Firms are struggling to match their futures trades across
different reporting venues under Europe’s new
regulatory regime, blaming an absence of a consistent framework
and a lack of understanding across the industry.
Trade reporting requirements under the European Markets
Infrastructure Regulation (Emir) are aimed at increasing
transparency in an opaque market, though flaws in the process
are hampering this goal being achieved.
The mandate took effect four months ago accompanied by an
eleventh hour Q&A as guidance on how to report the
The Q&A though, now infamous throughout
Europe’s derivatives industry, is somewhat down to
interpretation and does not represent a fixed framework, more a
Subsequently there remains no consistent format for the 85
fields – made up of 59 common and 26 counterparty -
which firms have to complete when reporting trades.
Should one piece of information be conveyed differently by
either counterparty, the trades will not match.
"If one party uses a US date format and one a European it
won’t match, it is little things like that, how
you use decimals for example. There are dozens of these fields
and a huge amount of data to report," one industry expert told
"The data will never match up perfectly, not without
detailed guidance on a higher level,"
Resolving issues 'crucial'
The issue is therefore not necessarily that counterparties are
reporting the data incorrectly rather there is just
inconsistency across the industry.
The actual figure for cross-trade repository matches has
been touted at less than 1% by experts with knowledge of the
process, highlighting how far away regulators are from market
A recent report from regulatory specialist JWG, said: "It is
crucial that the industry resolves the question of how to fix
these problems in a timely manner."
Speaking to FOW, JWG chief PJ Di Giammarino said the
industry needs a proper manual for the process.
"If we are going to do 120m+ reports a week, what is in
these reports needs to be spelt out very, very carefully," he
"If all we are able to do is pump data around Europe that
doesn’t allow supervisors to make judgements, what
was the point of spending billions on it?"
Initially problems around trade reporting stemmed from firms
not having legal entity identifiers (LEIs) or unique trade
Some firms are using temporary UTIs, though this has led to
confusion over whether counterparties can change the identifier
once it is with a trade repository.
Speaking at the FIA IDX conference in London earlier this
month, David Nowell, head of industry relations and regulatory
compliance, UnaVista, London Stock Exchange, said 'there is no
excuse for not having an LEI’ four months after
the initial deadline.
With those issues being addressed it is now the
seemingly-simple task of matching the fields up remains the
"The problem is there isn’t a standard template
for people to fill in so the fields are randomly placed and the
data itself isn’t written in the right format,"
said Virginie O’Shea, senior analyst, Aite
"Especially if you are reliant on technology that looks for
an exact match, and a lot of reconciliation technology
"Most systems are not cut out to make your life easier, you
have to have pretty complicated algorithms to actually make
sure you are matching in a tiered way."
Many firms were left unprepared for the February 12 deadline
with an expected delay not granted by regulators.
The second wave of requirements is set to come into force on
August 12, with collateral and valuations coming under the
Firms are more prepared now than earlier this year, with
existing infrastructure and processes in place, however this
additional obligation when the existing format is not perfected
could lead to even more issues.
The solution rests with either the regulators or the trade
"The regulators have pushed it back on the trade
repositories. Esma put responsibility on TRs and the industry
to report a certain way," added O’Shea.
"I don’t know why it should be the
industry’s responsibility to set the standards. A
lot of the problems come from regulators not wanting to set
standards because they don’t understand what they
are trying to standardise."
The Q&A on trade reporting is still the nearest thing to
a guide the industry has on trade reporting.
Unfortunately there is no equivalent for over-the-counter
reporting of the detailed 2007 Transaction Reporting User Pack
(TRUP) compiled by the industry for MiFID I transaction
With many reconciliation systems unable to spot the
difference between a mismatch and an inconsistency, the only
way forward will be a proper framework across the European
"Overall, we have had a bit of a breakdown in ownership of
the technical requirements," added Di Giammarino.
"The TRs haven’t got together in any common way
to promote standards to their customers who are meant to be on
the same page. The firms and corporates aren’t on
the same page and the standards bodies remain on the side
"Who is going to step-up?"