Global trade reporting ‘a mess', Sibos delegates told

DTCC and Commerzbank tell Sibos delegates that global derivatives trade reporting requires further regulatory intervention to be a success

FSB aims to overcome data aggregation issues

Market participants including Commerzbank and the Depository Trust and Clearing Corporation (DTCC) told delegates at the annual Sibos conference in Boston that they remain concerned at the lack of co-ordination being applied to aggregate derivatives trade reporting data.

Aggregation of the data being reported across trade repositories is necessary to ensure that authorities are able to obtain a comprehensive global view of the OTC derivatives market and activity and meet objectives set by the Group of 20 (G-20) nations in 2009.

At the opening of the Market Infrastructures Forum, keynote speaker Christine Cumming, chief operating officer at the Reserve Bank of New York, said there was a "real game changer" in the list of principles for financial market infrastructures (FMIs) issued by the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (Iosco), clearly putting risk management and contribution of support for financial stability as part of the governance of FMIs. She said: "That is a rich area of collaboration within the FMI community, regulators, supervisors and central banks."

But Andrew Gray, managing director, core business management at DTCC, said his chief concern remained effective implementation of such reforms, stating: "While those principles may be clear, the implementation differs from jurisdiction to jurisdiction. Unless we're very careful we run the risk of not achieving the goals that we set for ourselves. One example of that is global trade repositories for derivatives.

"The original objective was to create a place where you could see all the information on all derivatives around the world so we will be able to spot potential issues or imbalances and potentially be proactive and prevent a crisis. However, the way it's actually been implemented has created a fragmented system where it is far more complicated to pull all that information together. There are jurisdictional issues that seem to trump the overall global agenda."

Robert Scott, head of custody and collateral solutions at Commerzbank, echoed Gray's sentiments when he said during another conference panel that trade repository reporting is "still a bit of a mess. There's no standardisation and I don't think people really understand what the authorities are going to do with all this data."

Gray is hopeful, however, that there is recognition by supervisors of the challenge ahead. To date, a total of 25 trade repositories in 11 jurisdictions are either operational or have announced that they will be. The Financial Stability Board (FSB) this month published a study of the feasibility of various options for a mechanism to produce and share global aggregated data.

The FSB report compares three basic options for aggregating OTC derivatives trade repository data: option 1, a physically centralised model; option 2, a logically centralised model; and option 3, the collection and aggregation by authorities themselves of raw data from trade repositories. The report found that options 1 and 2 are highly preferable to option 3 in order to ensure that authorities have access to the aggregated data that they need in order to perform their mandates and meet the G-20 objectives. While option 3 is the only one of these options that is currently available for use, it has practical limitations that allow it to meet only part of authorities' data needs, beyond protecting against market abuse.

The report notes that it is critical for any aggregation option that the work on standardisation and harmonisation of important data elements be completed, including the global introduction of legal entity identifiers and the creation of unique transaction identifiers (UTIs) and unique product identifiers (UPIs).

The FSB has asked the Committee on Payments and Market Infrastructures (the renamed CPSS) and Iosco to develop global guidance on harmonisation of data elements, co-ordinate uniform global UTIs and UPIs, and address the legal and regulatory changes that would be needed to implement a global aggregation mechanism.

Sibos is organised by Swift, the standardised financial messaging system for the financial industry.