The Committee of European Securities Regulators (CESR) has issued a consultation paper on post-trade transparency this month, which indicates that European firms may soon face a whole host of new data requirements for structured products. The paper, which is part of the ongoing MiFID review process that is being conducted over the course of this year, recommends that trade information with a basic set of data be published for corporate bonds and the more standardised structured products including asset backed securities (ABSs), collateralised debt obligations (CDOs) and credit default swaps (CDSs).
The regulatory paper states that this trade information, which includes basic reference data such as standardised instrument identifiers, be made available on a “non-discriminatory commercial basis at a reasonable cost and in a manner which is easily accessible by all investors”. The requirements would also be extended beyond traditional trading venues to multilateral trading facilities (MTFs) and investment firms trading on dark pools. The focus is initially on the most standardised products, especially those that are eligible for clearing on a central clearing counterparty (CCP).
The data that must be provided in this manner comprises: a standardised format of identification, issuer name, price at which the transaction was concluded, volume of the executed trade, date and time when the trade was concluded, currency, maturity and rating. In addition, for CDSs firms must also provide reference entity data.
Regarding ABS and CDOs, CESR recommends a phased approach in which the new data requirements are gradually applied to the larger and more standardised products first. For CDSs however, a broader brush approach is being pitched so that the new requirements apply to all CDSs eligible for CCP clearing. For corporate bonds, the regulator is also seeking for data about the instruments at the lower end of the transaction size scale to be provided in as close to real time as possible.
Of course, given the lack of definitive reference data standards in the market for a lot of this information, these recommendations sound simple but are likely to prove challenging in practice. The data supply chain will certainly be altered by these new requirements and some degree of investment will be necessary in order to consolidate and report this data publicly.
CESR is therefore asking for feedback to these recommendations to ascertain just how much of a challenge these data requirements will prove for market participants in order to feed this information back to the European Commission. Firms therefore have until 4 June to submit their responses to the 44 questions contained within the CP, which is available to download below. The regulator is first seeking to understand where the industry is currently at with regards to capabilities to submit and consume this data, as well as the appetite for change. It is asking market participants to confirm the recommendations are focused on the right areas of data and whether the methods suggested are feasible.
Given the wide ranging impact of such legislation on areas such as valuations, risk management and data management, the details need to be carefully considered. What exactly constitutes “as near to real time as possible”? How challenging will it be to consolidate this data in a relatively quick timeframe? Are the parameters being set in the right places?