Trade Reporting Deadline Takes Effect With Laggards Facing Mountain to Climb

The EMIR deadline for reporting derivatives trades to trade repositories (TRs) has come into effect today, but not all participants may be ready, and the rush to apply for the trade reporting has required significant investment in systems and I.T. infrastructure by TRs.
By Editorial
The EMIR deadline for reporting derivatives trades to trade repositories (TRs) has come into effect today, but not all participants may be ready, and the rush to apply for the trade reporting has required significant investment in systems and I.T. infrastructure by TRs.

It is thought that the delay in registering TRs with ESMA may have been caused by various requests for the reporting deadline to be delayed. When the deadline of Feb. 12 was confirmed and the TRs were authorized, the deluge of applications began.

A REGIS-TR spokesperson said: “REGIS-TR has offered a no-obligation test environment since November 2012 for the reporting of derivatives’ trading under EMIR. Since the November 7, 2013 authorization date for trade repositories, the number of clients signing up to REGIS-TR’s test environment increased six fold while the number of applications we received daily tripled. These increases are in line with what we expected given the short time period between TR authorizations and the reporting deadline, while adding to the challenges the industry as a whole has faced in getting ready to meet the reporting deadline.

“REGIS-TR has performed extensive testing and ramped up its resource capacity to deal with the increased volumes of applications in the run-up to the February 12 reporting deadline—we are doing our utmost to process registrations in as timely a fashion possible, relative to the steep hike in volumes of applications and the tight timeframe in which to process applications since the November 7, 2013 date when REGIS-TR and other trade repositories were granted authorization.”

For firms required to report trades, the obligations can be quite onerous. “Firms should have been proactive in their preparations for today’s derivatives trade reporting deadline. Companies should be ‘going live’ with the population of unique trade identifiers (UTI) and should have completed the backloading of all live trades from August 2012. On top of this data fields required to submit a fully compliant report to their registered trade repositories should have been populated for all FX Forwards, Exchange Traded Derivatives and OTC derivatives where the firm has traded either directly with an EU counterparty or in EU products. Yet this is just the tip of the iceberg,” says Emily Cates, operational processing specialist at Rule Financial, an investment banking consultancy.

“For those who have successfully negotiated the first wave of reporting, they must now continuously report on a T+1 basis any changes to reported trades, for example if an FX spot rolls to a Forward,” she adds. “For those firms who have failed to meet today’s trade reporting deadline they now have a mountain to climb. They now face the dual obligation of meeting compliance whilst simultaneously attempting to complete the backloading in time for the deadline 90 days from now, which will be almost impossible. If by some miracle they can do that they then only have another 90 days before the reporting of the collateral associated with those trades also becomes mandatory.”

The reporting regulations also require entities to have a legal entity identifier (LEI) in order to trade. However, the process for obtaining an LEI has not been publicly fleshed out, thus leading to further uncertainty about the reporting deadline. Many entities have yet to register for an LEI. In addition, the recent inclusion of corporates in the scope of the LEI requirements could lead to an additional rush of reporting applications.

Another challenge for TRs is that the mid-week reporting deadline has left little time address potential I.T. glitches. Normally infrastructure I.T. go live at the weekend so that any problems can be dealt with before the start of the working week. As a result, TRs have significantly ramped up on people and processes.

Lastly, while the deadline has come into effect today, Cates posits that there will be an unofficial grace period, as it will take authorities a few weeks to digest the data. At that point, if the deadline is not met it is up to authorities in each country to decide what fines, if any, should be imposed.

Meanwhile, the Financial Stability Board (FSB) has requested a further study of how to ensure that the data reported to TRs can be effectively used by authorities, including to identify and mitigate systemic risk, and in particular through enabling the availability of the data in aggregated form. The FSB, in consultation with the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO), will then make a decision on whether to initiate work to develop a global aggregation mechanism and, if so, according to which type of aggregation model and which additional policy actions may be needed to address obstacles.

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