1 July 2014 MAS deadline to report interest rate and credit derivatives trades
Since the onset of the global financial crisis, policymakers and regulators around the globe have been working on designing a system to improve the transparency and the integrity of the global financial system. The regulatory need for timely access to detailed and accurate data on global derivatives activity – one of the key lessons learnt from the Lehman Brothers crisis – led G20 finance ministers in 2009 to commit to a regulatory framework mandating reporting of OTC derivatives trades to trade repositories. Today, major derivatives jurisdictions such as the US, Canada, Europe, Japan, Australia, Hong Kong and Singapore have put in place regulations which require derivatives transactions to be reported to trade repositories.
DTCC Data Repository (Singapore) Pte. Ltd is the only Singapore licensed trade repository, regulated by the Monetary Authority of Singapore (MAS). Under the rules set out by MAS, both parties to a derivatives trade have an MAS reporting obligation. Although buy-side counterparties may delegate this obligation to their dealers, they will still be held legally accountable for the accuracy of the information submitted to the trade repository. This means that they will need to be able to quickly access, verify and amend any reports submitted on their behalf to trade repositories by their dealers. Furthermore, in the case of asset managers, the reporting obligation applies to each managed account that uses derivatives as part of its portfolio.
Leveraging the actions taken by regulators around the globe, MAS has adopted a phased reporting approach allowing market participants as well as trade repositories sufficient time to prepare to meet regulatory requirements. The reporting regime for credit and interest rate derivatives trades was launched on 31 October 2013. Singapore licensed banks started reporting on 1 April 2014. The next, imminent reporting phase, set to impact buy-side firms and insurance companies, is the reporting of Singapore-booked interest rate and credit derivatives trades from 1 July 2014. Thereafter, corporations resident in Singapore with aggregate gross notional exceeding SGD 8 billion derivatives exposures will begin reporting their interest rate and credit derivatives trades from 1 November 2014. The reporting mandate for remaining asset classes, including equity, commodity and FX derivatives, will be introduced at a later date.
As we approach the final few weeks before the 1 July 2014 reporting deadline for buy-side users of derivatives, it is crucial that firms carry out the necessary preparations to meet the requirements of the new regulatory framework. Firms should read the MAS rules to see whether they have positions eligible for reporting as outlined in Section 125 of the Securities and Futures Act and Regulations 7 and 8(2) of the Securities and Futures (Reporting of Derivatives Contracts) Regulations 2013. DTCC is hosting weekly workshops for the buy-side community to explain to users how to report and on-board them to its trade reporting systems.
Depending on size and volume, firms can report directly to DTCC Data Repository or choose to leverage a confirmation platform, such as Markit Wire or Markit DS Match, which links directly to DTCC Data Repository. For those buy-side firms choosing to submit their trades directly to us, there are a number of connectivity options. Low volume users may choose to use web-based, manual spreadsheet upload, but medium volume users may wish to automate their upload via web services; lastly, FpML messages can be a more efficient solution for high volume end users, and those with reporting requirements in multiple jurisdictions.
Data quality should also be a key consideration in the trade reporting process. In order for trade repositories to receive high quality data, and in order for reporting to serve as an effective tool for the monitoring of systemic risk, market participants need to adopt a sensible approach to data management and maintenance of data to ensure all information is accurately captured and reported.
Concerns remain for a number of smaller/mid-sized buy-side firms still sitting on the fence and reluctant in taking concrete actions towards reporting. It is human nature to leave things till the last minute, but since the on-boarding process to DTCC Data Repository might take up to six weeks, it is crucial that firms take action now to meet the 1 July 2014 MAS deadline.
Trade repositories are one of the most significant instruments of risk mitigation to have emerged from the financial crisis. As mandatory reporting for OTC derivatives trades becomes a reality in Singapore, buy-side firms need to think carefully about their obligations to their regulators. DTCC is a trade repository with experience of offering trade reporting services globally, understands the issues at hand and is working with MAS and market participants to promote an effective and comprehensive reporting scheme in Singapore and the Asia-Pacific region in order to achieve greater transparency and risk mitigation in the OTC derivatives market in Singapore and globally.
For further information on your firm’s trade reporting responsibilities or to join the weekly DTCC workshops around trade reporting, please contact email@example.com or call +65 6407 1000.
This article first appeared in May 2014 on the IMAS website: http://www.imas.org.sg/index.php/resources/adetail/158