Master and Commander

Type the word ‘emir' into Google today, and you'll bring up a host of articles related to the European Market Infrastructure Regulation (Emir). But that wasn't the case even a few months ago, when the dictionary entry for the word appeared first, and financial regulation far down the list.
The word ‘emir', after all, has a lengthy history. In Islamic spheres, it means an independent ruler, a military commander, or a descendent of Muhammad, peace be upon him. It can denote political rank in some countries, such as Qatar or Turkey.
In European finance, of course, it represents a large-scale reform of derivatives trading on the continent, being part of the multi-pronged approach to overhauling the securities markets here. The reporting requirements that had caused such consternation in the buildup came into force last week, but despite a few hiccups, it seems to have gone okay.
Building Blocks
The problems with Emir are fairly typical of the problems with regulatory reform over the past few years, in that they have been rushed through without a proper appreciation of the consequences and the necessary moving parts needed to keep the engine running. With Emir, for instance, the amount of confusion over necessary aspects such as the pre-legal entity identifier and the unique trade identifier (UTI) has been quite remarkable.
Despite being a necessary component for reporting, it's become clear that not everyone who needs to has registered for these identifiers, that the pace of issuance is lackluster in places, and when it comes to the UTI, there is no central governing standard, and people aren't sure what form it should take.
If a regulator has to say that, essentially, it won't enforce the regulation because it recognizes the impossibility of full compliance in the short term, that regulation should not be implemented yet.
The UK's Financial Conduct Authority has said that it will give firms a grace period for proper reporting, but the whole situation is, frankly, unacceptable. I'm not arguing against the regulation itself ─ indeed, I've long been of the opinion that more transparency, and a shift to technologically capable markets can only be a good thing. But that has to be tempered with realism. If a regulator has to say that, essentially, it won't enforce the regulation because it recognizes the impossibility of full compliance in the short term, that regulation should not be implemented yet.
No Action
You see this in the US all of the time, where bodies such as the US Commodity Futures Trading Commission issue no-action letters to say they will not be prosecuting firms for non-compliance. Granted, this is partly due to the legal structure of regulation in the US, where the law is made first and the rules after, as opposed to Europe, where the rules are made first and then come into law. But for such far-ranging regulations as the Dodd-Frank Act, Emir and the Markets in Financial Instruments Directive, there has to be concern that these are being rushed through without the due care and attention that is required.
It's important to progress in the regulatory process, of course, but doing so with what is blind disregard for the foundations not even being in place yet, or being slotted in for compliance dates, is foolhardy. It will lead to loopholes, arbitrage, and broken rules that ruin the opportunity of a generation to adapt the market framework to the market environment, taking into account the use of technology and the way in which it has changed how business is conducted.
And at the risk of putting the boot in too much on the regulatory side, let's not forget the woeful lack of preparation from some corners of the industry, either. More effort and engagement is needed on both sides.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: https://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Regulation
Doing a deal? Prioritize info security early
Engaging information security teams early in licensing deals can deliver better results and catch potential issues. Neglecting them can cause delays and disruption, writes Devexperts’ Heetesh Rawal in this op-ed.
SEC pulls rulemaking proposals in bid for course correction
The regulator withdrew 14 Gensler-era proposals, including the controversial predictive data analytics proposal.
Trading venues seen as easiest targets for Esma supervision
Platforms do not pose systemic risks for member states and are already subject to consistent rules.
The Consolidated Audit Trail faces an uncertain fate—yet again
Waters Wrap: The CAT is up and running, but with a conservative SEC in place and renewed pressure from politicians and exchanges, Anthony says the controversial database faces a death by a thousand cuts.
Exchanges plead with SEC to trim CAT reporting requirements
Letters from Cboe, Nasdaq and NYSE ask that the new Atkins administration reduce the amount of data required for the Consolidated Audit Trail, and scrap options data collection entirely.
EU banks want the cloud closer to home amid tariff wars
Fears over US executive orders have prompted new approaches to critical third-party risk management.
Friendly fire? Nasdaq squeezes MTF competitors with steep fee increase
The stock exchange almost tripled the prices of some datasets for multilateral trading facilities, with sources saying the move is the latest effort by exchanges to offset declining trading revenues.
Europe is counting its vendors—and souring on US tech
Under DORA, every financial company with business in the EU must report use of their critical vendors. Deadlines vary, but the message doesn’t: The EU is taking stock of technology dependencies, especially upon US providers.