Over-the-counter (OTC) derivatives reporting has been garnering headlines on data quality and harmonization issues, pointing to the need to meet the G20’s objective of data standardization to boost transparency and global risk monitoring. Regulators in Europe and the U.S. have pledged their commitment to re-examine and revise existing trade reporting rules to bring greater alignment on the quality and accuracy of the reported data.
In the Asia Pacific (APAC) region, the Australian Securities and Investments Commission (ASIC) and Monetary Authority of Singapore (MAS) have commenced industry consultations based on guidelines issued by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) for critical data elements (CDE), unique product identifier (UPI) and unique transaction identifier (UTI) and legal entity identifiers (LEI) to achieve convergence of reporting standards.
Related: Bracing for Rewrites & Refits on the Trade Reporting Horizon
DTCC Connection recently spoke with Priya Kundamal, General Manager and Head of DTCC Data Repository (Singapore), to better understand the scope of forthcoming changes.
DC: With MAS and ASIC implementing regulatory rewrites in the next two years, how should firms prepare for the upcoming changes?
PK: Firms should first assess the rules changes that would impact their current reporting processes and structures. External resources may need to be engaged to provide an all-encompassing audit of the overall system and process enhancements needed. This is a great opportunity to consider future regulatory changes and hence decide to build or buy robust solutions or consider a hybrid of both. Doing so will put firms in a good position to avoid future alterations to their reporting solutions.
DC: DTCC has conducted a comprehensive study on CDEs, comparing the newly proposed data fields and standards by major regimes in their respective regulatory rewrite programs. Can you share the key findings and what are the main advocacy points?
PK: To start, I would like to acknowledge the regulators for their tremendous efforts in moving to adopt CDEs by revising their respective reporting rules. This is especially critical when ensuring data consistency and enhancing data aggregability across borders. However, after investigating the recommended data fields and technical standards put forth by the Commodity Futures Trading Commission (CFTC), European Securities and Markets Authority (ESMA), ASIC and MAS we’re still not aligned across the globe.
First, the CDE Technical Guidance from CPMI IOSCO allows the use of either decimal or percentage in the data fields related to pricing – regulators are using different formats. Second, in the direction field which denotes the buyer-seller or payer-receiver, depending on the product type, two approaches are permissible. For approach A, firms indicate whether the reporting counterparty is a buyer or seller in the direction field while approach B permits firms to specify the LEI of the buyer or seller. These two examples show how having options can lead to potential cross-border fragmentation and we recommend that the CDE Technical Guidance be updated to allow for only one approach.
To facilitate cross border aggregation and meaningful analysis of reported data, we advocate that data fields that are critical for monitoring systemic risk use the same definitions, format, and standards.
Related: An Opportunity for Digital Trade Documentation
DC: Given that incorporating ISO XML is the end state for the regulatory reforms, what advice would you give to firms that may face challenges with implementing ISO XML?
PK: We have observed that larger firms with in-house technical resources often do not encounter challenges with switching to ISO XML. As many smaller firms in APAC still rely on comma-separated values (CSV) files to fulfill their trade reporting obligations, the conversion to ISO XML will have a wider impact in the region compared with the other jurisdictions. This is due to differences in the reporting regimes. In Europe, regulators allow delegated reporting while the U.S. is essentially a single-sided reporting regime. Regulators in APAC, on the other hand, require dual-sided trade reporting and not mandatory delegated reporting.
Our conversations with regulators in APAC indicate that they are conscious of the situation while finalizing their rule re-writes. There are two options that firms should consider: Leverage internal technical subject matter experts to embark on the technical build in-house; or engage the services of external industry providers to handle the migration from CSV to ISO XML.
DC: What are your views on adopting LEI, UTI and UPI for trade reporting in the regulatory revisions?
PK: We believe that the adoption of a consistent set of identifiers will drive operational efficiencies and promote data harmonization, providing a clear view of global systemic risk in the derivatives market. To reduce testing and implementation complexity at the firm level, we recommend a coordinated global roll out of these standards across all jurisdictions.
DC: What is your advice for firms affected by the upcoming regulatory updates?
PK: The global rewriting of reporting rules marks the ongoing evolution of OTC derivative reporting to fulfill the G20’s objective of containing cascading risks. DTCC is actively engaging with regulators, across the globe and specifically in APAC to stress the importance of standardizing and harmonizing trade reporting rules. This will also enable the efficient capturing and sharing of reported data and simplify implementation burdens downstream.
In the meantime, firms should stay closely connected with the industry and with DTCC by attending our working groups and client forums to keep abreast with developments pertaining to the regulatory rewrites.