A recent report published by the European Securities and Markets Authority (ESMA) shows more effort is needed to improve trade data quality under EMIR and SFTR. The report also sheds light on why firms are failing to produce high quality trade data.

Why should you care about your trade data quality?

High data quality is necessary to facilitate the effective monitoring of systemic risk and financial stability by ESMA and National Competent Authorities (NCAs). However, it is not only regulators that benefit from the maintenance of high standards of EMIR and SFTR trade data; it enables firms to identify risk and suspicious activity in the first instance.

Failing to produce complete and accurate data, alongside inadequate or absent oversight arrangements can significantly affect a firm’s capacity to detect and remedy systemic issues. With data quality garnering increased attention from regulators, the likelihood of fines issued for potential and actual market abuse is significant.

EMIR Data Quality – Areas of Concern

ESMA’s key findings for reported data under EMIR include:

• a significant number of derivatives are being reported late by counterparties or not at all;
• daily valuation updates for up to 11 million derivatives were not reported;
• failure to adhere to the EMIR format and content rules has increased slightly since Brexit; and
• almost half of all open derivatives were unpaired due to counterparties not coordinating on trade ID or on position versus trade level reporting.

SFTR Data Quality – Areas of Concern

Considering the relatively short time period that SFTR reporting obligations have been in force, ESMA’s insights into data quality at this point remain limited. Rejection rates for incomplete data peaked in July 2020 coinciding with the introduction of the SFTR reporting regime. However, the rejection rate has been trending downward since then.

EMIR & SFTR – How can you improve the accuracy of your trade data?

• firms must ensure their systems are generating accurate and timely trade data reports and conduct regular reviews of system settings to avoid potential errors;
• adequate communication between counterparties is needed to prevent conflict regarding EMIR reporting obligations as demonstrated in ESMA’s findings above;
• firms need to have in place thorough testing and reconciliation processes relative to the firm’s trading volume to adequately cross-check the validations received from the trade repositories (TR); and
• if your trades are reported by a third-party such as TRAction, you remain liable for meeting your reporting obligations and must conduct regular quality checks of your reporting delegate to ensure all transaction details are completed and accurate.

What’s next?

At TRAction, we extract, convert and enrich your data so that it is accurate and correct prior to submission to a TR. We also report on your behalf and receive validation files from the TR after submission allowing us to manage and rectify any exception in your trade data in a timely manner. Lastly, we support our clients from a compliance perspective and provide the advice to assisting them with meeting their reporting obligations.

ESMA will continue to publish its data quality report annually as part of their initiative to provide transparency to stakeholders regarding the activities ESMA and NCAs undertake to improve to data quality.

If you have any concerns about the quality of your trade data, please contact us.