The same, only different?

For MiFID II to work, the industry must have a clear understanding of what constitutes a single instrument. For cash products such as equity or debt this is straightforward, but in derivatives the concept of a single instrument isn’t really appropriate and things quickly get complicated.

Looking ahead, it’s feasible that an OTF or SI offers trading in a bilateral cleared instrument which is similar to a centrally cleared instrument traded on a regulated market. These instruments might be similar, but would ESMA expect the SI or OTF to use the same ISIN or a different one? On the one hand, it could be argued that it should because it tracks the same underlying. On the other hand, the products have completely different counterparties which, since the 2008 financial crisis, we all know could have a huge impact on their valuation. In other words, is the counterparty to your derivative trade a defining characteristic of your derivative instrument?

ESMA has already provided some guidance on what are considered economic equivalent contracts for commodities in RTS 21, but no such guidance has been given for allocating ISINs or calculating Systematic Internaliser thresholds. With the MiFID II go-live date just 229 days away, let’s hope that guidance comes soon.