OPINION: Trade Reporting, What Is It Good For?

Terry Flanagan

Since February, both sides of derivatives deals in Europe have been required to report over-the-counter and exchange-traded derivatives to one of six approved trade repositories.

From this month the European Market Infrastructure Regulation trade reporting requirements have expanded to include collateral and valuation information for transactions, positions and portfolios.

This seems ambitious given the problems stemming from the different interpretations of the guidance from the European Securities and Markets Authority in February.

Contango, the derivatives and commodities consultancy, has described the matching of submitted trades as “a disaster”. The consultancy said trade repositories now only try to pair trades i.e find those with the same unique trade identifier, regardless of the data in all the other fields. Even so, their ability to pair trade ranges from a very low 30% for over-the-counter trades to an even lower 3% for exchange-traded products.

In March, the US DTCC said that up to 60% of trades entering their system could not be paired.

Following the financial crisis it is understandable that regulators wanted more data in an effort to identify the build-up of systemic risks. However in order to meet this goal they need data that is both useful and useable.

They currently cannot see the wood for the trees and this might have been avoided if they had started by setting the boundaries of the wood and then defining clear rules for how to categorise the different types of trees.

Given that Esma has a limited budget and lots of other work, including combing through the hundreds of responses to MiFID II, it seems unlikely that trade reporting problems will be high on the regulator’s list of priorities or that Esma will any time in the near future to think about how it wants to use the data already being reported.

So fingers crossed that the additional requirements this month do do not bring the system to a grinding halt.

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