Contango news

The brave new TR world gets complex, merely delegating the process is not the answer

Richard Wilkinson, Director, Post Trade Solutions at Contango believes that hard pressed operations teams are about to face another headache with trade reporting unless action is taken.

The EMIR regulatory requirement in Europe, which requires the reporting of trades and positions to a Trade Repository (TR) has created an enormous cost and resource burden for derivatives market participants throughout the value chain.

The dual-sided nature of exchange traded derivatives means setting up a reporting structure is complex enough. Then, if an end user has multiple clearing relationships and each clearing firm reports to a different TR, the complexity grows exponentially with basic processes such as aggregation and reconciliation taking on nightmare proportions. And that is before the mandatory reporting of positions and collateral comes in later this year.

Having concentrated in the short term on fixes to transport the required data to the right venues we believe many firms and their suppliers are about to face an even more problematic and unforeseen issue: data mismatches arising from T+1 changes to F&O trades are creating a huge backlog of unpaired trade and duplicate and erroneous UTIs are preventing true inter-TR reconciliations from being made.

The only way to rectify these is to reconcile the trade reports emanating from the data in the TRs with the trade owner's own books and records. We believe there is an urgent need for a data matching engine solution in the complex multi-TR world to ease concerns about compliance and potential subsequent fines, because short-term spreadsheet based solutions will not stand up to regulatory scrutiny once the current forbearance on enforcement ends.

It is clear that the delegation of trade reporting will not resolve the issue. End users’ compliance officers will be wary of having a third party produce reports and valuations and ultimately the responsibility of an error lies with the owner of the trade, so outsourcing the trade reporting does not abdicate this responsibility.

They know it won’t be long before regulators start handing out fines. There is a clear reason for them to collect this data and if something goes awry and they don’t spot it in time they will have to answer to both their political masters and the industry.

At the same time operations teams are already under extreme pressure. If the trade reporting issues are not resolved quickly, bearing in mind that they will still be getting clients on boarded for OTC clearing and dealing with a raft of other issues, they are likely to reach breaking point especially with potential fines hanging over them.

Contacts – Richard Wilkinson, Director, Post Trade Solutions, Contango - Richard@contango.co.uk 07912 693258 ; David Setters, Director, Business Development, Contango – david@contango.co.uk 07710 271291; Clive Furness, Managing Director, Contango – clive@contango.co.uk 07931 372586