Fingers Crossed for a Smooth Ride This Time

For some people, February was a relatively easy month. For others, particularly those running the communications apparatus for the Depository Trust and Clearing Corporation, it was less so.

Mandatory reporting, stemming from the European Market Infrastructure Regulation (EMIR) came into force on February 12, requiring both sides of a derivative transaction to report details of the trade to trade repositories (TRs). It wasn't the smoothest ride, with many complaining about a lack of clarity regarding critical aspects of reporting, such as legal entity identifiers and unique trade identifers (UTIs) being thin on the ground, while problems at some TRs with onboarding delayed it even more.

Indeed, many of those problems still haven't been ironed out. A pathetically small amount of trades (around three percent for listed derivatives) are able to be matched at TRs, for a variety of reasons. Chief among this is the UTI, which can be generated by either side of the trade (although there is really supposed to be agreement) and thus can make lining up each individual report impossible. Some are more prosaic, such as using 'and' instead of ampersands in firm names. Either way, it's clearly a mess.

New Requirements
As such, today's implementation of enhanced reporting requirements inspires little in the way of confidence. Both counterparties are now requred to report the valuation of transactions and the attached collateral, along with the 80-plus fields of the previous requirements. The usual complaints abound about a lack of information, room for interpretation, but is it really the fault of the European Securities and Markets Authority (Esma)?

Not according to Esma, at least, if reports of a bad-tempered meeting in Paris a few weeks ago are any indication. According to journalists on the ground, Esma refused to provide additional clarification, saying that they'd done enough, and that when they issue guidance, they expect it to be followed.

According to journalists on the ground, Esma refused to provide additional clarification, saying that they'd done enough, and that when they issue guidance, they expect it to be followed.

Ouch.

It is a sign of a shift in attitude however, from accommodation through to frustration. Some regulators I speak to have sympathy with the industry, and say that they understand the technological struggle that things such as reporting involve. Others are less empathic, citing a streak of intransigence within the industry, and hearing the same arguments every time a rule is introduced.

Either way, reporting is here to stay. And while some home authorities such as the UK's Financial Conduct Authority have been notoriously lenient with firms to date, people shouldn't expect their patience to be limitless, either.