REGIS-TR Trade Repository

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1 June 2017 REGIS-TR Trade Repository At REGIS-TR, we are proud to launch our first brochure including the latest articles published on LinkedIn by the members of our Team. We hope they will bring you insights on our current reporting landscape and on the role of Trade Repositories in the near future. REGIS-TR Team Our reflections on the Regulatory Reporting Landscape Main reflections on the Regulatory Reporting Landscape Main reflections on the Regulatory Reporting Landscape The question of the Unique Trade Identifier SFTR regulatory framework FinfraG s entry into force 6

2 Table of Contents Main reflections on the Regulatory Reporting Landscape Trade reporting - towards convergence or equivalence?... Page 2 ISO Worth the effort for trade reporting?... Page 6 Towards Perfection in Regulatory Reporting... Page 9 EMIR Reporting The only thing that is constant is change... Page 20 The question of the Unique Trade Identifier UTIs - Barcodes for trades?... Page 11 UTIs - A question of timing... Page 15 SFTR regulatory framework REGIS-TR publishes SFTR consultation response... Page 8 SFTR - Is it a question of a clear perspective?... Page 13 ESMA issues SFTR technical standards... Page 17 FinfraG s entry into force FinfraG: The clock is ticking... Page 18 1

3 Trade reporting towards convergence or equivalence? John Kernan Senior Vice President Head of Product Management Published on LinkedIn on November 2, 2016 Since the financial crisis, the role of trade and transaction reporting as a guarantor of market transparency has grown exponentially in the eyes of regulators around the world. Having said this, each regulator has had their own specific agendas and focus points, leading to non-harmonised reporting standards globally. The importance of addressing this variance is clear, and a requirement for the data reported to be meaningfully comparable across jurisdiction. Having said this, there are alternative approaches to rectifying this data variance, and in this piece I would like to highlight two approaches (which may or may not be mutually complimentary, and both of which present their own challenges.) Convergence The first approach is convergence or harmonisation. An example of this approach can be seen in the evolution of MiFID into MiFID II/MiFIR. A European directive like MiFID II requires transposition into national law, and means that national regulators can enhance the requirements laid out in the directive, leading to different approaches taken by the member states. As a regulation, however, MiFIR is applicable in the same way across the entire EEA. The new rules therefore take into account both the specificities of individual member states, while at the same time aiming to bring harmonised standards across the whole EEA. For example, investor protection and governance issues appear in the directive, as they could never be transposed without taking into account member states specificities in their financial system. On the other hand, it would have been pointless to set up different 2

4 transaction reporting templates, as the purpose is to monitor the activity across the EU for a single issuer, hence their presence in the regulation rather than the directive. As well as harmonisation across member states, there s also an important harmonisation activity being undertaken among other regulatory initiatives in relation with MiFIR. Certain realignment works have been made by regulators in relation to other reporting regimes (e.g. EMIR) and we can see a convergence in terms of reporting formats, technical processes and required data fields as many pieces of information are the same across different regulations. However, it is impossible to completely harmonise the requirements given that the different reporting regimes exist for different purposes. For instance, given distinct nature of EMIR and MiFIR reporting, the information required to be reported is quite different and it would be hard to effectuate a joint reporting as it was initially planned. Equivalence Harmonisation of standards therefore as we can see has limits which are compounded even more so once you move out of the single market area of the EU and into the world more widely. Again here there is still a need to have some level of comparability across regulations in the field of trade reporting. In other words, across jurisdictions, there is also a need for regulatory equivalence between the relevant regulatory bodies. We can see a current example of this in the implementation of the Swiss Finanzmarktinfrastrukturgesetz, also known as FinfraG. As a brief background, FinfraG came into force on 1 January It regulates: The organisation and the operation of financial market infrastructures, for example, stock exchanges and central counterparties; The trading of derivatives; The conduct of business rules, for example, insider trading and market manipulations, shareholding disclosures and public takeovers offers. The main rationale behind FinfraG is to align the Swiss regulatory framework with international standards, in particular with the EU regulations (MiFID II, MiFIR, EMIR and CSDR) with a view to preserving Switzerland's global competitiveness. 3

5 Specifically regarding derivatives trading, FinfraG introduces broad changes to the Swiss derivatives market and aims at increasing transparency, reducing counterparty and operational risk in trading as well as enhancing market integrity and oversight. It introduces four main duties for derivatives trading: Reporting to a trade repository Mandatory clearing through a central counterparty for large counterparties (for both OTC derivatives and ETDs) Trading through a stock exchange or a trading system Risk mitigation - OTC derivative contracts not cleared through a central counterparty will be subject to the following obligations: Exchange of transaction confirmations between counterparties; Portfolio reconciliation; Dispute resolution; Portfolio compression; Daily valuation; Margin requirements and exchange of initial margin On the trade reporting side, for FinfraG, full equivalency is not yet in place between the relevant EU and Swiss regulators (ESMA and FINMA respectively). Whilst FINMA has recognized EMIR as provisionally equivalent, meaning that counterparties which are subject to the reporting obligation under FinfraG may meet their obligation under European regulation if certain conditions are met, reaching full equivalence between FinfraG and EMIR is likely to be a long and complicated process, requiring an equivalence assessment from both the EU Commission and FINMA. Even where regulations have a broadly similar intention, the manner in which they are implemented can differ in this case the major difference being the requirements for both counterparty sides of the trade to be reported (EMIR) versus a single-sided hierarchical approach (FinfraG). Given the differences between single and double sided reporting, it is hard to see how mutual equivalence could be reached between the two regimes without the risk of regulatory arbitrage. However, we can still see some degree of convergence in terms of 4

6 reporting formats, technical processes and required data fields as many pieces of information are the same across different regulations (e.g. client data, instrument data, broker data, UTI, LEI etc.). What s the solution? The majority of what s been written here has been theoretical but it s important to bear in mind that it results in real-world consequences. The required reporting places a significant operational and financial onus on a wide array of market participants, who have to report under an increasing range of ever more granular and ever broader of scope regulations. Fortunately, this can be largely alleviated through a centralisation of reporting through a specialist provider of hub-based reporting services, such as REGIS-TR. The modern TR is critical market infrastructure, providing carefully controlled snapshots of sub-sections of data across multiple regulatory regimes to multiple national and international regulatory bodies, whilst providing cost effective and intuitive solutions for market participants across all of their regulatory requirements. For Switzerland, we are in the process of recognition by FINMA as a foreign trade repository, meaning that we will provide our market participants with a service under the FinfraG framework. By utilising a single agency market participants will benefit from an integrated solution with common connectivity and a single relationship across EMIR, FinfraG and other regulations. In this way the regulators goal of greater transparency and stability can be achieved without crippling the ability of market participants to conduct their business. 5

7 ISO Worth the effort for trade reporting? Irene Mermigidis Managing Director Published on LinkedIn on January 2, 2017 At SIBOS in Geneva this September I was on a panel with ESMA discussing the crucial importance of standardisation of trade reporting messaging, and in particular the relevance of ISO in this context. A nice write-up of the discussion I had with my fellow panel members has recently been published in the wrap up edition of SIBOS issues. Here I d like to go into a bit more detail about my thoughts on this issue. All new developments come at a cost. For Trade Repositories, whose businesses are founded on data management, any change to the way in which the input is transformed and processed will have a direct and wide ranging impact on the business of the institution. It s worth bearing this in mind when considering the increasing importance of ISO message formats for trade reporting. Trade Repositories aren t the only ones that have a herculean task here: it is worth mentioning that a lot of costs also need to be carried by the market participants due to all the changes on their reporting solutions. Sufficient resources and knowledge are required to update and implement their IT infrastructure in order to be compliant with the ISO methodology. There is also a major data cleaning and mapping exercise on their side too. Turning to the regulators, again there are substantial efforts that need to be made - for instance, the ISO triggered major other projects for ESMA such as the TRACE project and the Reference Data project, involving high costs, knowledge and resources. Having said all this, and despite the high initial costs and efforts are required from all stakeholders, this collaborative initiative 6

8 will benefit all market players in the long run. By taking a standardised global approach to ISO implementation, the industry as a whole will be in a much better place to manage and lower costs, as well as to ensure efficient rollout of the new communications standard. This becomes even more important as today, regulators of the world impose a new wave of regulations (e.g. MIFIR, SFTR etc.) to avoid future destabilisation of global markets. The use of a single messaging standard across different reporting regimes is more beneficial for regulators and the industry than introducing a different reporting standard for each regulation. The number of business rules will be significantly reduced because a bulk of proprietary validations and fields will be transferred into the market participants in-house solutions to achieve a well formatted ISO XML. The new market flow will be that market participants send their reports in accordance with the ISO methodology. When one compares this to a continuation of the current scenario, the advantages of ISO become obvious. Not having a framework that includes strict and concrete requirements leads to poor reporting, incorrect data aggregation and comparison, low data quality, as well as significant costs and time inefficiencies. ISO is a good solution to these current problems, particularly as it contains common understanding of business requirements and business data definition through its business dictionary and data model (it is a unique characteristic of ISO and is not provided by other standards). Moreover, to large extent already covers the European reporting requirements, and has already been successfully implemented in pan-european projects related to the exchange of financial information (e.g. MMSR, T2S, SEPA). Just as the implementation of ISO in trade reporting plays of other major European infrastructure projects, the project market participants are currently undertaking, in the context of regulatory compliance, can be leveraged for several other purposes. For example, market participants will be able to use their cleaned data and use it for different internal processes within their organisation (i.e. risk management, compliance, business development etc.) Furthermore, it is important to note that the implementation of ISO goes beyond regulatory reporting. The ultimate objective is to adopt ISO in the global financial market impacting the whole value chain and ecosystem. The standardisation will open a business case for different financial market vendors to adapt their front, middle and back office solutions according to the ISO standards (i.e. trading, confirmation, settlement, risk management etc.). This could encourage market participants to explore additional options for exploiting data, harnessing new big data technologies currently in development. 7

9 REGIS-TR publishes SFTR consultation response Mari Carmen Mochon Institutional Relationship Manager Published on LinkedIn on December 12, 2016 We ve just published our response to ESMA s SFTR consultation. What you will see from our response is that we strongly support standardization, including the adoption of ISO20022, the use of common data elements and reusing existing EMIR standards where appropriate. We support also the use of standard elements from other regulatory initiatives that have been proven to work, so as to reduce implementation costs. For example: Q39, ISO Country Codes Q44, protocol for generation and consumption of UTI Q75, validation rules Q76, 77 & 84 reconciliation rules Q78 & 96, support for ISO Additionally of interest, we confirm in our response to Q22 that the reporting of market values could be problematic if this is a matching field. We recommend that a reasonable tolerance is considered. To read all of our responses in full, please visit our website. 8

10 Towards Perfection in Regulatory Reporting John Kernan Senior Vice President Head of Product Management Published on LinkedIn on January 2, 2017 I just recently read through an excellent article in the Journal of Securities Operations and Custody by Olga Petrenko, Senior Officer at ESMA. She looks at similarities and differences between MiFIR and EMIR, and also takes a look at the future path of regulatory reporting harmonisation. If you have a subscription, you can read her article here JSOC Volume 8. One of the key points of her piece that I d like to build on here is the idea that harmonisation of reporting standards is a stepby-step, iterative process that is being continuously developed over time. This is the case both because the implementation of these regulations is a learning process for the regulators, market participants and trade repositories alike, and particularly because there s a need to make sure that the burden such reporting places on market participants is not unreasonably excessive. Highlighting the first point, as Olga points out, when EMIR first came into force in 2012, there was very limited experience with what needed to be reported for derivatives. The RTS and ITS for reporting derivatives under EMIR had to be put together without really the benefit of previous lessons learned, and in a time frame of approximately 3 months after EMIR was published in the Official Journal. Over the course of EMIR implementation, ESMA produced a Q&A document addressing the implementation of reporting under EMIR. This document has now been through 19 iterations up to the present. While the Q&A document is non-binding, implementation of many of these guidelines in the technical specifications will result in a better and binding reporting framework for EMIR, and many elements of the Q&A guidelines will be included in the update to the EMIR technical specifications (RTS). 9

11 This is not however the end of the process, as Olga interestingly references, work, led by CPMI-IOSCO, is underway to harmonise reporting standards in 2017 on a more global level. Therefore, it is likely that some of the EMIR technical specifications will in any case have to be modified again to accommodate the final guidelines for international standardisation (and that these changes would require consultation). This I think is a clear example of how reporting requirements are still in a development process that is iterative over time. On the second point of not putting undue pressure on Market Participants at any one period in time, Olga points out the example of ISO20022, which my colleague Irene has also written about in her blog ISO Worth The Effort?. One of the key points here is that the history of EMIR implementation has been one of pragmatism. Back when first being implemented, ISO20022 was not considered due to the aforementioned time pressure. However, ISO20002 was considered in the course of 2014/2015 EMIR reporting TS review but was not eventually adopted, ESMA instead prioritised fixing the most important issues under EMIR article 9. Their reasoning was that full implementation of ISO20022 would cause delays in the implementation of the new standards and a significant and unexpected burden for reporting entities, and also in consideration of the parallel CPMI-IOSCO work and its possible impact. If, as I expect, the implementation of the new RTS helps to solve many of the ongoing data quality issues, it will soon be time to start examining the best pathway to fully implementing ISO This will ultimately provide a further significant boost to data quality standards under EMIR, and greater standardisation globally. It is right to strive towards perfection, but waiting before implementing this requirement was absolutely correct so that market players could get all the right pieces in place before the clock went "pop". 10

12 UTIs - Barcodes for trades? Published on LinkedIn on March 17, 2017 Irene Mermigidis Managing Director CPMI IOSCO recently issued a paper providing some clear technical guidance on how Unique Trade Identifiers UTIs should be used in trade reporting. This is timely and worthwhile, and will result in more harmonised reporting practices. As such, it s a natural complement to the use of ISO that I ve discussed previously as being a key change needed in the regulatory reporting landscape. Just to explain in a bit more detail why UTIs matter. Uniquely identified transactions are essential for market transparency. The UTI Data Standard constructs the UTI from the Legal Entity Identifier (LEI) of the generating entity, combined with a unique value created by that generating entity. Pairing the UTI and the LEI enables trade repositories to identify which of their peers has the corresponding leg to the trade, which in turn facilitates sharing of the additional fields of data subject to full reconciliation. In that context, EMIR regulation requires each UTI to be unique in order to avoid double counting of the same trade, linking transactions when a life-cycle event occurs and linking associated trades. The UTI is also required in other regulation such as SFTR, for example to facilitate the linking of collateral movements, which participants may not be able to report at exactly the same time as the transaction. Under EMIR, the UTI remains the single biggest issue concerning data quality. It is a great example in miniature of the wider challenges of implementing a reporting regime. Right from when EMIR came into effect, use of common UTIs was a mandatory reporting element. However, even with guidelines, the lack of a prescriptive standard has meant that many counterparties were unable to agree who creates and who consumes the identifier. For example, a common issue we have seen is that it s not always universally agreed who is the buyer and who is the seller and 11

13 thus who is responsible for the creation of the UTI. In the event of a deadlock it is normally the seller who produces the UTI. Up until now, there has been a lack of coherence regarding the rules of UTI generation. In previous efforts, ESMA developed a decision-making hierarchy for counterparties who fail to agree on the entity responsible for generating the UTI. The hierarchy is as follows: For centrally executed and cleared trades, UTIs should be generated by: either the trading platform (execution time) or by the trade confirmation platform (confirmation time) or by the CCP (clearing time) or by the clearing broker (after the trade has cleared) Unfortunately, this approach offers room for interpretation since the jurisdictions have been using their own rules for generating UTIs. Also, it is difficult to adopt a common standardised approach when you consider that UTIs will be required across multiple regulations, each with different process flows and actors. For example, in the world of securities lending and SFTR we see a number of intermediaries who could potentially fulfil the role of UTI generator Triparty Agents, trading, matching or reconciliation platforms - but it is not mandatory to use such organisations. Essentially, the UTI technical guidance recognises that the UTI will be generated in a decentralised fashion by a wide range of actors and that a single, utilitarian registry for this purpose is unrealistic. Some have discussed Trade Repositories filling this role of UTI generation. In my next blog, I'll look into this proposal in more detail. 12

14 SFTR - Is it a question of a clear perspective? John Kernan Senior Vice President Head of Product Management Published on LinkedIn on March 21, 2017 Yesterday, I spoke on a panel at the ICMA European Repo and Collateral Council Annual General Meeting in Zurich on the subject of SFTR. Seeing so many senior level knowledgeable practitioners already highly engaged in analysis of the new regulation gave me a strong sense of optimism that the challenges are well understood and that the industry is geared up for action. Here are some of the key themes from my notes: Half Empty? On balance, I believe that SFTR is a more complex beast than EMIR. There are more fields of data to report (even after the new EMIR RTS) and the location of the full data set is highly fragmented no one entity has all of the reportable data; it will be necessary to augment your data set with the delta and TRs require this in completed report format. Transaction flows are often more complicated, with a number of potential actors in the chain. Many of the actors with key data are exempt from the reporting due to non- EU domicile. Common data elements like UTI and LEI are not standard in the SFT space, plus both the TRs and ESMA will have to come to terms with the specific and different nature of these transaction types compared to their previous reporting and regulatory roles (we need to stop talking about SFTs as if securities lending, repo and collateral activities are homogenous). Half Full? Having said this, many lessons have been learned from EMIR. The reporting obligation will be phased, with compulsory delegation for corporates. Common data elements such as LEI and UTI, whilst not yet entrenched practice in the SFT world, are now established with detailed protocol. The implementation of ISO means greater consistency in reporting schemas between TRs, making it easier for market participants to understand the data field requirements, perform data quality validations and ultimately making it easier to report (and also to port). 13

15 There are also a number of natural intermediaries in this space who are already developing innovative reporting solutions including data augmentation, matching and reconciliation, to ensure that participant data is scrubbed upstream of the TR potentially reducing overheads for exception management and the risk of misreporting. The mandatory use of a TR is also very important. The TR plays a pivotal role in the EU reporting regime as a central market infrastructure focused specifically on reporting, with system scalability and the know-how in regulatory data processing. We operate on a cost-plus basis, can facilitate multiple different reporting models and are stringently regulated. At REGIS- TR, we will make it as easy as possible for participants to report directly, but we also recognize that interoperability with third party vendors will also be critical. Indeed, we already fully support a range of direct and third party models for reporting under EMIR. In summary, the framework is more precise from the outset than EMIR and there are lots of pragmatic options for participants to meet their reporting obligations. Time, Ladies and Gentlemen, please The industry is already working hard on this subject and is well represented by a number of long-standing industry working groups such as ICMA, ISLA etc. These groups are essential as they not only have a deep understanding of the prevailing market practices, but also where the regulatory requirements may not be completely congruous with these. You only need to look at the published responses to the draft RTS/ITS to see complex issues like timing of non-cash collateral allocations, re-use reporting and collateral valuation standards already being flagged as potential issues. It s encouraging that this level of informed debate is happening well in advance and it will be interesting to see to what extent the proposals outlined in consultation responses will make it into the final version, expected early April. I think it is also important to realise that as we saw with EMIR the regulators should take a reasonably pragmatic view of the situation. No matter how much planning, no matter how robust the manner of implementation, there will always have to be a process of learning by doing where idiosyncrasies both foreseen and unforeseen will need to be ironed out. I think an expected reporting start date in late 2018 is feasible as much work has been undertaken already and many market participants are already looking at vendor and TR selection. Conclusion Having recently attended both ICMA and ISLA events what really struck me was the level of engagement and cooperation between firms who are normally competitors. Open discourse and knowledge sharing really helps to ensure a strong lobbying voice where the framework doesn t quite meet the market practice, helping to educate all actors in the chain - including regulators and TRs - and in turn helping to ensure that the reporting requirements will not inhibit market practice, reduce liquidity and collateral mobility. 14

16 UTIs - A question of timing? Published on LinkedIn on March 27, 2017 Irene Mermigidis Managing Director As I mentioned in my last blog, CPMI IOSCO recently issued a paper providing some clear technical guidance on how Unique Trade Identifiers UTIs should be used in trade reporting. With the objective to harmonize the current UTI generation practices, CPMI-IOSCO has set about defining a detailed process making the generation of UTIs jurisdiction-agnostic. This process prioritizes the allocation of responsibility for UTI generation to specific stakeholders. The detailed process is based on several stakeholders characteristics, directly or indirectly involved in the transaction. Making the generation of UTIs jurisdiction-agnostic is the most significant challenge to the CPMI-IOSCO group, as each jurisdiction has already gone down its own path in regards to UTI generation. Even with a fully mandated protocol, the sharing of the UTI between counterparties in a timely fashion remains the biggest challenge. Issuing entities may easily be able to implement an agreed algorithm for the construction of the identifier, but sharing this data as early as possible in the post-trade chain remains critical. Otherwise, the consumption of UTIs provided by your counterparties to create your own reporting can be a complete mess, particularly if you consider the number of potential issuers. The T+1 reporting deadline is a big constraint and entities don t want to have to wait for the UTIs from multiple counterparties in order to complete their reporting. It s also worth pointing out that CPMI IOSCO highlight that Trade Repositories like REGIS-TR could play a key role as being the generators of UTIs particularly in cases where both counterparties of the trade are reporting to the same Trade Repository. In the absence of a single, global market utility, it s easy to see why we might be seen as the natural alternative. As I mentioned in my last blog, many of the intermediaries that could 15

17 perform UTI generation - Triparty Agents, trading, matching or reconciliation platforms and so on, are unregulated and are not, for example, subject to transparent, unbundled pricing. There s also a question of liability here. The use of an intermediary means that participants will have to closely consider the contractual framework for such a service; does your intermediary provider take the risk for incorrect allocation of a UTI in such a scenario? How much responsibility remains for the market participant to validate the accuracy of what has been reported on their behalf when using an intermediary? We are not against the potential use of the TR for the generation of UTIs per se, but in reality it needs to be remembered that the TR is the last link in the reporting chain and, therefore, could only really generate the UTI once the reported trades have been received. Participation earlier in the chain would be artificial when there are so many other entities who naturally occupy this space. Additionally, whilst this proposal could be relevant for EMIR, FinfraG or SFTR, we also need to consider other transaction reporting where the use of a TR is not mandatory, for example REMIT and MiFIR. Until now, the TR has clear roles and responsibilities which do not include data manipulation such a move would also represent a significant deviation from this principle. Without question, harmonization of the UTI generation rules is critical for improving the efficiency and quality of transaction reporting on a global level. In that perspective, I welcome any role the TR can play in improving the current framework that makes sense in terms of the natural transaction flow. CPMI-IOSCO s technical guidance as such is a useful milestone in the development of regulatory reporting, but the discussion is likely to be ongoing for a considerable time to come. For those of us already familiar with EMIR, the recommendations should not represent a significant deviation from the existing protocol. Implementation of a harmonised UTI protocol at global scale will require investment from stakeholders, but we should take comfort from the fact that the technical guidance seems to be consistent with our existing process. It is then down to the regulators to determine how to implement this in a binding fashion, and market participants to correctly adhere to the protocol in a practical and timely manner. 16

18 ESMA issues SFTR technical standards John Kernan Senior Vice President Head of Product Management Published on LinkedIn on March 31, 2017 Today, ESMA issued the final report on technical standards implementing the Securities Financing Transaction Regulation (SFTR). The report includes certain amendments to the existing standards under EMIR on registration as a Trade Repository (TR) and access to reporting details. ESMA s final standards provide detailed provisions on: SFT reporting including the use of ISO methodology for reporting, validation and access to data; data collection and availability the use of standardised identifiers such as LEI, UTI and ISIN which should improve data quality and aggregation across TRs; defined access levels for different public authorities; registration and extension of registration of TRs detailed requirements on: verification of completeness and correctness of reports; data availability and integrity; operational separation; ancillary services; outsourcing; IT resources; and exchange of data on sanctions between authorities. The European Commission has now three months to decide whether or not to endorse them the SFTR implementing measures are expected to enter into force by the end of As per my previous blog, pending regulatory approval, REGIS-TR will offer a comprehensive SFTR solution. 17

19 FinfraG: The clock is ticking Published on LinkedIn on April 4, 2017 Fabian Klar Vice President Client Relationship Europe I am pleased to confirm that the Swiss financial regulator, FINMA, confirmed REGIS-TR s status as the first and only foreign Trade Repository in Switzerland. This is very important for REGIS- TR as it enables us to offer a comprehensive FinfraG reporting service to market participants. To recap, the Swiss Financial Market Infrastructure Act, known by the short-hand FinfraG, came into force on 1 January 2016 and, amongst other things, it requires reporting of derivative transactions to a Trade Repository. The main rationale behind FinfraG is to align the Swiss regulatory framework with international standards, particularly EMIR. It was always our stated intention to provide a solution for market participants, and we have been working towards this for more than a year. As a non-domestic Trade Repository we ve been working closely with both ESMA and FINMA for recognition of this status. Now that this approval has been granted, we can confirm that we will be able to provide FinfraG reporting services right off the bat an important point since it will allow reporting participants to have a choice of Trade Repository for the regulation from the start. We have built a new TR framework fully compliant with FinfraG standards and regulatory requirements, granting operational separation from other services, data confidentiality and system robustness. On top of that, REGIS-TR s know-how in post trading transparency requirements adds value to our system and quality to the outbound reports as per market demand. We are the second largest EMIR TR by volume and we already provide reporting solutions to more than 1,500 clients. There is a natural expectation that a newly implemented regulatory regime will require adjustment. We have seen this with the iterative implementation of EMIR, as my colleague John talks 18

20 about in his blog here. By offering reporting services right from the get-go, REGIS-TR will therefore be able to guide and support customers throughout this process. The FinfraG reporting obligation will be introduced on a phased basis depending on counterparty classification, but the first market participants have to start reporting 6 months after the approval of the first TR, i.e. 2 October Thanks to our participation along with a domestic Swiss service provider, as with EMIR, Swiss participants should also benefit from the service levels, product innovation and appropriate pricing levels inherent with competitive pressure. A number of our EMIR customers have a FinfraG reporting obligation. We ran workshops with well over 100 customers in Zurich and Geneva last summer and it was widely welcomed that they would be able to leverage a broadly similar infrastructure through REGIS- TR, same relationships and same connectivity for their FinfraG and EMIR reporting. Of course, there are differences between the two which will need to be overcome. Unlike EMIR, FinfraG is single sided reporting based on a cascading principle. Market participants will have to implement rules into their systems to determine which trades they need to report and which they will need to suppress. However, being able to use the same TR for both regulations will naturally help participants achieve some operational synergies. We ll continue to support our participants with comprehensive reporting guides and with our free test environment and we have the benefit of already holding multi-jurisdictional status for EMIR reporting. We re well familiar with the key issues in the reporting landscape and cognizant of the work being undertaken, not only at EU but at global level, to develop common standards and data elements. Our experience in this space can be a real asset to all actors in the Swiss regulatory reporting lifecycle. With the TRs now announced, the clock is ticking! If you have a FinfraG reporting obligation you will need to start looking for a service provider soon. In this context, we're happy to also let you know that we're rolling out an updated version of our FinfraG reporting test environment as of 10 April, which you can access free of charge. For more information on the services we ll be providing to help you cover this requirement, check out our website. You can also contact your relationship manager for further details, or get in touch via finfragsupport@regis-tr.com. 19

21 EMIR Reporting: The only thing that is constant is change David Retana Managing Director Published on LinkedIn on May 30, 2017 The Greek philosopher, Heraclitus, was famous for his insistence on ever-present change as being the fundamental essence of the universe. While EMIR market actors might have reasonably expected the implementation of the new Revised Technical Specifications (RTS) on November 1st 2017 to mark the start of a period of stability for the EMIR reporting framework, I strongly suspect Heraclitus is more likely to be correct. In this blog, I am going to look at the recent European Commission proposal and explore how dramatic these proposed changes might prove. The Background During 2015/16 the European Commission undertook a review to look at unintended consequences of the EMIR reporting framework. Jonathan Hill outlined the objective of this review in the context of the Capital Markets Union project as follows: It should be possible to make EMIR more proportionate and continue to mitigate systemic risk in our derivative markets. It should be possible to lower administrative reporting burdens. And all this while ensuring supervisors have enough information to monitor risks, and intervene if necessary. I want to use the EMIR review to do that. The public consultation took place between 19th May and 13th Augusts 2015 with 172 responses received from a broad range of stakeholders. Additionally, as part of the Call for Evidence consultation in the framework of the Capital Markets Union initiative, which took place between 30 September 2015 and 31 January 20

22 2016, 278 respondents raised claims focussed on the provisions of EMIR. Ultimately the conclusion of the review was as follows: There does not seem to be a need for fundamental changes to be made to the nature of the core requirements of EMIR, which are integral to ensuring transparency and mitigating systemic risks in the derivatives markets. It therefore surprised many when on May 4th, the EC published a review of EMIR which contains fundamental changes to the EMIR reporting requirements by anyone s analysis. The Proposals There are 4 key elements to the proposals: 1. The reporting obligation for ETD trades should move from market participants to the CCP 2. The reporting obligation between FCs and NFC- should reside solely with the FC 3. Intra-Group transactions involving NFC should be removed 4. The obligation to report historical data backloading should be removed I should start by saying that the proposals are at very high level and so we can expect further levels of clarification and detail as they move through the consultation and legislative process. Looking at these proposals in reverse, the proposal to remove backloading will be universally welcomed due to the difficulties encountered to properly report the affected trades. The reduction in reporting for Non-Financial Counterparties outlined in proposals 2&3 is welcomed in some quarters, but we have also already received calls from bemused and dismayed participants, having already invested so much time, money and development in meeting the requirements and, in some cases, having developed entire businesses to support these very reporting flows. Clearly, the proposal to shift the reporting obligation for ETD trades is the most significant and this is the one I am going to focus on. Moving the ETD reporting obligation to CCPs The proposal says that the CCP will become responsible for reporting both legs of the trade (i.e. assume the responsibility from the counterparty for the counterparty leg). In essence, this means that the Clearing Member will no longer have to report his leg of the trade. What is not 21

23 clear is what is going to happen to the trade between the Clearing Member and the Market Participant. Most CCPs don t have sufficient levels of account segregation to meet the reporting requirements in full; they simply don t have visibility on the Clearing Member/Market Participant trade and they are not a counterparty to this trade. Does this mean that the Clearing Member/Market Participant trade remains reportable outside of the CCP? Is the proposal that these trades which contain collateral information fundamental to counterparty credit risk monitoring, the raison d être of EMIR simply do not need to be reported? Is it possible that the EC has not considered the back-to-back trades required through the process of clearing? These questions need to be answered before we can begin to truly anticipate the potential impact. There are other potential complications, too. ETD trades are not just traded and cleared on EU domiciled market infrastructure. What happens if a trade is cleared through a CCP outside of the EU? That CCP does not have a legal obligation under EMIR. Is then the reporting obligation transferred to the European Clearing Members? Even if the non-eu CCP does provide an EMIR reporting solution, legally the reporting obligation cannot transfer and so the market participant still needs to monitor the accuracy of what has been reported on their behalf. As we can see, the devil is very much in the detail and these are only two of the potential complications with the proposal. Will this lower the burden whilst maintaining the necessary levels of visibility? I think it is arguable as to whether this will lower the burden. If the Clearing Member/Market Participant trade still has to be reported and the CCP cannot do this, then this doesn t fundamentally change the status quo. Nevertheless, what will be reduced for sure is the reconciliation effort on the CCP/Clearing Member trade, as both legs of the trade will be reported by the CCP. This is going to be a big quick win for ESMA and the TRs, as the reconciliation rates on the ETD space will increase rapidly. CCPs already provide delegated reporting services for the CCP/Clearing Member leg. Making this arrangement mandatory will mean that the Clearing Member loses control over the direction of the reporting flow. Even if the Clearing Member no longer has a legal responsibility to monitor what has been reported on their behalf, this is surely good practice that they will not wish to cease. The burden is not significantly reduced. If the Clearing Member/Market Participant trade is not intended to be reported, then the objectives of EMIR are undermined. If we look back to the Lehman Brothers crisis in 2008, the 22

24 issue was not simply one of value outstanding - regulators also found themselves in the dark concerning the interconnectedness of market participants trading derivative instruments, i.e. they didn t know who was on the other side of the bank s trades. The only thing that is constant is change Market participants have already started asking REGIS-TR whether they can ignore the implementation of the new RTS in anticipation of the implementation of the proposals. Of course, the answer is no, as the proposals could take more than two years to implement and we are all working hard to achieve EMIR data quality improvements in the short term. It does, however, raise the question about whether it might have been better to give the new RTS a chance to bed down before proposing such far-reaching changes to the framework. It should also be noted that the EC state that further changes to the legislative framework will be necessary in light of Brexit and the increasing systematic importance of CCPs. These changes are anticipated for a second release of the proposal expected later this year. With the FAQ on EMIR RTS now having undergone over 20 updates, one might have thought that all the questions on EMIR would have been answered. To me though, it seems as though plenty of new ones are just emerging. 23

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