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AFME, ISDA and Italy’s Assosim Support Transaction Reporting Via Repositories, Greater Data Standardisation

The Association for Financial Markets in Europe (AFME), the International Swaps and Derivatives Association (ISDA) and Italy’s Associazione Italiana Intermediari Mobiliari (Assosim) have pledged their support for trade repositories to be recognised as valid third party reporting mechanisms under Article 25(5) of MiFID, thus instating them as official transaction reporting (and related reference data) repositories for the derivatives markets. The feedback, which also calls for an improvement in reference data standards, is part of a statement issued by the associations in response to the Committee of European Securities Regulators’ (CESR) recent consultation paper on new transaction reporting requirements for the derivatives markets as part of its ongoing MiFID review.

The associations indicate that although these repositories are currently not used frequently enough to function as transaction reporting mechanisms, they should “take an increasingly central position at the heart of reporting processes generally for non-cleared trades” in the near future. The reasoning behind using these repositories in such a manner is that it will avoid a certain level of duplication and redundant technology spend on establishing another reporting system for this data downstream.

However, the data provided to the repositories will need to be “reliable” and provided in a “timely” manner, according to CESR, and this is at the heart of the related derivatives data management challenge. The repository will take the data that is generally held by counterparties and often stored in proprietary systems in various formats with different data fields and turn it into standardised and complete data sets. However, this data will not replace that being used by individual counterparties, counterparty data will instead need to be reconciled with the trade repository data, adding another layer of data processing to the data supply chain.

In their feedback to CESR, the associations also stress the need for a greater standardisation of the underlying reference data used within these transaction reports; a problem that has been noted by the regulatory community more often of late (see the fine handed out to Commerzbank earlier this year for proof). By storing this reference data on a centralised repository, the associations reckon that some of these standards can be more easily policed, but this relies on “technical and operational standards” being maintained by the industry via the introduction of related data checks.

“Overall, and specifically in respect of repositories, we are supportive of full regulatory access to data as necessary for the relevant regulators to fulfil their responsibilities, but we note that various confidentiality issues will need to be addressed through a legally-backed and consistent framework of regulatory disclosure requirements,” state the associations.

They also call for greater clarity from the regulators about which instruments will be covered by this new legislation in terms of the “non-cleared product types” referenced in the CESR consultation paper.

All of this essentially means that the underlying reference data of these OTC trades will come under intense scrutiny at a European wide level, as well as nationally. National regulators such as the FSA are already concerned about issues such as the correct identification of counterparties and this is set to get more intense as time goes on, which means that firms will need to invest in the systems to be able to meet these data requirements downstream.

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