Regulations requiring derivatives trades to be reported to data repositories are looming in the US and not far behind in Europe, yet uncertainty remains about what exactly must be reported, which firms must report and how many data repositories there will be on a global scale.
Debating the problems and opportunities of reporting derivatives trades at this week’s Swift Business Forum in London, panel participants agreed that uncertainty made project implementation difficult, but they also conceded that work on projects must be started if firms are to meet US, European and Asian regulations on reporting as they are rolled out. Panel moderator Virginie O’Shea, an analyst at Aite Group and a former Reference Data Review editor, described the task as ‘moving towards a moving target’.
Commenting on the situation in Europe, where the European Market Infrastructure Regulation (EMIR) body has not yet given clear direction on what should be reported, Valentino Wotton, global head of derivatives operations post trade services at Barclays Capital, said: “There is still some ambiguity around the rules, but we need to step through how this could work and work with repositories to find the right outcomes. We are keen to share knowledge.”
Barclays Capital is developing reporting in multi-asset classes and believes it will be ready to meet requirements for derivatives reporting. It has spent 18 months building out a solution and says there is no one-size-fits all answer to the problem, but not all are so advanced.
Stewart Macbeth, president and chief executive of DTCC Deriv/Serv, a business of the DTCC group, explained: “Some firms are heavily engaged on reporting, with some taking a strategic view and others developing tactical solutions. We can’t afford to debate this any more, we need to move forward. Regulation is coming and that became very real in the US after the Commodity Futures Trading Commission (CFTC) announced dates last December and a start to reporting this summer. What isn’t clear is what the impact of the regulations will be, for example what will have to be reported and by whom. At DTCC we are investing heavily to help market participants meet the regulations and are building a new infrastructure to support derivates reporting beyond our existing Trade Information Warehouse.”
Responding to a question from the floor about security, Macbeth added: “For us, this is the biggest issue. If there is a breach of security we are out of business. We have the appropriate solutions, but practically, there are always challenges and security is a serious concern as this data is not for broad-based consumption.”
Adding to panel members’ consensus on the huge amount of work that must still be done to meet the reporting regulations, Joe Halberstadt, head of foreign exchange (FX) and derivates markets at Swift, said there are about 10,000 organisations with a level of automation in FX, many of which will be affected by the regulations. With all jurisdictions working towards the G20 requirements for financial stability, he forecast potential difficulty for regulators to aggregate data coming from differing reporting schemes in different jurisdictions, but expects this to improve as regulators, like market participants, appear to favour the development of common datasets.
Consistent data will also be a requirement if a number of repositories are built by vendors to fulfil the reporting requirement. Halberstadt expects multiple repositories for reasons of competition, regulators wanting data to be stored in their own jurisdictions and banks also taking a view on where they want data to be stored.
From a dealer perspective, Wotton argued in favour of a single repository to reduce costs and ease reconciliation, but appreciated that the end result would most likely be a number of repositories. Macbeth, representing the only repository provider in the debate, said DTCC was happy to compete, but would only operate ‘where it made sense’. Meantime, he concluded the debate cautioning all concerned with derivates trading to start work towards identifying what regulators will expect of them and how they will fulfil those expectations.