The introduction of the Unique Product Identifier (UPI) under the European Union’s EMIR REFIT marks a significant shift in over-the-counter (OTC) derivatives reporting. This innovative identifier is set to be implemented globally, impacting financial markets across Australia, Singapore, Europe, the UK, and the USA.
MapFinTech, a RegTech provider that offers support for a variety of reporting standards, has delved into UPIs.
Initially presented in the first version of EMIR, the UPI lacked a global standard. However, its presence was acknowledged in the current EMIR RTS, with a specification for using the UPI when ISIN or AII codes are unavailable, temporarily employing the CFI code until a universally endorsed UPI is established.
This move towards a global UPI gained momentum with the involvement of the International Organisation of Securities Commissions (IOSCO) and the Committee on Payments and Market Infrastructures (CPMI). In 2017, they released the Technical Guidance on the Harmonisation of the UPI. The Financial Stability Board (FSB) further facilitated this development by assigning the Derivatives Services Bureau (DSB) as the primary issuer of UPI codes. Additionally, the Regulatory Oversight Committee (ROC) was designated as the International Governance Body for the UPI Standard.
The Necessity of UPI in the European Union The implementation of EMIR REFIT necessitates the use of UPIs for specific financial instruments. These include those without an International Securities Identification Number (ISIN) and not listed on an EU Trading Venue, such as a Regulated Market, Multilateral Trading Facility, or Organised Trading Facility. Moreover, the UPI is required for instruments not executed with a Systematic Internaliser (SI) or listed on third-country organised trading platforms.
Distinctly, the new regulations stipulate that instruments must be identified with either an ISIN or a UPI, but not both. However, for instruments listed on EU Trading Venues or executed with SIs, or listed outside the EU, ISINs are mandatory, as specified in ESMA’s validation rules.
Understanding UPI’s Scope and Impact Since 2018, all instruments listed on EU (and UK) trading venues must be identified with an ISIN, as mandated by MiFID II/MiFIR package and Regulation EU 2017/585. However, for instruments exclusively listed on third-country venues and identified with their Market Identifier Code (MIC), the UPI is optional if these venues do not use ISINs.
The UPI requirement is likely to encompass various classes of non-listed derivatives. This includes forward contracts, options, contracts for difference, and swaps, among others. The list is not exhaustive, underscoring the extensive reach of the UPI in modern financial markets.
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