ESMA Opens Consultation on Derivatives Transparency Standards Under MiFIR Review

The European Securities and Markets Authority (ESMA) has launched a public consultation on new transparency standards for derivatives markets under the ongoing Markets in Financial Instruments Regulation (MiFIR) review. The proposals, published as part of Consultation Package 4, include draft Regulatory Technical Standards (RTS) on post-trade transparency, package orders, and data requirements for the future over-the-counter (OTC) derivatives consolidated tape.

The consultation addresses three key areas: transparency obligations for derivatives, updates to RTS on package transactions, and input/output data specifications for consolidated tape providers (CTPs). The effort follows recent amendments to MiFIR and aims to create a tailored transparency regime distinct from that for bonds and other non-equity instruments.

Liquidity, deferral durations, size thresholds, and transparency waivers

The proposed framework introduces detailed guidelines for determining liquidity, deferral durations, size thresholds, and transparency waivers. ESMA also outlines a static approach for classifying derivative instruments based on asset class, clearing status, and notional features.

For exchange-traded and OTC derivatives, the proposals include revised definitions for central limit order book systems, new post-trade reporting fields such as effective and expiry dates, and the removal of redundant identifiers for cleared transactions. A new structure of deferral flags—ranging from medium to very large trades in liquid or illiquid markets—is also proposed.

ESMA is also consulting on options for classifying derivatives as liquid or illiquid, including multiple approaches based on trade frequency, volume, and time to maturity. For equity derivatives, three options are under review, with ESMA expressing a preference for a granular model (Option C) that accounts for time to maturity. Interest rate derivatives may follow a simplified classification or a more complex breakdown by underlying instrument.

The consultation remains open until July 3, 2025. ESMA expects to publish a final report and submit draft standards to the European Commission by the fourth quarter of 2025.

In-Depth Overview of MiFIR Review Consultation Package 4

1. Scope and Purpose
The consultation follows the 2024 amendments to MiFIR, which created specific articles for derivatives transparency—Article 8a (pre-trade) and Article 11a (post-trade deferrals). The goal is to enhance clarity and efficiency in transparency regimes for ETDs and OTC derivatives while removing outdated waivers and simplifying compliance.

2. Pre-Trade Transparency (Article 8a)

Real-time pre-trade transparency is required for venues operating central limit order books or periodic auction systems.

Static thresholds are introduced to replace annually updated Large-in-Scale (LIS) values.

Thresholds are proposed at 50% of post-trade levels to balance transparency with market stability.

3. Post-Trade Transparency (Article 11a)

New data fields: “Effective Date,” “Expiry Date,” “Up-front Payment” for CDS, and “Spread” for interest rate swaps.

Removal of outdated fields like “Transaction to be cleared” as all in-scope derivatives are cleared.

A six-flag structure classifies deferral scenarios from medium to very large, by liquidity level.

4. Liquidity Determination

Static approach replaces dynamic FITRS-based assessments.

Three consultation options for equity derivatives:

Option A: Maintain current broad liquidity classifications.

Option B: Use trading activity to define five core liquid instrument types.

Option C (Preferred): Include time-to-maturity filters for finer classification.

Interest rate derivatives face two options:

Option A: All instruments liquid.

Option B: Liquid only if specific trading benchmarks met; more granular but operationally complex.

5. Package Orders and ESCB Exemptions

Updates to RTS on package orders reflect new scope and liquidity definitions.

Clarifies exemption conditions for ESCB-related transactions under monetary policy or financial stability mandates.

6. Data Requirements for the OTC Derivatives Consolidated Tape

New RTS mandates define input/output fields and data quality standards for future CTPs.

Alignment with bond/share CTP frameworks ensures consistent dissemination of market data.

This consultation is significant as it lays the groundwork for future market infrastructure, particularly in the context of the consolidated tape and ongoing regulatory harmonization efforts. Stakeholders are invited to provide detailed feedback, including potential cost implications, ahead of the July deadline.