Backloading, breaks and a big backlog were the main themes discussed this week when I spoke to people in operations about what really happened on the 12th and 13th of Feb. The prognosis is that the real burden will be the next steps.Many expected 12 of Feb to be a Big Bang of chaos as the first EMIR trade reporting deadline passes despite widespread confusion on the elements of rules, and a tight timeframe that left many organisations scrambling to get the trade data together in time. As a result, the last month has been eerily quiet as most have been under the cosh as they prepared for this much-anticipated deadline and the days that follow.
However, when I spoke to people (who were mostly on the buy side and represented a mix of self-reporting and delegated reporting), for most the 12 of Feb was “uneventful” and the 13 of Feb “not too bad”.
This biggest issue this week however, was the backlog some operational contacts were experiencing from the trade repositories (TRs). For example, one source was still waiting to get set up and onboarded with a TR and was unsure of how long it would take before the backlog cleared. This also has impeded some from being able to go in and check what their clearing brokers have reported.
Other sources have reported glitches related to static data problems from the clearing broker’s end, which will result in immediate breaks, but similar types of glitches from data were reported at all ends and were largely to be expected.
Another reported problem was Unique Trade Identifiers (UTIs), or rather a lack there of. Many firms still don’t have these codes, which most sources point out is the result of simple supply and demand – a backlog of requests for UTIs combined with a tight deadline.
For example, one source said that it has been a mixed bag; some organisations have already sent over the UTIs, others have only done so for half the volume, and some have not sent any UTIs at all.
Missing UTIs presents some challenges as firms will now have to focus on getting the agreement of the UTIs with counterparts to complete backloading and this matching up can be time consuming. A common action taken by many asset managers is to make up their own UTI in order to get the trade out the door and to the trade repository, but of course this means that the firm will then have to work to synch up the reports with the UTI provided by the counterparty. One firm, in anticipation of this mess, has already built its own solution to generate its own UTIs for everything to avoid waiting around for the counterparties to send through the code.
The backlog of Legal Entity Identifiers (LEIs) will also cause problems, as firms cannot report to a TR without one so many are reporting with the expectation of a rejection. Many organisations still don’t have LEIs, which is due to a combination of both organisations applying late for this code and thus an LEI backlog forming.
Breaks in the trade reporting process are expected and already occurring though it was difficult to ascertain the expected percentages of breaks since it is early days.
However, one source said the firm has observed that the one-sided breaks seen so far were mostly the result of problems with static data (i.e. mis matched data in one of the 85 fields or differing UTIs used) rather than differences in the economics in trades. Still these breaks pose an issue as with volumes, matching the data to fix breaks is going to be a potentially painful process.
So what to do next week? Most operational professionals I spoke to will be focused on waiting for the backlog to clear and then streamlining the processes to report new transactions post 12 of Feb. There will be much historical reporting that will take place so organisations will be looking to adjust the entire reporting process for efficiency purposes.
Any perfectionists this week would have struggled with the first couple days of EMIR reporting but most operations professionals have the patience and tenacity to see this process through.
And what about beyond the initial fixes of trade reporting phase I? When I posed this question to my sources and specifically asked about the addition of new data (collateral management) required later in the year, I got a resounding heavy sigh.
Enjoy your weekend – those of you involved in EMIR reporting may need the rest for what lies ahead.
* ESMA published an updated EMIR Reporting Q&A on Tuesday but most people I spoke to didn’t think this was a game changer though the more clarification and guidance was generally appreciated by all. All agreed on this. In fact, few people had time to look through the document in great detail. Any opinions on this Q&A? Did you find it useful?
