There is a tsunami of change on the horizon for firms with over-the-counter (OTC) derivatives trade reporting obligations and those in North America are among the first to be impacted. On November 8, 2021, the U.S. Securities and Exchange Commission (SEC) went live with their requirement for the reporting of security-based swaps to a registered security-based swap data repository (SBSDR), and they’ll be closely followed by the Commodity Futures Trading Commission (CFTC) who are scheduled to implement revised reporting rules in 2022. It is expected that Canadian regulators will soon follow suit.
Related: Journey to Global Data Harmonization in Trade Reporting
I participated in a virtual event with industry experts to discuss these regulations as well as upcoming revisions. Joining me on this panel were Gregg Rapaport, DTCC Managing Director, Strategy and New Business Development, Dan Bucsa, Morgan Stanley Head of U.S. Swap Dealer Compliance, James McLoughlin, OSTTRA Head of Rates & Credit Derivatives, and Eleanor Hsu, ISDA Director, Data and Reporting.
If you missed the session you can click here to register to watch the replay. I’ve summarized the highlights of our discussion below:
Compressed Time Frames
- The industry received an updated and final version of the CFTC Technical Specification on September 30, 2021 and the swap data repositories (SDRs) haven’t received their final reporting guidelines yet.
- Reporting requirements delays have caused chain reactions. It was noted that industry design, build and testing for the new rules cannot start until the industry receives the final messaging specifications from the SDRs.
- DTCC believes the May 2022 implementation date is unachievable due to delays in publication of key documentation and has recommended an extension of the compliance date.
Updated Data Requirements
- The CFTC’s updated requirements adopt many of the Committee on Payments and Market Infrastructure and the International Organization of Securities Commission (CPMI-IOSCO) Critical Data Elements (CDE) and introduces the reporting of collateral and Unique Transaction Identifier (UTI). Overall these changes institute the submission of more standardized data.
Focus on Global Standards
- All regulators are looking to adopt standard identifiers such as UTI and Unique Product Identifiers (UPI), in addition to requiring the use of the ISO 20022 messaging standard.
- It was discussed that the implementation of ISO 20022 and a well-defined process for generating UPIs are necessary before firms can figure out how to make better use of these elements outside of regulatory reporting.
- Standards are necessary to drive the industry forward, and it was noted that moving from FpML to ISO 20022 XML messaging standard won’t be an easy transition for the industry. However, with proper guidance, industry governance and control, the migration to these ISO 20022 standards will reap benefits for the entire financial ecosystem as more and more regulators adopt these standards.
While the industry may face several challenges as we work to adopt the revised reporting rules, there is a light at the end of the tunnel. Data standardization can create efficiencies for all market participants, including trade repositories and regulators, and will allow for future cross jurisdictional data amalgamation when necessary. The ability to report critical data elements to the trade repositories in a standard language will remove ambiguity, streamline reporting processes, and should provide regulators with a better view on global systemic risk.