A myriad of trade reporting requirements
stemming from impending OTC derivatives regulation is set to pose challenges for all
market participants and span all asset classes.
Two panels at the Sibos conference in Osaka
offered an insight into what to expect across the various regions when it comes to reporting derivatives trades.
The need for trade repositories was
accelerated after the confusion that surrounded the near-collapse of US insurer
AIG in 2008, prompting the G-20 to call for better data collection that creates
a holistic view of potentially dangerous bubbles. Moreover, the on-going
sovereign debt crisis in Europe has reinforced the need for readily accessible
“The main work on trade repositories will
need to be done by the largest 20-30 derivatives dealers, but reporting will
affect all types of market participants and the differences between the rules
across jurisdictions needs to be looked at,” said Karel Engelen, director and
head of technology solutions at the International Swaps and Derivatives
Association, during a session entitled, ‘Trade repositories – Tackling new
regulatory requirements for OTC derivatives’.
One major concern, noted Engelen, will be
dealing with cross-border trades. For example, market participants are still
unsure how to report a trade in a German interest rate swap, conducted between
a Singaporean and US institution.
Leading the way is the Commodity Futures and
Trading Commission, the US regulator that has oversight for index-based swaps,
with reporting for credit derivatives and interest rate swaps launched on 12
October, with other asset classes set to follow in January. Japan, Singapore,
Hong Kong and Australia are preparing their respective trade reporting rules
for introduction during the course of 2013.
A key difference between US and Europe,
which is reforming swaps trading via the European market infrastructure
regulation, is a requirement by the latter to report listed, as well as
Europe is expected to start reporting
derivatives trades by 1 July 2013, and Jesús Benito, managing director of
REGIS-TR, a European trade repository formed through a joint venture of central
securities depositories Iberclear and Clearstream, said testing of his facility
would begin within two weeks.
He added REGIS-TR was looking for
value-added services to further help the market prepare for the new rules.
“Swaps traders, clearing houses, trade
repositories and trading venues will all require a complex network of
connections to each other,” he said. “There is room to innovate and offer new
solutions that will help to ease this burden.”
All for one, or one for all?
A second panel, Trade repositories: global
versus local’, looked at the disparities and uncertainties between the approaches
taken by different jurisdictions and the challenges this presents for market
participants as they await clarity on where and how to report their positions.
Speakers raised concerns that the global
nature of the derivatives market means fragmentation of trade repositories may
in fact add to the opacity regulators are attempting to solve.
“Different rules for trade repositories will
make it difficult for large firms that operate across jurisdictions to
co-ordinate their approach to reporting,” said Satoru Imabayashi, head of
market planning, Mizuho Corporate Bank.
But Esmond Lee, executive director at the
Hong Kong Monetary Authority’s (HKMA) financial infrastructure department, said
establishing trade repositories would likely be a key requirement for financial
“The G-20 mandate requires both cleared and
uncleared OTC derivatives to be reported, which will lead to the introduction
of new products after the regulations are introduced,” he said, citing the
development of RMB-denominated financial instruments in Hong Kong. “Having a
home-grown view of positions will also help with local market surveillance.”
Connections between reporting facilities was
recognised by panellists as a vital factor that would ease the burden on the
The HKMA is already taking steps to link its
repository with that of the Depository Trust and Clearing Corporation (DTCC),
enabling market participants to automatically report to the HKMA via DTCC.
“Interoperability between trade repositories
is a big issue and one that has been recognised by the legislation underpinning
the new derivatives rules,” noted Marisol Collazo, managing director, product
One issue arising from the sharing of trade
information across borders is the need for confidentiality. But Franco
Passacantando, managing director, Banca d'Italia, said matters relating to the
security of data – including anonymity, maximum time periods for how long data
can be stored and limiting certain information to regulators only – were firmly
on the radar.
“We are entering a new world of data
collection, but there should be no strains when it comes to sharing
information,” he said.
The panel also discussed how the use of
trade repositories could be broadened in future, specifically related to the
mark-to-market valuations needed for the movement of collateral and pricing of
“There is scope for trade repositories to go
further in their roles as neutral third-parties to help regulators achieve
their goal of minimising systemic risk,” said Lee.