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Transforming the Global Trade Reporting Process

By Val Wotton, DTCC Managing Director, Product Development and Strategy, Repository & Derivatives Services | May 20, 2020

Evolving regulatory mandates are a persistent challenge for the financial services industry. New and revised regulations tax internal compliance teams, who must monitor their shifting requirements over time, and stretch the technical and operational resources firms deploy in response. The trade reporting rules that have proliferated in the wake of the 2008 financial crisis create additional burdens due to their data management complexity. To meet these challenges, firms are seeking to replace the fragmented, and sometimes duplicative, processes used today with more efficient solutions.

Securities Finance Monitor spoke with Val Wotton, Managing Director, Product Development and Strategy, Repository & Derivatives Services at DTCC about one such solution, the DTCC Report Hub™ service, and how it is helping firms simplify their pre- and post- trade reporting processes.

SFM: Could you explain what the DTCC Report Hub service is and why it was created?

Wotton: The DTCC Report Hub service is a customizable suite of pre- and post-reporting data and reconciliation tools for use across products and regulatory jurisdictions. It’s designed to easily translate transaction data into formats required by regulators, enrich the data using reference data sources, and identify errors and/or missing required data elements before firms submit their transactions to a trade repository (TR). These tools also enable users to complete accuracy checks by comparing their daily activity reports from the TRs against their own trading books.

The DTCC Report Hub service offers a flexible toolbox for buy-side and dealer firms, small or large, by allowing them to select only the features they want to use. Eventually, some users may choose to replace their internal systems and vendor solutions with the service’s full suite of capabilities to reduce technology costs, manage the ongoing changes to regulation, eliminate fragmented solutions, and improve the overall quality of their reporting and control framework.

Others will leverage the DTCC Report Hub service for quality assurance – to address timeliness, completeness, and accuracy of their reporting data. The DTCC Report Hub service can enhance these users’ overall control framework, allowing them to move to proactive versus reactive monitoring and reduce the overall operational and compliance risks associated with trade reporting.

The DTCC Report Hub service will also offer a pre-reporting eligibility rules engine that will allow users to check and confirm reporting eligibility for their books and records with full traceability against both the underlying rules and regulatory text in place at the time. Firms will be able to choose to apply additional services and workflows to trade data for onward submission to a TR.

It’s also important to mention that a firm does not have to report directly to a TR in order to benefit from DTCC Report Hub services. For example, buy-side firms that plan to delegate their reporting to a counterparty can use our post-reporting reconciliation capability to match their own trading books to transactions reported on their behalf.

While there are numerous use cases, we built the DTCC Report Hub service for a very specific purpose. Most firms lack efficient, centralized systems and procedures for trade reporting and, as a result, they’ve struggled to keep pace with the new regulatory requirements that have emerged in recent years – not only the Securities Financing Transactions Regulation (SFTR) but also the European Markets Infrastructure Regulation (EMIR) Regulatory Fitness and Performance (REFIT) program and US Commodity Futures Trading Commission (CFTC) reporting on the derivatives side. These challenges will only continue to grow if the next three to five years bring a steady stream of further regulatory change, given that each new rule modification requires costly and time-consuming updates to multiple technology systems.

DTCC was perfectly positioned to respond to this industry need. We operate the world’s premier trade reporting service for over-the-counter (OTC) and exchange traded derivatives, the Global Trade Repository service (GTR),[1] which has streamlined derivatives trade reporting around the world. As a result, we have had the opportunity to observe first-hand the various pre- and post-reporting challenges facing our clients and identify opportunities to develop solutions that create greater efficiencies in their trade reporting processes.

SFM: How does the DTCC Report Hub service help firms meet their SFTR obligations?

Wotton: Since the European Securities and Markets Authority (ESMA) requires use of the ISO 20022 format and schema, and there are over 150 fields, every firm now needs to convert its internal securities financing transaction (SFT) data to this format and add pre-reporting checks. Historically, there was no industry standard XML representation across all the SFT products and collateral flows, and data fragmentation was prevalent. The introduction of ISO 20022 XML standards for SFT data often requires firms to translate data from different internal systems in order to create a submission message that meets the XML schema and regulatory validations.

Adding to the complexity, the translation process is not a one-time exercise. For example, ESMA published one set of ISO validation rules in October 2019 then an update to the XML schema in December 2019. Each update means a new project plan and client validation requirements.

Through our conversations with clients and partners, it became clear that firms needed help with data translation as well as other aspects of pre-reporting – that is, to transform and enrich their trade data to meet stringent eligibility, completeness, accuracy and timeliness standards before it’s submitted to a TR – and also that critical post-reporting tasks could be improved.

We designed the DTCC Report Hub service to transform the trade reporting workflow, starting with preparing the data and ending with post-reporting error clean-up and reconciliation to internal records. Our solution provides firms with tools that help alleviate the burden on in-house technology and staff tasked with building and supporting complex systems to meet evolving regulatory requirements.

SFM: From a cost and complexity perspective, is the preparation for reporting materially different for SFTR than for EMIR or MiFID II?

Wotton: SFTR is inherently more complex than other regulations, partly due to the ISO 20022 requirement and partly due to how the regulation was structured. SFTR, unlike EMIR, involves the reporting of all associated collateral in addition to SFTs, which is further complicated by the requirement to report on the reuse of underlying collateral at the entity level, not the trade level. OTC derivatives and securities financing are different products with different trading patterns, and hence different sequencing for reporting obligations. OTC derivatives, for example, tend to be held for a long duration whereas a securities finance transaction can be for one day with re-rates and collateral exchanges. As a result, SFTR has more fields than EMIR and twice the number as the Markets in Financial Instruments Directive (MiFID).

SFTR impacts around 60% of current securities finance trading and post-trade processes. Parts of the industry are only now fully appreciating the complexity of this regulation. A lot of time has been spent on considering pre-matching and generating a Unique Transaction Identifier (UTI) in the context of the Central Securities Depositories Regulation (CSDR), but now firms must figure out how they sequence messaging in SFTR in the context of how the market works.

SFM: Do you see outsourcing pre- and post-reporting tools becoming a broader market trend or is this specific to SFTR given the reporting complexities?

Wotton: Outsourcing of both operational capabilities and subject-matter expertise is a broader trend we think will continue, as is increased reliance on hosted software solutions, like the DTCC Report Hub service.

SFTR creates an immediate need for pre- and post-reporting tools. If ESMA adopts the ISO 20022 standard for EMIR REFIT, we would expect similar tools to be in high demand for that mandate as well. Then, as global REFITs come to market in Europe and Japan, firms will be seeking a solution like the DTCC Report Hub service to help reduce costs as well as manage their trade reporting data needs across jurisdictions.

DTCC supports securities finance and derivatives reporting regimes across the globe. While the DTCC Report Hub service is currently available for ESMA’s SFTR, it will soon cover ESMA’s EMIR, among other regulations and jurisdictions: CFTC, Canada, Switzerland’s Financial Markets Infrastructure Act (FMIA or “FinfraG”), Australian Securities and Investment Commission (ASIC), Hong Kong Monetary Authority (HKMA), Japan’s Financial Services Agency (JFSA), Monetary Authority of Singapore (MAS), as well as the Financial Conduct Authority’s (FCA’s) SFTR and EMIR post-Brexit.

SFM: Part of regulatory reporting requires that firms be able to tell their regulator what they have traded and reported. How important is it for firms to have audit and traceability for their own needs as well?

Wotton:It’s critically important for firms to have an easy way to respond effectively to regulator and audit inquiries. Firms typically want to do a good job in reporting and have high acceptance and matching rates.

As for internal audit and reconciliation, these regulations have created a need for tools that simplify these functions. Otherwise, firms will be expending tremendous time and resources tracing their trade data through the entire reporting lifecycle. The DTCC Report Hub service leverages leading-edge technology to deliver full audit and tracing capabilities.

SFM: Is the DTCC Report Hub service usable only with DTCC TRs or can it be used with any TR?

Wotton:The DTCC Report Hub service currently provides pre- and post-reporting and reconciliation tools compatible with DTCC trade repositories, but we would consider expanding its capabilities to support other trade repositories if there is industry interest.

This article was previously published in Securities Finance Monitor.



Val Wotton Headshot
Val Wotton

DTCC Managing Director and General Manager, Institutional Trade Processing