OPINION: Reinventing the Wheel

Terry Flanagan

Sometimes it seems that regulators go out of their way to make things as difficult as possible for themselves.

For example the US market was first in moving swaps from the over-the-counter market onto trading venues which means it has experience in producing data is useful to the industry. However this experience seems to have been ignored by European regulators when they introduced their trade reporting requirements in the European Union, leading to very low quality data which is of little use to either regulators or market participants.

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

In a response to the Esma consultation paper, Clarus Financial Technology highlighted the difference in quality between the public data available in the US and Europe. 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 and can even show 2015 volumes per interest rate product for a number of major European currencies, which is not currently possible in Europe. These differences are even more galling as some of the trade repositories offering this data in the US are also authorised in Europe. Perhaps it would have been too sensible to base the European requirements on those already being in the US in order to save both time and money.

Although global harmonisation remains some way off, there are at least signs of progress within the European Union. Last month Esma said it is launching two new data projects at the request of the individual national regulators so they do not each build similar systems in their own country. Both projects will allow Esma to collect data directly from trading venues or trade repositories and then give access to national regulators and market participants.

Through the Instrument Reference Data Project, Esma will collate data from approximately 300 trading venues across the EU and centralise instrument and trading data, as well as the calculation of the new transparency and liquidity thresholds for MiFID II. Once this goes live in early 2017, national regulators and financial market participants should then have access to all data for financial instruments allowed to trade on EU regulated markets or traded on MiFID venues.

The Trade Repositories Project will provide a single platform to access data from the six European trade repositories. The platform should go live in 2016 and enable analysis of the 300 million weekly reports on derivatives contracts received from 5,000 different counterparties across the six repositories.

Better late than never.

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