ESMA recently issued a new consultation paper titled ‘Technical standards on reporting, data quality, data access and registration of Trade Repositories under EMIR REFIT’ which generates questions that are of interest for anyone currently reporting.
How are your existing pairing and matching rates? Are they above or below industry standards?
Since EMIR reporting started in 2014, the industry has collected nearly 95bn (yes billion, you read that right) derivative reports in total, on average 300m reports a week, and approximately 6000 clients are using Trade Repositories. Since its inception, there has been, overall, low levels of agreement between the two counterparties on the exact details that are to be reported. Whilst improvements have been made, pairing levels are at approximately 60%.
So, why is that? Based on the analysis provided by ESMA, the low rates of pairing are mainly caused by the lack of agreement between the two parties on the following:
- The construct of the Unique Trade Identification (UTI).
- Position level versus trade level reporting.
- The reporting obligation.
Trade matching, which is significantly more complex, stands at 29% which provides further evidence on the lack of agreement between the two counterparties.
What can you do immediately to improve pairing and matching rates?
Construction Of The UTI
It is mandatory for EMIR reports to include a Unique Transaction Identifier. Both parties need to agree on this identifier; otherwise, you cannot match the trade.
There are three approaches to this: i) A 3rd party can generate and communicate to both parties ii) it is agreed that one of the parties must decide and pass it on iii) that both parties generate the same UTI based on data they both already know.
It’s in your best interest to agree on that process from the start.
Position Level Reporting Versus Trade Level
The European Securities and Marketing Authority (ESMA) say that it is possible to use position level reporting as a supplement to trade level reporting, provided some conditions are met.
Reporting at position level should be undertaken consistently by both parties. For example, it’s not okay for one counterparty to report at the trade level and the other to report at the position level.
You must have a process in place to avoid double counting these trades.
The Reporting Obligation
Are your Trade Reporting and Data Models fully defined? Is your governance such that when you have data errors that the process to remediate is fully established and understood? How do you interact with your Trade Repository on misreported data?
The EMIR Refit went live on the 18th of June (there are implications for NFC- and FCs), have you fully understood the impact of this as part of your regulatory compliance?
Post-Brexit, you will need to be operationally ready for the changes in guidelines and obligations.
What will the new ESMA consultation paper mean for your organisation?
At Margin Reform, we have a team of professional services to help you meet your requirements and a team of experts to support you through that.
Why not call us now to make sure you’re ready?