Trade Reporting and Clearing Present Challenges

Terry Flanagan

The prospect of connecting to multiple trade repositories and clearinghouses in order to comply with mandatory OTC reporting and clearing requirements has market participants clamoring for utilities or middleware platforms that can relieve them of the drudgery.

Sapient Global Market has launched two such utilities over the past year: Clearing Connectivity Standard (CCS) and Compliance Management and Reporting System (CMRS).

“Sapient has positioned itself as a utility player in the marketplace,” said Jim Bennett, managing director at Sapient Global Markets. “We’re getting a lot of questions from clients about regulatory reporting. The exchanges themselves have extended their offerings to include reporting. LSE has UnaVista, and Eurex is working with Regis. The problem for multinational firms is that they trade with all of them.”

Jim Bennett, Sapient Global Markets

Jim Bennett, Sapient Global Markets

CMRS directly addresses OTC swaps data reporting requirements from regulations including Dodd-Frank’s Title VII and European Market Infrastructure Regulation (Emir). It allows firms to collate vast amounts of data from disparate systems, translate it into the destination message format, deliver it directly to regulators and receive acknowledgement messages back from Swap Data Repositories (SDR).

“It is SDR agnostic, and collects and normalizes data from multiple sources before transforming it into formats accepted by regulatory reporting destinations,” said Bennett.

Under Emir, all counterparties to a European derivative trade will have to report to an approved trade repository. The new regulations are expected to come into force on February 12, 2014.

Trade repositories centrally collect and maintain the records of derivatives contracts reported to them. The registration of TRs means that they can be used by the counterparties to a derivative transaction to fulfill their trade reporting obligations under EMIR. The registrations took effect on November 14, with the reporting obligation beginning on February 12, 2014.

Regis-TR, KDPW, UnaVista and DTCC Derivatives Repository were the first four trade repositories approved by The European Securities and Markets Authority this month.

“The U.S. came in last year [with trade reporting requirements] and Europe is coming in February,” said Kirk Friedenberger, vice president and Midwest business lead at Sapient Global Markets. “Last year was a race to the finish line, with the sell side bearing the brunt of responsibility for reporting under Dodd-Frank. Emir is much more of a two-way responsibility. The buy side is getting concerned. With CMRS, we had swap dealers get on board last year for the U.S, but are now starting to see a broader swath of the market looking at cross-border issues.”

Clearing Connectivity Standard (CCS) establishes a standardized connectivity format that can be used by the FCM community to transmit OTC clearing related information to their asset manager clients, custodians and CCPs.

Four futures commission merchants (FCMs)–BofA Merrill Lynch, Barclays, J.P. Morgan and UBS—are supporting the Clearing Connectivity Standard (CCS), jointly developed by the International Swaps and Derivatives Association and Sapient Global Markets, derivatives reporting standard.
The standard to be used by the clearing broker community to transmit information about cleared OTC derivatives trades and margins to their asset manager clients, custodians and service providers.

“The workflow associated with central clearing is challenging buy-side institutions,” Bennett said. “Institutions are being approached by clients to do clearing but they don’t have an FCM. It’s very expensive to set up an FCM. We are having discussions with large institutions on the utility concept.”

For the many firms involved in the OTC derivatives market and facing Dodd-Frank legislation, CCS provides a more efficient and effective way to send and receive cleared derivatives trade data, Bennett said. “The momentum that CCS has already generated in the market indicates that the standard will quickly become integrated as a core component within the OTC market infrastructure for asset managers.”

“Sapient is part of an ecosystem,” added Bennett, “and we’re here to add value and help facilitate the decision making process around the regulatory business environment.”

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