A new attempt at improving trade reporting in Europe has already begun to advance the process towards its intended goal of increasing transparency in the derivatives market, according to industry experts.
On 1 December, European regulators introduced a rule whereby trade repositories would have to reject any reports with incomplete or missing data.
According to Ian McLelland, CEO, DTCC’s European trade repository, the implementation of the validation rules under the European Markets Infrastructure Regulation has been “extremely smooth”.
“In our experience, firms have been very swift to correct any initial errors resulting from the validation process, and we continue to see low levels of rejection rates as a result,” said McLelland.
“We worked very closely with clients in the run-up to the implementation, educating them on the upcoming changes and providing them with the necessary documentation and the ability to test their readiness ahead of time.”
The new mandate was aimed at improving the quality of data received which has so far plagued the process with matching rates across trade repositories extremely low.
“Data quality is now the key challenge,” said Dominique Iroz, manager, strategic operating model, OTC Derivatives, BNP Paribas Securities Services.
“There is still a lot to do to ensure that all parties are using the same trade identifiers. To achieve this, counterparties will increasingly need to automate their matching process using market utilities.”
Regulators have yet to clamp down on any reporting discrepancies due to the complex nature and rushed rollout earlier this year, however this may change moving forward.
Trade reporting has been rife with problems from the outset with most firms unprepared for the new rules back in February 2014.
European rules enforced the reporting of both OTC and exchange-traded derivatives data, making the process even more complicated with only the former actually mandated by regulation.
“Everyone talked about OTC derivatives being low volume and high value, but with reporting every futures trade and having dual-sided reporting, this meant that they have just been drowning in data,” said Richard Wilkinson, director, post-trade solutions at consultancy Contango Markets.
Nevertheless, with matching rates extremely low due to incorrect data and missing fields, national regulators could soon be making an example of a major player in the market in order to accelerate improvements to the process.
“The regulatory forbearance that everybody is speaking about will probably last beyond the February anniversary, but from March or April 2015 the relevant national authorities might start to look at it with a more stringent eye,” added Wilkinson.
“I don’t think anyone will get fined straight away but I think they will say the rates need to improve. So fines might be held in the balance for a while but it may well be the trade repositories that suffer first.”