DTCC supports trade reporting in the following jurisdictions:
With the introduction of new trade reporting rules, the advent of centralized clearing of derivatives and new capital requirements, the over-the-counter (OTC) derivatives market is undergoing a dramatic transformation as financial firms race to meet new mandates. Chris Childs, Managing Director of DTCC and CEO of Deriv/SERV, discusses the trade repository landscape and how DTCC is helping the industry achieve regulatory compliance under tight deadlines.
How did the industry respond to the implementation of new trade reporting mandates in 2014?
The industry proved remarkably responsive, especially in light of new reporting regimes being rolled out in several major jurisdictions last year. In February 2014, the industry achieved a major milestone with the start of reporting to European regulators under European Market Infrastructure Regulation (EMIR).
From that point forward, it seemed as if new requirements went live just about every couple of months. In April, the second wave of regulatory reporting commenced in Australia and, in the same month, banks licensed in Singapore and merchant banks approved by the Monetary Authority of Singapore (MAS) were required to report OTC credit and interest rate derivatives transactions. In August, the European Securities and Markets Authority’s (ESMA) Collateral and Valuation reporting was launched. More recently, in December we successfully implemented the ESMA Level 1 Validations initiative, which is indicative of the growing focus of regulators beyond the Commodity Futures Trading Commission (CFTC) on improving data quality. In Canada, the reporting of trades involving a dealer or a clearing agency began in October to close out one of the most active years in recent memory.
What role did GTR play in helping firms comply with reporting under EMIR?
The Global Trade Repository (GTR) is the largest trade repository in Europe. We cover all five derivative asset classes, including OTC and exchange-traded derivatives, so we understandably played a critical role in helping clients meet reporting requirements.
An estimated 60% of all global derivatives trades originate in Europe. Given the size of this market and the complexity of EMIR, the implementation of a robust reporting regime was a significant undertaking. As many in the industry expected, the “big bang” approach to implementation – requiring all participants in all asset classes, both OTC and exchanged traded, to begin reporting all transactions at the same time – proved challenging for European market participants, including us. We had to work very closely with our clients to assist them in meeting their reporting obligations and, in the course of that, we took a number of steps to address and resolve the challenges we encountered.
From a global perspective, how is GTR helping financial institutions meet so many new regulatory requirements?
We do it in two ways: geographic reach and flexible technology. As the only truly global repository operating in major jurisdictions around the world, our global network supports reporting in nine jurisdictions across 33 countries. DTCC supports trade reporting in the following jurisdictions:
European Union: European Securities and Markets Authority (ESMA)
United States: Commodity Futures Trading Commission (CFTC)
Japan: Financial Services Agency of Japan (JFSA)
Australia: Australian Securities and Investments Commission (ASIC)*
Singapore: Monetary Authority of Singapore (MAS)*
Hong Kong: Hong Kong Monetary Authority (HKMA)
Canada: Ontario Securities Commission, the Autorité des Marchés Financiers in Québec and the Manitoba Securities Commission
* DTCC is the only licensed trade repository supporting firms that need to comply with ASIC and MAS requirements.
Given your unique position as the only global trade repository, are you sharing insights with regulators on ways to make the implementation of new rules more effective?
Yes, we see that as an important part of our responsibilities. One example that comes to mind is the conversations we held with supervisors last year as they were gearing up to implement reporting throughout Asia and Canada. Our goal was to encourage closer alignment and harmonization with regulations that were already in place in the U.S. and Europe. We also used this opportunity to call attention to a potential sequencing conflict in which multiple jurisdictions would have implemented mandates within the same time frame. Needless to say, this would have created burdens for market participants. We joined with others to advocate for a coordinated roll-out across regions, and I am pleased to say these efforts were successful.
How have new reporting requirements impacted the growth of GTR?
GTR has grown tremendously over the past few years. The firms trading in these markets are looking for a single, centralized solution to help them meet multiple mandates from numerous regulatory jurisdictions throughout the world – and we’re the only company capable of doing that for them. To put size and dimension around this, we now have more than 4,000 clients in all regions of the world, including the top 30 global banks. We report data for more than 100,000 entities globally, hold more than 35 million open OTC derivatives trades and process in excess of 1 billion customer messages monthly.
What impact has the development of trade repositories had on the derivatives market?
The impact has been huge. Following the 2008 financial crisis, trade repositories have served as a critical mechanism for enhancing market transparency and ensuring financial stability. The industry has made tremendous progress, and we have collected a massive amount of data. We see this as a critical first step in addressing the transparency goals of policymakers. We expect trade repositories will become arguably the most significant risk management innovation to emerge in recent years as the industry continues to work with regulators to transform this data into actionable information. Over time, we believe the ongoing development of trade repositories will lead to the introduction of new tools for regulators and systemic risk managers to enable them to more effectively and efficiently analyze market concentrations and risk distributions.
What areas do you expect to focus on in 2015 and beyond?
The top challenge is developing solutions to aggregate and convert data into useful information that can assist regulators in mitigating systemic risk. Another focus area will be data harmonization. We intend to continue playing an active role in promoting better alignment across jurisdictions to improve data quality. Ultimately, this will assist in data aggregation and support risk surveillance and mitigation. Fortunately, we’re starting to see an increased level of collaboration among regulators globally, and we’re particularly pleased that the Financial Stability Board and the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO), among others, are taking steps to address data challenges.
In Europe, we’ll continue working on the most efficient way to reconcile trades reported to different repositories, particularly related to increasing the standardization and harmonization of data reporting, so that we can improve the quality of information available across European trade repositories.
We will also continue preparing for new reporting phases and future regulations, including mandates in Asian markets, the implementation of MiFID/R II in Europe and Securities and Exchange Commission (SEC) reporting rules in the U.S. Because regulators in different markets tend to have different approaches to implementation and reporting, we will continue to help clients navigate this evolving regulatory reporting environment. Finally, we firmly believe that trade repositories have the potential to offer services well beyond regulatory reporting, and we continue to talk with our clients to identify areas where we can further leverage our global capabilities to provide additional benefits to the industry.