Industry experts answers some of the audience questions on regulatory trade reporting from a recent DerivSource webinar “Regulatory Trade Reporting – Major Data Issues Persist, and More on the Way!”. Read on for answers to question on data standards, tools and solutions and more or watch the on demand video of the webinar.
Q. Is it possible to push for standard industry or country specific taxonomy?
A. Various multi-jurisdictional committees have been formed with the aim of harmonization and consistency across a number of areas of regulatory reporting. Taxonomy is certainly one of the fields under consideration in these forums.
Q. How can we address issues with regulators mandating certain data standards that aren’t appropriate for what they are trying to identify, while encouraging adoption of flexible best practices and more open and flexible data standards?
A. My experience is that when we had issues with conflicting standards we proposed changes into the FpML.org board where one of my employees at the time was participating in. To negotiate this with the regulator directly is a lot more difficult because FpML is a financial standard across many functions not only trade reporting.
A. Various working groups and industry bodies (SIFMA, IOSCO, etc.) discuss and propose these types of changes. The refinement of data fields required, namely in EMIR, is critical given the existing dual sided reporting and Pairing / Matching requirements.
Q. What can regulators do, on either an individual or collective level, to help firms fully comply with trade reporting rules?
A. Get clearer requirements. The regulatory directive text is not binary enough to write clear Business requirements for Technology to execute on. This results in inconsistent understanding and implementation by firms, which means that when the regulator aggregates data across the industry it will not answer the question it was looking for.
A. Refine the data that is being requested, collaborate across requirements to push for harmonization and re-evaluate what information is necessary to monitor systemic risk and eliminate unneeded data requirements.
Q. What are the regulators doing with all these reporting that they are getting? Any tangible benefits they have cited as a result of these new reporting regimes/regulations?
A. The information received by the regulators is often limited to the reporting capabilities of the TRs. There have been several inquiries related to spikes in Rejection Rates, because that is one of the reports provided by TRs in EMEA. Rejection Rates do not directly translate to compliance with reporting requirements, they are merely a measurement of reporting efficiency. Direct access, by reporting parties and regulators, to the TR databases could potentially lead to advancements in the reporting space.
Q. From an ETD EMIR reporting perspective, Pairing and matching rates are improving but there are several billion records, which are unmatched in the market. We all know that regulators could make firms fix unmatched records. Does the group have a view on how practical it is for firms to go back and fix issues with records reported incorrectly due to the rules being unclear because of different firms interpretations of the rules.
A. Latest stats available from one of the largest TRs across jurisdictions and in EMEA, show overall Pairing rates of ~66%. Of the population Paired, ~29% Matched, for an overall Matching rate across all volume in the TR of ~19%. Two plus years into the Pairing and Matching requirements and its clear challenges exist and an already stretched area of the business is being further stretched. One concern, is that efforts are being taken away from enhancing other components of the regulatory reporting infrastructure and there is a disconnect between derivatives confirmed on T, good in the market, but with exceptions from a reporting perspective.
Q. Any thoughts on the EMIR RTS “Rewrite”? ESMA has re-written the EMIR RTS introducing a number of new fields and validations to be considered for compliance in Q1 2017?
A. Given the lack of progress in overall Matching rates, the latest RTS will aim to address some of the inconsistency issues that still exist in EMIR. As with any amendments to existing, or new, reporting requirements, staying current on information and providing feedback where possible, are strongly encouraged.
Q. What tools and solutions for consolidation of multiple repositories, improved data quality through data aggregators such as Alacra and also using tools for providing regulatory reporting?
A. Don’t believe there is a one size fits all approach to regulatory reporting that will work for all market participants. A number of factors need to be taken into consideration when reviewing vendor service models and cost / benefit analysis in comparison to building functionality internally.
Q. What about interoperability versus ‘harmonization’?
A. The TRs are driving the change in this regard to my knowledge. From an end user / reporting party standpoint, where possible to submit all activity once and the TR distributes to the respective regulators as needed, that improves efficiency, scalability and control. Many TRs are not authorized across all jurisdictions, although where demand dictates, we may see more TRs offering global services.
Q. Would be interested to know what effort has been put by panel’s firms to clear the exceptions after submitting data for EMIR reporting? Have firms really started to clear the breaks when regulator/TR still working on improving data quality?
A. From experience when EMIR went live I spend the best part of 3 months addressing the main issues to reduce the exceptions to manageable levels. While a lot of testing was done internally the connectivity testing to the repository was suboptimal because the limited capacity of industry wide test environments.