FX Focus trade repository Q&A
FX Week recently wrote a Q&A with three Trade Repositories including UnaVista, you can see the full article below or the orginal on FX Weeks website here
Alongside derivatives counterparties and regulators, trade repositories form the final part of a triumvirate that must work together if the European Market Infrastructure Regulation’s trade reporting regime is to begin smoothly on February 12. Leading repository officials give their thoughts on preparations for the go-live date, market competition, and liaison with regulators over the trade data itself. By Michael Watt
Q: With February 12 edging ever closer, how are your internal preparations going? Will the market be ready for trade reporting?
Nicholas Boatwright, Regis TR: Since receiving approval from the European Securities and Markets Authority (Esma) on November 7, 2013, we have seen a significant uptake in the number of clients connected with us. We feel confident about our preparation even if the workload has obviously been heavy. Prospective clients have been able to report trades in a test environment since November 2012, just to get them used to the systems. We began allowing customers to start backloading historical transactions in January 2014.
Mark Husler, UnaVista: There has been a lot of discussion over the upcoming deadline. The reality is, we are where we are. We have very few working days to go until the February 12, so as an industry we need to accept this reality and ensure the correct systems are in place. As a trade repository, UnaVista is ready to receive trades across all the asset classes. I appreciate the readiness may differ across counterparties, but when you listen to the regulatory authorities speak on this topic, it is quite clear they are expecting firms to report from February 12. It is a big change, and all participants must demonstrate they have plans in place to commence reporting.
Even if all stakeholders are ready in time, there will still be areas that need further improvement past the February 12 deadline. In the months after we go live, I expect to see further iterations of the standards. Transaction reporting came in under the European Union's Markets in Financial Instruments Directive (Mifid) in 2007, and last year we processed roughly 1.5 billion transactions on our existing reporting platform. Of that 1.5 billion, we estimate 200 million were replay transactions - trades that had to be re-reported due to errors made by either counterparty. It is important we learn from that and therefore it is safe to assume the regulation will evolve over time.
Stewart Macbeth, DTCC Derivatives Repository: We have a lot of new customers coming to us even at this late stage because the closeness of the deadline is getting everyone moving. There is a lot of pressure on the entire market to sort everything out in a very compressed period. There is a definite sense of urgency out there. We still think there are a good number of people who need to get through the process but haven't yet reached out to us or other TRs yet.
Q: Prior to November 7, what was your experience of the registration process?
NB: The registration process started in March 2013. Along with a number of other prospective TRs, we provided our application, after which Esma carried out a number of very exhaustive review cycles. Esma was of course keen for details on our operations model, business model, technical documentation and pricing model. All this was with a view to making sure we and other applicants will be able to deliver the service in a safe and cost-efficient manner to those that need it. The registration process was a learning curve for all stakeholders involved and was rightly very thorough. I think the original timelines we all had in mind thus proved to be somewhat over-ambitious in practice.
Q: Was this registration delay, and the required 90-day window between TR approval and the reporting deadline, a hindrance to market readiness?
NB: You could argue that the market had fair warning once Emir was finalised, yet many participants waited, understandably, for the TRs to be confirmed before declaring their selected TR and committing contractually. Corporates, meanwhile, are somewhat later in gearing up to trade reporting - it was perhaps less clear for them until later on, whether they would be within scope. I think this will be a community we will be offering a lot of support to in order to help them prepare.
Q: Delegated reporting, where banks take on the task of reporting on behalf of their buy-side clients, is seen by some as a good solution to the problems of non-financial buy-side firms directly reporting to TRs. Have you been involved in the development of these systems?
NB: It's only been very recently that we've seen a flurry of delegated reporting offerings - dealers were first focusing on their own reporting processes for much of last year. A lot of the larger corporates actually don't need it - they do a lot of internal trades between affiliates and their main treasury centre, so they will have to set up a direct line to a TR anyway. Why delegate the rest, when you've already done the heavy lifting? They also may not want to share the details of those trades with sell-side counterparts. Having said that, with the dual-sided reporting obligation in Europe, we understood early on that not all participants would access the TRs directly. Therefore we have developed a comprehensive and flexible delegated reporting model that has proven very popular.
MH: Delegated reporting is not a miracle solution for buy-side firms. If you look at the UK Financial Conduct Authority rules around Mifid transaction reporting, a firm can ask someone to report on their behalf, but that does not remove their legal responsibility for reporting accuracy. If businesses elect a third party to report on their behalf, the liability still rests with the original business. This also applies to Emir. As a result, UnaVista has built a very agile piece of software to help firms searching for assistance with this sort of service. It can take in trade details in multiple formats and enable reporting firms to either take on sole responsibility for reporting, or partial responsibility by allowing their clients to enrich the data records via our system.
SM: Delegated reporting doesn't change things in any significant way at our end - we've extended the reporting message template so banks can fit in client details alongside their own. It's still essentially the same process. Interest in delegated reporting is big at the moment, and I do not think we've seen all the demand yet. Banks are still rolling out these products. There have been some initial concerns on both sides about where legal liability would lie for reporting errors under a delegated process, so that has slowed down the development of these offerings.
Q: What do you feel you have that gives you an edge over other TRs?
NB: Esma's encouragement of competition between TRs has already resulted in lower reporting costs in Europe than those in the US. We've seen a substantial reduction in reporting fees since the start of the year, just because of competition. The Regis-TR model itself enjoys significant client strength in continental Europe, and our model has proven significantly attractive to convince key players to sign up with us, even if they are already familiar with other TRs for use in other jurisdictions. We're also strong on buy-side connections - we recently conducted a survey that found in excess of 50% of German corporates will be using Regis-TR for Emir reporting.
MH: UnaVista is fully owned by the London Stock Exchange Group, and has been used min the Mifid transaction reporting space for many years. We are already the largest approved reporting mechanism in Europe in terms of the volume of trades and client numbers. We decided to apply to Esma to become an approved trade repository because we had a significant number of clients asking us to expand in this direction. We have an existing connection to LCH.Clearnet and CC&G in Italy, so any trades that are cleared through these central counterparties (eg, FX, rates and credit) will be reported to us. We feel it is a big advantage for UnaVista as our clients will benefit from the their trades being stored in the same trade repository as their central counterparty and also gain access to our exceptional management software to resolve any issues.
SM: We think our experience as a trade repository under the Dodd-Frank Act in the US and globally counts for a lot. A lot of large banks and buy-side firms have come to us for Emir reporting, and we think that is because they know us from other markets. We've set out our stall early and been committed to the process, and they knew we'd be a complete service provider. A lot of customers elsewhere in the world have been through US reporting with us, so going through it again is easier and less stressful because both sides roughly know the path that needs to be taken.
Q: The whole point of trade reporting is to give regulators a window into market activity. What plans have been made to allow regulatory agencies easy access to the data contained within your repositories?
SM: Regulatory interaction is coming along. We have had some recent discussions with Esma on this point, and we've been talking to individual national regulators. It's not the most mature part of all of this - most of the work we are doing now is focused on receiving data from market participants and establishing customer relationships. At some point we'll get on to talking to regulators about how they want to view our data, and how best to aggregate data across the TRs, but that's not where we are right now. We are still building the reporting framework and testing it. That has to be our primary goal for now.