Europe Urged To Open Up Trade Reporting

Terry Flanagan

Trade repositories in Europe should publish more data that is useful to market participants in order to improve quality said Amir Khwaja, chief executive of Clarus Financial Technology.

Clarus Financial Technology provides content, data and analytics for the derivatives. Khwaja told Markets Media: “The best way to improve data quality in Europe is to maximise the number of people using the data.”

Last November the European Securities and Markets Authority, the financial regulator for the European Union, launched a consultation on how to improve data from trade reporting which will be critical in setting policy under new MiFID II trading regulations. Since February last year both sides of over-the-counter and exchange traded derivatives have had to report trades to an authorised repository across a range of asset classes including commodities, credit, interest rate and equities.

In its response to the Esma consultation paper, Clarus showed the difference in quality between the public data available in the US and Europe. Esma currently only requires trade repositories to publish weekly reports showing aggregated data.

Khwaja said: “The scope and frequency of data available publicly in Europe means it has little value in terms of analysis. It would be very straightforward for trade repositories to offer more frequent disclosure as most already provide this in the US.”

Clarus analysed the reports that are publicly available from the European trade repositories and found they only provide high-level aggregated totals that are not broken down into actionable data and they do not compare similar products – for example, OTC and exchanged-traded derivatives are added together. In addition, users cannot aggregate data across trade due to the the possible double counting of the same positions.

“Using data published daily by swap data repositories for the US market, we can currently provide a host of price data for US and European-focused asset classes,” added Clarus. “Trades are publicly disseminated within a few minutes of execution, allowing their price and size to be observed.”

For example, in the US Clarus can use trade prices and sizes to build a chart showing price and volume by maturity for US dollar interest rate swaps.

“This data is used by traders, investors, business managers and analysts to inspect, understand and demystify formerly opaque OTC markets,” added Clarus. “It is used to check that liquidity providers are providing at-market quotations, and that valuations and collateral calls on existing OTC contracts are accurate and fair.”

In addition, using US data Clarus can show 2015 volumes per interest rate product for a number of major European currencies, which is not currently possible in Europe.

Markit, the data provider, said in its response that Esma should consider switching to single-sided reporting.

“This is because the double-sided reporting obligation under Emir has proved to not only impose a very significant burden on smaller market participants but also reduce the quality of the data that is captured in trade repositories,” added Markit. “Such change could most easily be achieved by providing exemptions to certain categories of market participants for transactions that their counterparties already report.”

Natixis Asset Management said in its response to the Esma consultation said the regulator should determine which party is responsible for providing a unique trade identifier by default and clarify whether UTIs have to be reported for exchange-traded derivatives.

The French fund manager also said that trade repositories and market participants need more time to adapt their systems.

“The implementation of the proposed new data fields and reporting duty by market participants (and especially by the asset management companies) needs more time,” added Natixis. “We are of the opinion that the earliest possible time to start the reporting is six months (and preferably one year) after the publication of the Regulation in the Official Journal.”

Standard Life Investments prepared its response to the Esma consultation with Citi, its third party administrator, and the Investment Association and also asked for more time to implement changes to trade reporting.

“We would like to stress to Esma the real necessity for date proposals to be released as soon as possible and for Esma to take into account the technology build and development complexity required, along with sufficient testing time required, before any potential go-live date is determined,” added Standard Life Investments.

The Asset Management Group of the Securities Industry and Financial Markets Association, the US trade association, also said in its response that the industry should be given sufficient time to prepare for any changes as otherwise there is a serious risk that reports will be inaccurate and report matching levels will be low.

“To give market participants sufficient time to complete the above steps, the AMG suggests a minimum timeframe for implementation of at least 9 months from the date the amended RTS and ITS enter into force,” added Sifma.

Featured image by adrian_ilie825/Dollar Photo Club

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