EMIR reporting offers more opportunities for vendors and service providers

With new reporting requirements for the European Market Infrastructure Regulation now in effect, technology vendors and service providers have more opportunities to offer solutions to clients.

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With new reporting requirements for the European Market Infrastructure Regulation (EMIR) now in effect, technology vendors and service providers have more opportunities to offer solutions to clients.

Firms such as Bloomberg have extended their EMIR offerings to handle the new collateral and valuation reporting, while Traiana, Dion Global Solutions and Confisio Managed Services came together to develop a reporting service for these requirements. 

Likewise, Sapient Global Markets has recently expanded its Compliance Management and Reporting System (CMRS) for the second phase of EMIR reporting. 

While firms will now have to report these new data points, implementation from both a market participant and regulatory perspective will likely take some time, as both have somewhat determined their actions along the way.

None of the 28 EMIR/ESMA-member nations have yet to penalise non-compliant firms, and while fines are likely on the way following an unofficial grace period, regulators are still unclear as to what, if any, fines will be levied and on whom.

"EMIR trade reporting continues to get off the ground slowly,” says Joshua Satten, global head of OTC structured products at Northern Trust Hedge Fund Services.

“We continue to not see all market participants yet in compliance, and the trade repositories themselves are still working fervently on their inter-trade repository matching abilities, with the respective matching percentages remaining quite low across asset classes."

Along with the variety of reporting solutions, firms have a few different options for how they actually report. With Sapient’s CMRS, firms can use the system to report data on their own or on behalf of a counterparty, and service providers can also use the platform to offer a delegated reporting service to their end clients.

For example, Northern Trust has been collaborating with Sapient on the CMRS platform for over a year and encouraged the firm to make the platform more TR and regime-agnostic in order to provide a more useful delegated service, says Satten.

Firms can use the service as part of an over-arching regulatory support package, considering the service provider likely has the necessary data available.

Northern Trust has since used the platform to support its clients for phase one of EMIR reporting and has now set it for use in respect to this week’s EMIR phase two go-live that began 11 August.

Part of the challenge with EMIR reporting is that firms often have multiple source systems around trade booking, valuation and collateral management, so using a reporting platform to pull in the information from these various sources can alleviate this problem.

“There are numerous, significant data challenges inherent in the trade reporting process, not least of which is the aggregation of data from numerous different sources across a firm,” says Virginie O’Shea, senior analyst at Aite Group.

“Given the issues the industry faced earlier in the year with the EMIR deadline in February and the lack of common standards for reporting across trade repositories, similar internal reconciliation and reporting challenges are likely to occur for the valuations and collateral component, especially when acting on behalf of a client.”

By offering a delegated service through a reporting platform, service providers can be in a position to help firms manage this data challenge.

"Not only in trade reporting but in portfolio reconciliation, many clients who wanted to be compliant day one have either moved toward passive portfolio reconciliation and/or delegated trade reporting, meaning their brokers are reporting on their behalf,” says Satten.

“We know that in Europe the client is still on the hook for valid information. So as the clients realise and understand these rules further and better over time, we expect them to want to own their own trade reporting and portfolio reconciliation services and delegate them to a provider such as Northern Trust, since we are acting in a middle-office and/or administrator and/or custodial capacity."

With phase two of EMIR reporting now underway, the amount of data will of course be greater, but regulators’ use of the information will likely take time to sort out. In terms of what ESMA hopes to gain from the reporting, Satten notes some possible uncertainties.

"No matter if you're collateralising in multiple securities or multiple currencies, you're going to be reporting in one base currency the total number.

With valuation, one of the interesting points that came out is you do not have to agree on that valuation with your counterparty in order to report it.

So there's more and more questions in terms of the understanding the regulators may or may not get from these reports that they're getting as they continue to come out, but again, we're still seeing a lag from market participants from the first wave of the February go-live for trade repository reporting."