Position reporting not a fast fix for Emir ETD obligations

By Rebekah Tunstead | 16 July 2019

Difficulties for trade repositories to match and pair the large number of data fields required under the European Market Infrastructure Regulation (Emir)’s transaction level reporting for exchange traded funds (ETD) won’t immediately be resolved by a move to only report end-of-day positions, according to the CEO of a trade reporting technology firm.

The problem, according to Quinn Perrott, co-chief executive officer at TRAction Fintech, is the different interpretations of the rules across EU states and distinct reporting frameworks at trade repositories.  

“I don’t think moving to position level reporting would instantly fix pairing issues,” he says. “Some of the underlying fundamental problems are that there are different trade repositories that have different standards. There are even situations where some things are reported differently based on different local regulations within the EU,” he says.

On June 27 the FIA published a paper in which it highlighted poor data quality and inconsistencies in the reporting of ETDs under Emir. The paper suggests firms should be obliged to report on a position rather than transaction level basis in order to reduce the compliance and cost burdens facing reporting firms.

For Perrott, data quality issues continue as the industry struggles to conform to the reporting format of various products under the EU-wide regulation.

“You have so many financial products, and so many different types of investment firms all squeezed into one reporting format with all the interpretations and work arounds that it takes to get everyone working towards that one regulatory goal. The main cause of those data quality problems is more a one size fits all approach to the regulation, as opposed to it being an easy fix or tweak to the regulation or just telling the industry to raise their game.”

Lessons must be learned from the experiences of transaction level obligations, or it could impact potential adoption of position level reporting, according to John Graham, director of regulation at the Futures Industry Association (FIA).

“Certainly, reporting firms are concerned about pairing and matching at position level given the experience at transaction level. There needs to be discussions amongst reporting firms, trade associations can most certainly help with this, and trade repositories to better understand what fields are going to be in scope for position level pairing and matching,” he says.

“There are valuable lessons to be learned from the industry’s experience of pairing and matching at transaction level and we are eager to work with stakeholders to limit the impact of position-level pairing and matching in order to achieve greater success rates,” says Graham.

While a move to position level reporting becomes more inevitable, regulators could be reluctant to part with valuable data, according to Perrott.

“Getting rid of transaction level reporting and just reporting based on position level is definitely in line with the purpose of Emir, which is about counterparty exposure,” says Perrott. “Having said that, once regulators get this extra data, they tend to weigh keeping the information as much more of a priority than the work load that it places on the financial firms. It makes sense to discontinue the transaction level Emir reporting and it seems logical, but I think generally the regulators would be very reluctant to let go of that additional information.”

For ETDs, regulatory authorities gain oversight of systemic risk within the end-of-day position reports, not in the intraday buying and selling transaction reports, according to Graham.

“The requirement for reporting firms to report all of these ETD transactions under Emir adds to increased burdens, huge cost from an infrastructure standpoint, from a head count perspective, etc., and leads to huge efforts when having to conduct reconciliations - the pairing and matching process,” he says. 

“Furthermore, one could argue that if the regulator authority needed to see the intraday transaction level reports, those are already submitted under Mifid II/Mifir.”

However, Graham says a staff paper expected later this month by the European Commission could bring some clarity to potential restructuring to regulatory reporting.

“We anticipate seeing a staff document from the European Commission (EC), I believe it is to be this month. Within that staff document we hope to see some findings from the EC following that consultation and potentially some recommendations. Our hope is that we will see some form of streamline of the requirements placed upon the financial industry in an effort to enhance the efficiency of regulatory reporting,” says Graham.

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