Luke Jeffs, Editor of FOW: What was the
experience from the LEI point of view, what might have been
Daniel Jude, Global Head of Business Development
Repository Services at CME Group: There is concern for
clients regarding the LEI situation. We thought LEIs were going
to be simple because there was a process for clients to obtain
an LEI and there were local operating units across multiple
jurisdictions, but, as we’re aware now, there are
still firms that don’t have LEIs -- those required
to have them because they’re captured by EMIR and
also the third country entities.
That’s causing problems with compliance. When
you submit a trade to a trade repository you need two LEIs but
some clients are struggling to say their counterparty is out of
scope and then, when they talk to the regulators,
there’s this push for clients to talk to those
There was a backlog of requests going into some local
operating units. Some counterparties assisted by obtaining the
LEIs for clients because it’s a new concept they
were probably not aware of.
The scope of the mandate impacted the TR industry. There has
been talk around the problems with onboarding but it is
important to consider the volumes and timescales. There was a
huge, stressful situation where clients weren’t
compliant and relying on others to make them compliant.
John Saffrett, Managing Director, Head of UK Change
Management at Newedge: There’s still a
significant population of clients that don’t have
an LEI. This might cause a problem as particularly third
country clients, don’t feel the need to have an
LEI at this stage and won’t get one until
there’s EMIR type regulations in Asia.
Most clients are probably onboarded by now. Whether their
reporting is correct is the next phase. We’re
working with the trade repositories to look at current data
issues and issues going back to February 12th. The
focus is now on the next three, four months and trying to clean
up reporting ready for the next phase.
LJ Luke Jeffs, Editor of FOW.
DJ Daniel Jude, Global Head
of Business Development Repository Services at CME
JS John Saffrett, Managing
Director, Head of UK Change Management at Newedge.
VM Vladimir Maly, Partner
ST Sam Tyfield, Partner at
RB Robert Barnes, Manager,
Regulation at FIA Europe.
RW Richard Wilkinson, Director of Post-Trade
Solutions at Contango.
There’s this principle of identifiability --
number one is knowing the parties and number two is knowing the
trades they are counterparts too. There are still problems with
LEIs and UTIs and the value of the data will be low until those
issues are addressed.
Sam Tyfield, Partner at Vedder Price: The
conversations I’ve had with the EMIR teams at the
regulators have been helpful as far as they’ve
gone but I’ve come away with the impression the
people giving me direction don’t have the
It’s disingenuous to put all the obligations on
the clearing firms and CCPs because it means they could get it
wrong if ESMA or the commission decides ex post facto
that’s not what they intended.
Vladimir Maly, Partner at
important to bear in mind is that every user of derivatives is
responsible for reporting. There may be practical issues with
enforcement because it is difficult to monitor hundreds of
thousands of end users of derivatives but ultimately it is an
obligation of each end user to ensure reports are submitted, at
least in Europe.
Richard Wilkinson, Director of Post-Trade Solutions
at Contango: It’s interesting the FCA is
pushing clearing members to get agreement from their customers,
especially corporates who aren’t regulated by the
FCA. Similar to the third country issue, there are corporates
in the European Union saying I’m not regulated by
these guys so why should I bother? It’s an extra
cost, we’re not going to do it.
DJ It is education. I even get asked, am I
captured by this? We have to say, we’re not
offering legal advice here. This is the regulation, these are
A lot of non-financial counterparties are struggling with
this because the trades are a by-product of their business. One
said they don’t even trade derivatives anymore but
they’ve got six trades from 2013 so they had to go
through this whole process.
ST You have to take responsibility.
Anecdotally there are or were – I’m sure
they’ve been properly educated now – a
large number of firms who thought delegating reporting sorted
out the problem so they wouldn’t have to think
about this ever again. This is definitely not the case.
DJ They saw it as an outsourcing function but
didn’t realise if you’re doing the
delegated reporting the obligation is still on you. Clients we
talk to now who say we’re doing delegated
reporting, one of the questions we ask is, do you have access
to that data and are you receiving the acknowledgements?
Robert Barnes, Manager, Regulation at FIA
Europe: There’s vast swathes of the
corporates that aren’t covered by the FCA and are
never going to be covered by the FCA. The clearing members
didn’t want to offer a delegated service because
until the last minute they didn’t know what or how
they had to report it so how could they? But as soon as one
person offered delegated reporting everybody had to have
DJ At the CME, we started producing proxy LEIs
to get clients over the line. It’s a case of
let’s get you onboarded, get the trades in and
then once you get your LEI, we’ll come back and
enrich those trades.
We didn’t even consider creating UTIs either
but then we found corporate clients saying I’ve
had inter-company transactions and I don’t want to
be a generator of UTIs because all of the other trades are
against the street. So, again, we’re now producing
UTIs. The trade repositories, the sell side and the brokers are
having to come up with solutions to assist clients to get them
LJ John you have expressed some frustration
about integrity constraints?
JS We went live with reporting on February
12th but we don’t have a complete
population of LEIs, so we are reporting with an internal ID as
required by the regulator. If we obtain the LEI for that
client, in theory there’s a set of positions and
trades held against the internal ID.
To then report correctly, a new set of trades against the
correct LEI needs to be created whilst trying to update the
previous reporting and make it correct ideally by using a
cancel/modification process at the trade repository. But the trade repositories
obviously have elaborate data models with data integrity
constraints which make an ID change more complex and in some
RW Would that apply at the ETD level for
original trades or resulting positions?
JS I think it’s on the original
RW So you’re cancel/correcting
the trades and then all the positions.
JS In an ideal world, the system would
allow a classic find and replace so that from the moment a LEI
is available an internal ID could be replaced by this LEI. This
functionality is not available because the system took a snap
of the data on say the 12th of February and froze
RW A record of all the trades
doesn’t give any of the regulators a sense of
where the risk lies, and this will only be when the position
reporting and collateral valuations become mandatory on
RB Position reporting doesn’t
become mandatory. It’s only valuations and
collateral that become mandatory on 11th August.
There is still no requirement at all to report positions until
EMIR 2 comes out.
RW There’s so much data to look
through to build up our position record, they’re
never going to be able to find it.
JS It’s got to be
identifiable. Who are the parties to the trade, which trades
are linked and are the two sides of the trade of the UTI
matching up? At a very late stage, we had introduced the
concept of the transaction reference ID to link all the
different legs of a trade together.
RW Which was ESMA’s response to
the industry saying the exchange isn’t the right
place to produce the UTI. But now they seem to have come back
and they’re trying to flog that again.
JS We believe the CCPs have the
responsibility to be generating UTIs and transactional
reference IDs, and making them available via clearing feeds. If
we look at day one of the EMIR reporting, however, very few
CCPs were making that information available through feeds.
CCPs published algorithms describing their UTI generation
logic and how to apply them if a member wanted to match these.
They could have played a bigger role and hopefully will play
DJ CME is producing UTIs but it was news to
me to hear a couple of the others weren’t doing
that. We have levels of permissionings that somebody can come
in and start amending, but an LEI and UTI, we really
don’t want someone just coming in the back.
A lot of the questions have been asked why the trades not
matching but this is why. LEIs are meant to be the furthest
ahead but we’re still having problems with
And also then you look at the process of the trade and where
do you go to find the UTI? At the execution platform or is it
done over the confirmation platform if it’s a
bilateral trade? Or if it’s a cleared trade do we
wait for it to go down to clearing?
ESMA were trying to get them out of scope and then they
suddenly came back in scope, although they never were out of
scope but everyone thought they were out of scope.
JS One advantage of delegated reporting is the
consistency of the UTI which gives comfort to clients.
A lot of clients took delegated reporting to get them
through day one. A whole population of clients came at this in
January and some clearing firms developed delegated reporting
as a tactical solution for their clients to help them meet
regulatory obligations on day one. A number of clients will now
monitor how the regulatory reporting space evolves and decide
if an in-house solution or outsourcing is best for them.
ST What about clients who have multiple
clearing firms? One of the things they were talking to me about
was double-checking what was being reported? If each clearing
member is reporting to a different TR, the aggregation system
and the reconciliation system becomes absolutely enormous. So
the question is, have you got any clients asking you to change
JS We started off with a delegated reporting
service where we submit on behalf of clients and then they
could view and check the data. We have now enhanced our service
with a data file made available every morning so clients could
take that file and use it if they were using another trade
repository. We did see clients dealing with multiple clearing
brokers who were looking at some of the consolidated trade
DJ We’re looking at building a
translation services so you can take files from different
formats. But if we get the likes of the Newedges and the big
operating systems, all of the large ones for exchange traded
and OTC, we would probably capture 60, 70% of the market and
all we would need to do then is map unique values, additional
data from that source.
ST I hope it works. Some clients of mine
who were pre-testing found different trade repositories would
reject the same field filled in the same way. One would expect
to see a blank, one would expect to see a non-applicable and
another you could just make it up. They didn’t
care as long as it was filled in with something.
RB With cross trade repository reconciliation,
the big problem is data integrity and the back-filling of stuff
that’s incorrect. I had a conversation with a
trade repository – not CME – earlier this
week where they told me the file that contains the trades where
they’re looking for a match across TRs is now
getting too big to send to one another.
DJ One of the trade repositories decided
they would send through an aggregate file rather than new trade
file. So if you start taking from 12th February and
you just continue aggregations and then you try to send all the
trades even if they’ve been matched or paired
before, that’s a ridiculous amount of trades. But
when you’ve got so many unpaired trades because of
the other counterparty, some counterparties will just say they
RB But to go back and fix those would be a
logistical nightmare. Not just on UTIs and LEIs, if you look at
all the fields, the way forward is for the cross TR rec
there’s 12 or 15 must-match fields and
they’re the ones the TRs, regulators and industry
need to start discussing. I can’t believe
we’re two months in and nobody’s
actually sat down and started talking about that. That is the
first step to fix something which is currently broken.
DJ I was going to say you’d be
surprised, but you’re probably not going to be
surprised, to hear the first meeting we had across the TRs to
discuss the fields we should reconcile, one trade repository
said we should rec on every single field and they must be a
required field. We said there’s no way these
fields can reconcile because of their nature.
The 85 dataset fields has to come down, to maybe 60
dependent upon whether you’ve got the UPIs.
The file is getting bigger and bigger but that goes down to
the beginning of the process.
RB This comes down to the regulators
fundamentally not understanding what they want the data for and
how this stuff was going to reconcile. It was just too big.
There should have been a phased approach with investment banks
going first. It should have been 20 key fields, expand it out
to the next 15 fields and so on. What you had is the big bang
approach with everyone from the farmer in France sitting on his
tractor with one interest rate swap to the big investment bank
that trades hundreds of thousands a day, it’s
simply been too much, too quickly. Everyone can see that now
but it’s how you draw a line in the sand and start
saying: "We’re going to use the data from this
JS The FCA has given guidance on the type
of information they’re more interested in being
clean by a certain date than others, which is helpful.
We’re being clearly guided on learning from the
MiFID experience, that is a robust control framework around the
data is needed. You need to show if you’ve
reported incorrectly that you know you’ve reported
incorrectly, you know how big your problem is and you have a
plan which can be put in front of a regulator to fix it in a
RB MiFID was implemented badly in 23
countries around Europe and they’re trying to fix
the transaction reporting regime with a systemic risk reporting
regime, which is fair because regulators want to use that data
for a number of purposes and it’s
JS If you’re submitting a
million trades today and 50% is on internal ID and not on LEI,
this makes the data less worthwhile for the regulator. The
regulator can’t actually use that data to monitor
systemic risk on both sides.
ST So on regulatory forbearance, how long will
JS We’re getting lots of hints
about what the future is going to look like and
we’re being given the opportunity to address some
of those issues before the regulators become firmer in their
approach to policing it.
ST So when do we think that’s
going to happen? I hear estimates from 6 months to 18 months,
from February this year.
VM One of the very few regulators who
has made any public statements about the deadlines is the FCA
and the only hard deadline they have introduced is
30th April. Every entity subject to EMIR should have
a detailed and realistic plan to achieve compliance with the
new rules by then.
It’s the level one regulation that imposes
these rules. It’s difficult for ESMA or anybody
else to decide that we are going to change how to implement
them. We are where we are. Some of these good ideas could be
introduced through revisions to the level one regulation, which
obviously would be a lengthy process.
Since every end user is responsible for the quality of the
data reported to the repository, the only way for a corporate
to be comfortable the reports are being submitted is to build
systems that allow them to check the data that are being
reported. To be able to do that, they need to have access to
the trade repository and for that they need to pay.
Once people start going through the trade repository
on-boarding process, they often realise they are very close to
being able to report on their own. Since the requirements to be
able to check your service providers is such that you have to
do quite a bit of homework in setting up internally your
compliance systems to have access to and be able to review
these reports on a regular basis, at some point people might
question whether they simply report themselves.
DJ When clients look across multiple TRs, they
have to have aggregational reconciliation across those files,
so you’re now looking at three or four different
formats and you’re thinking if I’m
paying somebody, I could do the reporting, then I know
it’s accurate and the only thing I need to worry
about are the breaks.
The problem is there’s so much inaccurate data
everyone’s tripping up over themselves. So we are
hoping the regulators come up with some dates because until
such a time you’re going to get people who are not
going to be meeting the obligation. The FCA did say they would
be looking at the larger players first and working down.
ST What are they going to be fining people? I
heard something between 10 euro cents and 20 euro cents, but is
that per misreported trade?
DJ The regulation that captures the
alternative investment funds comes in July. I think they were
thinking this was nice for them because everybody else would
have all these problems and then it should be ironed out. But
at the moment, it doesn’t look like that.
But that goes back to the known knowns and the known
unknowns. So I know that this is right, I know this is wrong
but it’s the unknown unknowns that are causing the
big problem, that clients aren’t understanding
what they don’t know.
The lack of standardisation is a problem. Each trade
repository was given a certain amount of specifications they
had to build to but we built what we had according to our
systems, which has caused a real problem because every spec is
RW It almost makes you want to be a
socialist and say, why isn’t there one trade
repository? This is a utility so it was interesting ESMA said
you can all apply. It’s created problems with
inter-TR recs and UTIs.
LJ Is it too early to talk seriously about
DJ We thought a month ago more clients
would but they said they were going to get through this and
review when they came up for air. Some buy side firms are
already looking at operating systems for the clearing
requirement, so they are look at adding versions for
I have large sell side firms and intermediaries speaking to
me about porting. The last couple of weeks we have been talking
to middleware that can provide this service.
RB The specifications are different across
each repository so moving across repositories
DJ That’s what we’re
looking at building, to translate the outbound file from
another trade repository, reformat it and put it into our trade
repository. It would be better if we had one trade
I hope to have a solution in place by June, in time for the
alternative investment funds and collateral and
RB From an ETD perspective on valuations and
collateral, you don’t have to report positions but
I don’t know anyone that values or does collateral
on anything other than a position level. You’re
not going to provide valuations on an individual trade level,
it just doesn’t happen in ETD. So firms that
aren’t reporting positions are probably going to
have to report positions to provide the valuations and
collateral on those positions. So it’s got the
potential for a bit of a nightmare.
RW Nobody’s reporting valuations,
mark to markets and collateral on trades so it’s
got to be at the position level. ETD is one-way collateralised,
which is in the ESMA text, but for customers that have opted
for delegated reporting when the valuation comes in
they’re not going to see a valuation report on
their output file because it’s one way so
it’s up to the customer to report the value that
posted to the GCM. The GCM has no obligation to send that
information back to the customer for delegated reporting and
it’s the GCM that has to report the value of its
position with the CCP.
It’s just something that’s not
been thought of by the regulators when they were writing the
RB Everyone will admit ETD is probably the
biggest area of breaks and differences. Even ESMA realised it
wasn’t fit for purpose and wanted to give us a
year but the Commission said no. The problem
they’ve got at the moment is you’re
not going to see systemic risk on ETD from trade data only, you
need the positions, which is why ESMA wanted to give industry
another year to get there.
DJ From a client’s
perspective, if I’ve done delegated reporting for
exchange traded and over-the-counter, is that entity
I’ve delegated to, are they capable of doing this
I thought some clients would rush towards delegated
reporting but some are now stepping away. The FCA said they are
happy for clearing members and other entities to provide
valuations and collateral figures but are the
client’s compliance officers happy allowing
somebody else’s methodology to produce valuations
reported on their behalf?
We’ve been asked will there be still six trade
repositories and is there going to be diversification across
asset classes with trade repositories? We can cater for the
cleared OTC bilateral and exchange traded, which is a
relatively unique position to be in. But I think unless we have
some movement in regards to collateral and valuations, it is
going to be a relatively tough ask so that’s where
for cleared and exchange traded you’d go to the
clearing house and see if they can provide you with that.
They’re doing the valuations and calling for
collateral on a daily basis. That could be a route for moving
away from your clearing member to your clearing house if the
clearing house were to offer that.
RW It could work on a segregated
environment because the CCPs know the underlying account but if
it’s an omnibus account, the CCP would still have
to rely on the clearing member to provide that information.
DJ That’s the conversation
clients are looking at when clearing comes into play in Europe.
If I was to go into an individual seg, that would be a bit more
costly. If they do the delegated reporting for me would that
outweigh the omnibus structure where I’d have to
do it myself because there is no transparency. This will be a
question again when clearing comes in, to see which clearing
house and account structure they select.
JS In a perfect world the CCPs would have got
organised earlier and we could have let them report because
they have the majority of the trade attributes needed to meet
this reporting obligation. As a clearing broker
we’ve got no appetite to invest in systems to meet
reporting requirements and pass those costs on to clients where
we don’t need to do it. It was really a tactical
solution to help our clients meet their regulatory obligations.
We expect the CCP offerings to mature in this space, they came
very late to the delegated reporting.
LJ So we expect to see fewer clearing
brokers offering these types of services?
ST There’s probably going to
be natural wastage anyway. The appetite for delegating is going
to become lower.
RB The regulators’ forbearance
is going to come to an end because for a very good reason
they’ve got all this data, if something goes wrong
and they don’t spot it they’re going
to look quite silly. It’s one thing Nick Leeson
doing what he did when they didn’t have access to
any of the information on the trades. The world and the press
might take a different view if they had the data at their
fingertips. That’s the primary reason why the
regulators will come down on this at some point.
DJ All of the TRs are being contacted by
all of the regulators. A couple of dozen of them have spoken to
us and that’s the same across the TRs. So they are
looking at the data. They are struggling themselves, I think
that would be a fair comment.
At some point they’re going to have to come up
with a solution to aggregate this data, view it but then what
are we actually looking for?
So all of this is going to have to go down that route. There
has to be end of forbearance sometimes, and pretty soon. If
we’re imaging the clearing mandate comes in and
we’re still in the situation where
we’re still struggling with trade reporting in
early next year, I think operational teams are probably going
to keel over with getting clients onboarded for clearing and
all of that for OTC products and still having these