Lynn Strongin Dodds looks at how the region is dealing with the latest set of reforms, the progress being made and challenges faced
Given the fragmented landscape of the Asia Pacific region, it is no surprise that the new OTC derivatives trade reporting rules are being implemented on a staggered basis. Japan was first out of the gate in April with Singapore and Australia to follow in October. Hong Kong will be the relative latecomer in Q3 2025.
Updates from post 2008 OTC derivatives reporting
The reforms are part of the so-called rewrites or updated versions of the post 2008 OTC mandatory transaction reporting legislation. At the time, each region adopted their own rulebook of reporting structures and formats but there was a recognition the industry needed greater global harmonisation and alignment. This was not only to enhance data quality but also strengthen monitoring to provide a more transparent view of exposure and credit risk.
To that end, the Committee on Payments and Market Infrastructures International Organisation of Securities Commissions (CPMI-IOSCO) introduced several critical data elements (CDE), including the unique product identifier (UPI), unique trade identifier (UTI) and ISO 20022 XML messaging standard for reporting.
The UTI is designed to enable better traceability and risk assessment across the different jurisdictions while the UPI offers a consistent taxonomy for reporting derivative products. As for the ISO 20022 XML, it aims to standardise data exchange and improve interoperability among market participants and regulatory bodies.
The Commodity Futures Trading Commission (CFTC) led the way with its rewrite in 2022 followed by the European Union’s Refit this April and the UK in September. Although countries in APAC are moving at their own pace, the Australian Securities & Investments Commission (ASIC), Monetary Authority of Singapore (MAS), Financial Services Agency of Japan (JFSA and Hong Kong Monetary Authority (HKMA) have all made commitments to “maximum international alignment”, to improve data quality, and strike an appropriate balance between commercial considerations, costs for the industry, and regulatory needs and outcomes.
Challenges with UTIs and UPIs
At the moment, ASIC and MAS are gearing up for their impending deadlines but they are facing the same challenges as their counterparts in other countries. Despite the move towards convergence, the number of data fields still differ with, for example, ASIC requiring 104 data and MAS, 134. This has and will continue to create challenges for firms, particularly those reporting under multiple regimes.
UTIs have also been problematic because under each regime, a waterfall approach is applied to determine which counterparty would need to generate this identifier. Given the jurisdictional differences, it is not yet entirely clear which party would be responsible for generating one in certain cross-border trades, such as off-venue trades and those that are not centrally cleared. Also, reporting can differ. For example, the EU and UK require FX swaps to be reported as one transaction whereas other jurisdictions want two UTIs.
As for UPIs, reporting firms need to map all their current product attributes and then source one from ANNA-DSB (Derivatives Service Bureau) for all the product types they currently trade, and any open positions previously reported to a trade repository (TR) or swap data repository (SDR). However, in some cases, just like with the UTIs, the same product may be described by two different UPIs. Take a forward rate agreement. One bank may view it as a cash settlement while another sees it as a physical one. Total return swaps can also have different labels – ether equity or credit products, or in certain cases involve structured products.
It is still early days though and industry groups such as the International Swaps and Derivatives Association (ISDA) are working to develop best practices and providing guidance, while the industry is simultaneously determining what the UPIs will be for their products.
Advantages for the APAC region
The APAC region has the advantage of learning lessons from its US and European peers but as with many wholesale changes, the global or larger firms are and will be ahead of the curve. It is the smaller firms who will struggle especially with certain new data elements, and requirements to reconcile positions and validate the reported data. This is mainly because they have never had to report in this way and do not have the requisite frameworks.
Getting started
The starting point for all organisations though is to understand the requirements and how data moves through their systems. Budgets and project management teams should be in place, with system and process changes implemented, properly tested, and documented.
On a more granular level, the DTCC has a long checklist for APAC firms to tick off. It begins with the evaluation of front to back processes, data requirements and lineage plus how UPIs need to be exchanged at the point of trade execution and information transmitted downstream.
Next on the list is reviewing updates to the data requirements followed by the assessment of the impact of moving away from legacy messaging to ISO 20022 XML as well as delegated reporting arrangements. Collateral systems should also be assessed to ensure they can support the added complexity of reporting the entire set of collateral fields proposed for rewrites.
DTCC also advises firms to create end-to-end test cases, including functional and technical specifications and to developing appropriate controls as well as an incident management framework that can be adjusted based on the rewrite requirement.
The role of Tech
Technology is of course a linchpin and a recent article by S&P Global Market Intelligence Cappitech, highlights the importance of firms making sure that their technological stacks, reporting workflows, and remediation plans, are robust and can adapt to all market conditions.
“To date, we have seen more firms being questioned by APAC regulators on this aspect, with some firms facing severe ramifications of failing to satisfy reporting standards,” states the report. “Eventually, governing authorities expect a high level of transparency and accountability across reporting participants, so this means a mix of top data quality and regulatory acumen and operational resiliency.”
Related Reading:
Derivatives Trade Reporting: Why Industry Partnerships Might be Right for APAC Firms – Derivsource
