Sapient Warns on Trade Reporting 

Terry Flanagan

Sapient Global Markets, the consultancy, warned that regulators will be unable to identify systemic risks until there are global standards for trade reporting.

In February, as part of the European Market Infrastructure Regulation, reporting of derivative trades to six authorised repositories by both sides of a trade came into effect in the region.

Laura Rugarber, a manager of business consulting in Sapient Global Markets in New York, and Sarah McLellan, an associate in London, said in a Sapient blog: “The lack of standardisation provided by the regulators, along with a similar lack of standardisation in the implementation of the Dodd-Frank Act the previous year, has now unveiled a major industry challenge around improving regulators ability to assess systemic risk.”

Reported trades are first meant to be paired using a unique transaction identifier (UTI) and the legal entity ID (LEI) of each counterparty and then matched across the trade lifecycle.

“In March 2014, the DTCC reported that up to 60% of reports entering their system could not be paired,” added Sapient. “Moreover, since this statement was made public, there have been no discernible market initiatives to introduce improvements.”

The consultancy said the low pairing and matching rates were due to poor reconciliations between the authorised trade repositories and inconsistent interpretation of the reporting requirements provided by the regulators.

“Standardised and global regulatory reporting rules would align the guidelines across multiple jurisdictions and thus help to improve pairing and matching rates,” added Sapient.

In particular there is a fundamental incompatibility the unique swap identifier (USI) required by the Commodities Futures Trading Commission in the US and permissible options for the UTI set by the European Securities and Markets Authority.

“At this juncture, the CFTC has not been open to accepting UTIs since there is no baked-in equivalent namespace with the UTI,” added Sapient. “Until the CFTC expresses a willingness to accept identifiers introduced by other reporting regimes after their go-live, extra work will plague the industry.”

Featured image via Dollar Photo Club

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