchanged, including: options, warrants, futures, contract for difference and total return swap, spreadbets, swaps (except CfDs, TRS and CDS), credit-default swaps, and other "complex derivatives".
  • Identification and classification of OTC derivative instruments - CESR proposes a common exchange protocol that would standardize the data and language in the transaction reports that market participants exchange.

The deadline for comments was April 14, 2010. The entire paper can be found below.

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