The European Securities and Markets Authority, the financial regulator for the European Union, is consulting on how to improve data from trade reporting which will be critical in setting policy under new trading regulations.

Under MiFID, regulations covering trading in the European Union which into force in 2007, certain trades had to be reported through an approved reporting mechanism. From 12 February this year new reporting requirements came into effect under Emir, the European Market Infrastructure Regulation covering derivatives, central counterparties and and trade repositories.

Since February both sides of trades have been required to be reported to an authorised trade repository and the product range was expanded from MiFID to include over-the-counter and exchange traded derivatives and commodities, credit, interest rate and equities. In August additional reporting obligations came into effect to cover the notional values of derivatives and collateral requirements.

The week Esma issued a consolation paper on Emir trade reporting to improve the data it is receiving. The consultation period will last until 13 February 2015.

The regulator wrote that that it had only three months to draft the technical standards for Emir reporting and limited practical experience with derivatives as MiFID mostly covered standardised equity derivatives. Emir added other asset classes and both OTC and on-exchange traded contracts.

Esma said in its consultation paper: “As a result, the practical implementation of Emir reporting and the experience gained so far has shown several shortcomings and limitations that need to be addressed so that the Emir reports can better fulfil their objectives.”

One of these shortcomings is that although Esma provided a description of the fields to report, and the standards and formats to be used, these were open to interpretation by market participants.

“The questions raised show that some fields do not have a description comprehensive enough to ensure a harmonised way of populating them or do not reflect all the possibilities within the current derivatives markets,” added Esma.

Esma has provided a set of Q&As on Emir implementation and the regulator now proposes transforming some of these into technical standards to ensure consistent and harmonised reporting.

Cian O’ Braonain, head of the regulatory reporting practice at consultancy Sapient Global Markets, told Markets Media: “This is a case of Esma putting its own house in order before going out to the market to scrutinise trade reporting. They have been meeting with firms, trade repositories and other regulators and want to incorporate all that information into technical standards.”

An Esma spokeswoman said in an email to Markets Media that the consultation paper introduces three categories of changes to the current technical standards – clarifications of data fields and their descriptions; adaptations of existing fields and introductions of new fields and values to reflect market practice or other necessary regulatory requirements.

Esma said reported data is used to improve transparency in the derivatives markets and to identify risks to financial stability.

“Emir data is used as input for the different data analysis undertaken by Esma on which certain policy decisions are to be made such as those referring to the clearing obligation and the liquidity of the markets for certain derivatives contracts, as well as the determination of the scale of the traders,” the spokeswoman added.

In addition Emir data is used as part of the broader economic analysis under the regulator’s financial stability mandate.

“It is worth noting that Esma is also actively working on the improvement of the data quality so that regulators can base their analysis on accurate, complete and timely data,” added the spokeswoman.

She said Esma and national regulators have been using trade reporting data since February.

O’ Braonain said: “From my experience of 50 to 60 mapping projects there were a huge amount of interpretations in reporting which is understandable when considering bespoke trading systems. The consultation should result in more specific guidance.”

He added the new fields being added should will improve sector information being captured to allow Esma to get a better view of concentration risks and of many more different types of derivatives.

“MiFID II is creeping up everybody’s agenda and we are getting clarification on how that will harmonise with Emir,” O’ Braonain said. “Having a sound reporting infrastructure in place is one of the foundations of MiFID II.”

David Clark, chairman of the Wholesale Market Brokers’ Association, said in an email to Markets Media: “The consultation, which is a long one, focuses on the right issues and should provide a much more robust reporting platform for the future. It is essential for systemic risk management purposes for trade reporting to work properly and investing time in getting it right is worthwhile.”

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