In just 5 minutes, we’ll explore the world of post-trade financial services by way of new ideas, insight snippets, emerging trends, and thought-provoking questions. In this episode, Mark Steadman, Executive Director, Head of DTCC Report Hub, explains the importance of reconciliations as part of your end-to-end trade reporting controls and how DTCC Report Hub can assist.
Transcript:
From DTCC, you're listening to Take 5, a bite-sized post-trade financial services podcast that tackles an industry topic or trend in just five minutes. Tune in to hear a DTCC executive share their perspective on how to grow, prosper and protect the global financial markets. There's a lot to uncover in five, so let's start the clock.
Hello, my name is Mark Steadman, Executive Director, Head of DTCC Report Hub. Reconciliations are becoming a hot topic and today I'll be talking about the importance of reconciliations as part of your end-to-end trade reporting controls.
To date, whilst it's been implicitly implied that firms should conduct reconciliations to ensure complete and accurate reporting, the new rewrites ratchet up this requirement and, in some cases, explicitly requires firms to perform reconciliations. The CFTC, for example, requires reporting counterparties to verify the accuracy and completeness of their open trades through a monthly reconciliation between the data held at the trade repository against their internal books and records. On top of this requirement, you also need to rectify any errors or omissions in your reporting as soon as technically possible, but no later than within seven days of discovery. If you can't rectify within seven days, you need to notify the Division of Market Oversight, also known as the DMO, within 12 hours of the realization that you can't resolve the error. This will require a good workflow to track when breaks are found, aging of the breaks and closure of the breaks. Under EMIR Refit, ensuring the quality of data reported as set out in Article 9 of the implementing technical standards and Article 1 and 3 of the regulatory technical standards on reporting, also brings a sharper focus on controls and reconciliations than previously.
Looking at solutions, reconciling two sides of the trade is fairly easy, and there are many solutions in the market and I'm sure in-house to do this, although the volume of data being reconciled can pose challenges to a normal generic reconciliation platform. What is not easy, however, is to prepare the data from your source systems into the right format to be able to reconcile against the trade repository reports. This requires you to firstly put the data into the right format so you can reconcile against the data in the trade repository reports. To do this, you will need to map the data against your report, normalize it and apply it with the correct re-numerations. You will also need to filter out the trades that are not in scope for reporting, so you only reconcile eligible trades. If you don't do this and don't properly prepare the data from your source systems, you'll just end up with a huge amount of forced breaks which will render any reconciliation process useless.
Lastly, once the reconciliation has been done, you should run analytics on the results to enable you to quickly identify your biggest pain points and provide MI to Management and Compliance. Many firms run a reconciliation of an end of day snapshot of their books and records against the trade repositories’ trade state report. This may not be enough, as it won't necessarily capture intra-day trades—those are trades that have been open and closed on the same day. In this case, consider a reconciliation against the new trade activity itself. Another reconciliation, which firms perform in single-sided regimes such as CFTC, is the reconciliation against trades their counterparties have reported, otherwise known as “alleges”, to ensure that the other side of the trade has reported the trade. This actually checks for under-reporting, and this reconciliation also checks for over-reporting, as it validates that both sides have not reported the trade as well.
I hope the short summary of reconciliation was helpful for you. Everything I've outlined here, the DTCC Report Hub reconciliation service performs. If you believe you may need help with your reconciliations, then please reach out to your DTCC relationship manager. Alternatively, please visit dtcc.com/reporthub, fill out the “contact us” form and one of our experts will be in touch.
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