Dealing with the complexity of multi-party REMIT reporting
With around six months to go before banks and brokers have to comply with phase one of the REMIT (Regulation on Energy Market Integrity & Transparency) trade reporting deadline of 7 October 2015, understanding the scale of multi-delegated reporting requirements appear to be challenging both large and small market participants - despite some industry progress.
REMIT introduces a consistent EU-wide regulatory framework for the first time that defines and strictly prohibits market abuse in the wholesale energy markets. Trade reporting under REMIT calls for standard physical power (electricity), gas orders and the corresponding financial transactions to be reported to ACER (Agency for Cooperation of Energy Regulators) via a Registered Reporting Mechanism (RRM) no later than T+1.
The regime covers physical delivery or physical settlement, as referred to in the EU’s revised Markets in Financial Instruments Directive (MiFID II). Options, futures, swaps and any other types of derivative contract relating to electricity or natural gas generated, traded or delivered in the EU are included - unless already reported under EMIR to avoid duplication.
The challenge of accessing data
Almost all Tier-1 and Tier-2 institutions trade energy products to some extent, and although the majority of firms may find this consolidation exercise difficult, clearly the bigger the firm the greater the challenge is likely to be. This is especially the case if they are trading via organised market venues (i.e. exchanges like ICE, LME, etc.) and brokers, collectively referred to as OMPs (Organised Market Places), as well as bilaterally over-the-counter (OTC) with other counterparties.
The fundamental question for many firms lies in how they will get access to the all of the data required in order to meet REMIT’s trade reporting obligations. Critically they will need to streamline their data reporting strategies and have a robust solution in place.
Many reporting firms will not hold all of the data required for their REMIT reports, and could potentially require a third party (e.g. their counterparties, brokers or OMPs) to provide relevant transactional data in order for the report of a single trade to be completed. This means reporting firms will need to manage the data collection and reporting process across multiple venues and counterparties.
As with all reporting regulation, the liability ultimately lies with the reporting firms to ensure complete and accurate transaction reports are submitted, not their third party. Delegating the reporting creates an additional layer of risk and complexity. For example, reporting firms will need to ensure that previously submitted transaction reports that were incorrect are now accurate; and to amend a transaction report when the transaction itself has been altered post trade. Consequently errors or rejections would need to be managed via the third party, where the reporting party may not have visibility or control over the process.
With delegation there is no single consolidated view of all reportable data, creating a fragmented exception management process and introducing difficulties in gathering data for reconciliation.
Some assistance for the reporting firms comes from the fact that REMIT stipulates OMPs are obliged to provide a reporting service for their clients. However this introduces a similar problem for the OMPs, as they are now faced with market participants demanding freedom of choice as to which RRM to direct their data to. This may force OMPs to develop infrastructure to enable them to connect to multiple RRMs and maintain the complex environment, or risk loosing their clients to a competitor. Both OMPs and reporting firms now need to identify a solution that will enable effective and accurate REMIT reporting and remove all the outlined issues.
Providing a consolidated view
London Stock Exchange Group offers a resolution to these problems via UnaVista. UnaVista’s Rules Engine solution enables all the third parties to connect into the platform, and offers the reporting firms a consolidated view of all of the data reported on their behalf. Should errors need to be rectified these can be amended by the reporting firm themselves without recourse to the third parties.
UnaVista removes the complexity of multi-party delegation. Offering firms a single interface for all exposures, streamlining the exception management process, and providing a basis for efficient reconciliation. UnaVista incorporates additional validation, normalisation and enrichment using LSEG’s multiple reference data sources, helping firms to comply with their REMIT reporting obligations.
Additionally UnaVista will support firms who are required to report non-standard contracts for phase two of REMIT reporting, which comes into effect April 2016. Forward thinking firms will take this into consideration when selecting the right solution for them.