Thursday, August 14, 2014 6:27:25 AM

Surprisingly good start for European derivatives reporting mandates

The start of collateral and valuations reporting under the European market infrastructure regulation (EMIR) has been smoother than OTC and listed derivatives transaction reporting requirements introduced in February, according to industry experts.

From 11 August, both buy- and sell-side firms in Europe had to begin reporting the collateral they post for derivatives trades along with the valuations of transactions, in addition to the 85 fields already required by regulators.

With the initial phase of EMIR reporting surrounded by confusion and the subsequent sending of unmatchable data, market participants say they have seen a surprising amount of efficient reporting in the first few days under the new rules.

“On our side it has gone smoothly, we have a good rate of acknowledgement across all types of instruments, so I would say that is quite successful, we are really close to 100% of acknowledgement,” said David Beatrix, business development manager, collateral access, BNP Paribas Securities.

“We have a good rate of integration, good feedback from the repositories, so I would say we are in a much more comfortable position than in February.”

The reporting mandates under the EMIR have posed a challenge for buy-side firms across Europe, requiring the establishment of legal entity identifiers  and unique trade identifiers , along with an extensive report having to be filed for each trade. 

Even the smallest discrepancies in reports have meant that trades will not match at the trade repositories with some experts suggesting the matching rates are as low as 1-2%.

Due to these issues, there were concerns surrounding how the market would comply with the additional requirements.

Ian McLelland, CEO of the Depository Trust and Clearing Corporation’s European trade repository, DDRL, said however, that the collateral and valuations process has gone smoothly so far.

“The new global trade repository collateral and valuation capabilities have been live for over a week, and we have seen a large number of customers starting to report to us well in advance of the compliance deadline,” he said.

“We are observing millions of additional reports to our global trade repository service as a result of the new reporting requirement, and we are processing this additional data without issue. 

“We will be reporting this data to ESMA and the national competent authorities on a daily basis beginning this week.”

As with the first phase of trade reporting, the European Securities and Markets Authority issued a Q&A as a vague guidance for the additional requirements.

Participants have voiced concerns in the past that these Q&As represent guidance rather than formal instructions, meaning some parts of the reporting process are still open to interpretation. 

Chris Collins, director at Sapient Global Markets, said that while the start of collateral and valuation reporting may have gone better than expected, there are still issues surrounding the reports. 

“First indications are that firms have to a greater or lesser degree met the new collateral and valuation reporting rules and deadlines,” he added.

“But with the uncertainty around the valuation models used, the proof remains in the pudding as to whether the quality and content of those reports will meet the standards expected by the regulator.”

Part of the G20 agreement in response to the financial crisis was that all OTC derivatives trades had to be reported to a trade repository.

Europe went one step further by enforcing similar rules for exchange-traded derivatives as well.

In addition, it also required that buy-side firms take responsibility for reporting, whereas in the US responsibility for reporting largely remains with the sell-side.

The aim of trade reporting enforcements is to collect market data in order improve transparency and reduce systemic risk in the derivatives markets.

Jon Watkins +44 (0) 20 7397 3815