Buy-side firms in Europe will likely submit non-compliant reports to trade repositories when new derivatives rules take effect next year as unique transaction identifiers (UTIs) may not be created in time, according to the Investment Management Association.
Under the European market infrastructure regulation (EMIR), derivatives trades must be reported to a trade repository no longer than a day after the trade conclusion date (T+1). Firms will be required to provide 85 data fields, including UTIs.
New reporting rules are to take effect on 12 February, but David Broadway, senior technical adviser at UK trade body IMA, said a number of questions remained around the use of the UTI.
“The problem is with manually confirmed trades,” he said. “Buy-side firms will not have the UTI in time for their trade reports before the end of T+1.”
The International Swaps and Derivatives Association (ISDA) has published guidelines on the construction of the UTIs. In an updated document released in September, ISDA outlined that electronic trading platforms would generate a UTI for exchange-traded transactions. When trades are bilateral, but matched electronically, the matching platform would issue the UTI. And for bilateral, manually confirmed trades, the responsibility would fall on the sell-side.
But the complex paperwork behind manual OTC trades leaves asset managers concerned they may not receive a UTI from brokers in time.
“There is no explicit provision in the EMIR technical standards if the UTI is unavailable. So what to do if a firm doesn’t have a UTI between the two parties?” Broadway said.
ISDA has suggested that parties without a UTI at reporting time should submit the data using their own trade reference and update it when a UTI is agreed.
A spokesman for the European Securities and Markets Authority (ESMA) said the regulator has not received any formal request to endorse ISDA’s UTI framework.
In its EMIR Q&A, the regulator reiterated that if ESMA does not endorse a UTI framework, a code should be bilaterally assigned or generated by a venue operator. The regulator is expected to update its EMIR Q&A in November.
Broadway hoped ESMA would address whether updating the UTI field in trade reports was possible. “People will be more relaxed because it means they wouldn’t be submitting a non-compliant report in the first place – and that’s a concern to most people.”
Virginie O’Shea, senior analyst at consultancy Aite Group, said the buy-side was also concerned about the challenges of manually checking the UTI’s accuracy throughout the trade’s life cycle.
“Throughout a number of systems, buy-side firms will be manually inputting these UTIs, so at each point of the trade they will have to check the data with their counterparty.
“It currently happens now with other IDs, it’s only going to be multiplied by the need to have extra fields to reconcile.”
Broadway called for an industry-wide infrastructure, where counterparties without access to a confirming platform could share the UTI. “It’s not the sort of thing you can do on the phone or via email because of the potential of human error,” he said.
As for whether the buy-side and the industry as a whole was ready for reporting requirements, Broadway said there will likely be reports that do not match ESMA’s expectations from day one.
“There is a general feeling that the data is not going to be up to scratch initially,” he said. “UTI is just one area where there are some concerns that the industry will simply not be ready, but it won’t be for lack of trying.”
Meanwhile, post-trade services provider TriOptima launched a UTI pairing functionality to assist firms using triResolve to assign UTI to historical, paper-confirmed OTC derivatives trades and FX trades. This solution will provide UTIs for existing transactions but not newly generated ones.