What is Pairing & Matching?
The EMIR transaction reporting regime requires dual or two-sided reporting.
This means that for every derivative trade between two counterparties, both counterparties must report, as long as both counterparties are captured within the EMIR regulation (i.e. a corporate counterparty in the EEA).
When a trade report is:
- submitted by an EMIR counterparty; and
- identified as expecting a second report (an LEI has been submitted as the “ID of the other Counterparty” and it is registered in the EEA)
the Trade Repository (TR) will try to “pair” the report using the “Reporting Counterparty ID”, “ID of the other Counterparty” and the “UTI”. When the counterparties fail to use the same UTI or report the LEIs incorrectly (or incorrectly use internal IDs) the trade will be marked as unpaired in the TR.
If two trades are successfully paired, the Trade Repository (TR) will try to “match” certain key fields together. Where the TR is unable to match on these fields, it will send a list of unmatched fields to the reporting counterparties for them to try to reconcile and fix.
The two counterparties should communicate with each other on how to fix unmatched and unpaired reports to be compliant with EMIR.
What do I need to consider to successfully Pair and Match?
The UTI is one of the key fields for pairing and matching, but how do you ensure you have a matching UTI?
Reporting Counterparty with corporate EEA client
The Reporting Counterparty should ensure that the corporate client knows how to create the UTI for their own reporting (unless you are doing delegated reporting on behalf of this client). A client should be able to review a statement or trade history to report the trade/position and input the correct UTI.
Reporting Counterparty with EEA financial counterparty
The Reporting Counterparty needs to discuss with their financial counterparty and between them decide who will generate the UTI and share with the other counterparty. Otherwise they must agree on a methodology so they can both independently generate the same UTI.
2. Consistent Lifecycle Method
You must be using the same lifecycle method as the other counterparty to ensure you are both sending the same number of transactions/positions so that these can all be successfully paired by the TR. This means if you use the optional position reporting method your counter party should too.
From ESMA’s EMIR Q&A:
‘Furthermore, ESMA would like to stress the importance of the general obligation according to which the counterparties need to agree the report’s contents before submitting it to TRs. This obligation stems from the requirement of Article 9(1) of EMIR, ‘counterparties and CCPs shall ensure that the details of their derivative contracts are reported without duplication’. ’
‘ Therefore, it should be noted that reporting at position level should be done consistently by both counterparties to the derivative, i.e. it is not allowed that one counterparty reports subsequent updates at trade level, while the other reports those updates at position level. Furthermore, in certain circumstances reporting at position level is the only possible option to comply with EMIR reporting obligations (hence it becomes mandatory in order to report correctly), e.g. when the counterparties are not able to value the individual position components.’
Other fields to be agreed upon
We have included a table of the other fields which need to be ‘matching’ fields. Please download it here.
What are the potential challenges?
Pairing & Matching rates in the industry are very low due to:
1. Historic trades incorrectly reported or not reported at all; and
2. The difficulty for counterparties to set up internal processes to ensure they are capturing, sharing and reporting the necessary details in order to be compliant.
Each counterparty should look at their structure and ensure they have reached out to all their EEA corporate counterparties and either: provided their counterparty with enough information so that they are able to report correctly, matching reported trades/positions; or
a. Have requested enough information from counterparties, including trade details such as the UTI structure and trade identifiers, so that they are able to match their reported trades/positions.
b. Have requested enough information from counterparties, including trade details such as the UTI structure and trade identifiers, so that they are able to match their reported trades/positions.
But who should request from who?
Counterparties who are unable to agree on who should share the UTI should use the hierarchy provided in Article 4a of the EMIR ITS and below.
Unique Trade Identifier
1. A report shall be identified through either a global unique trade identifier endorsed by ESMA or, in the absence thereof, a unique trade identifier agreed by the counterparties;
2. Where counterparties fail to agree on the entity responsible for generating the unique trade identifier to be assigned to the report, the counterparties shall determine the entity responsible for generating a unique trade identifier in accordance with the following:
(a) for centrally-executed and cleared trades, the unique trade identifier shall be generated at the point of clearing by the central counterparty (CCP) for the clearing member. Another unique trade identifier shall be generated by the clearing member for its counterparty;
(b) for centrally-executed but not centrally-cleared trades, the unique trade identifier shall be generated by the trading venue of execution for its member; 21.1.2017 EN Official Journal of the European Union L 17/21;
(c) for centrally-confirmed and cleared trades, the unique trade identifier shall be generated at the point of clearing by the CCP for the clearing member. Another unique trade identifier shall be generated by the clearing member for its counterparty;
(d) for trades that were centrally-confirmed by electronic means but were not centrally-cleared, the unique trade identifier shall be generated by the trade confirmation platform at the point of confirmation;
(e) for all trades other than those referred to in points (a) to (d), the following shall apply:
(i) where financial counterparties trade with non-financial counterparties, the financial counterparties shall generate the unique trade identifier;
(ii) where non-financial counterparties above the clearing threshold trade with non-financial counterparties below the clearing threshold, those non-financial counterparties above the clearing threshold shall generate the unique trade identifier;
(iii) for all trades other than those referred to in points (i) and (ii), the seller shall generate the unique trade identifier.
3. The counterparty generating the unique trade identifier shall communicate that unique trade identifier to the other counterparty in a timely manner so that the latter is able to meet its reporting obligation.
How TRAction can help?
It greatly helps if both counterparties use the same delegated reporting provider, such as TRAction, to process and submit EMIR trade reports on their behalf. Then they don’t have to worry about inconsistencies in methodology or interpretation and TRAction can ensure the same UTI and other fields are reported in a consistent manner.