Report Details Shifting Contours of OTC Markets

Terry Flanagan

A report by BNP Paribas Securities Services details the latest developments on Emir, Dodd-Frank and the international policy framework to overhaul and regulate OTC derivatives markets.

The report provides a deep dive snapshot on the regulatory framework governing OTC derivatives in the EU (Emir) and the U.S (Dodd-Frank), as of the close of the first half of 2013. It also covers the upcoming BCBS-IOSCO recommendations, being discussed at the international level as a set of standards for Emir and Dodd-Frank.

“Our clients have a keen interest in keeping pace with the regulations as they evolve. Through this publication we aim to provide the latest information to support our clients in preparing ahead of the implementation dates”, said Laurence Caron Habib of BNP Paribas Securities Services’ public affairs department.

In the face of uncertainty as to the final state of play of these regulations, the publication goes into detail on each regulation, clearly defining the need-to-know facts and explaining the scope, the nuances and consequences of each.
One uncertainty relates to the definition of provisions on extraterritoriality, which is still pending on both sides of the Atlantic.

Once final rules are validated, it will be crucial to analyze their concrete impacts for each type of entity based on its location, activity and regulatory category, according to the report. A key concern is the risk that final rules result in duplicative or even conflicting requirements.

For example, overlaps between EU and U.S. rules may occur in relation the clearing obligation, with different scopes of products subject to clearing, and differing requirements on margin and segregation.

The same applies to the reporting obligation, with differing ranges of data required to be reported, and differing reporting fields and terminally, as well as to the eligible collateral for both cleared and non-cleared OTC derivatives.

Financial institutions are using technology to comply more easily and accurately with the transparency and reduced risk goals of new global regulatory reporting requirements for OTC derivatives evolving from the European Market Infrastructure Regulation (Emir) and the Dodd-Frank Act.

Torstone Technology has released a product that consolidates OTC derivative trades from multiple front office systems and feeds them into Global Trade Repositories (GTRs) such as DTCC, automatically.

“We have done the technical ground work as well as what we believe is necessary for Emir reporting, and are in the final stages of meeting the more stringent Dodd Frank reporting, already fulfilling the requirement to report the trades in real time and provide trade workflows such as tracking confirmation status,” said Brian Collings, chief executive of Torstone Technology. “We’ll be working with clients to understand additional requirements such as reporting common agreed trade identifiers between the OTC participants and end of day position reporting.”

Trades can be fed either in real time or uploaded automatically at the end of the day. Data feeds from multiple front office systems are consolidated so that all the uploaded OTC details are viewable within the one system. This removes any manual effort or use of spreadsheets, helps the industry to adapt to the altered structure of the OTC derivatives market and meet the requirement to report to the global trade repositories.

Torstone’s OTC trade reporting can be provided as a fully integrated part of Inferno, or alternatively can be deployed as a standalone module.

The technology, which is based around the open industry standard FpML messages for OTC products, has been fully tested with DTCC’s GTR (Global Trade Repository). Having developed the systems using industry standards, this technology is fully transferable to other GTRs such as Regis-TR, Collings said.

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