Information on Over-The-Counter (“OTC”) derivatives is required to be reported to regulators in many regions around the world, for the purpose of ensuring fair and efficient functioning of financial markets. Compliance with trade reporting regimes can result in costs and resource expenditure for firms. TRAction Fintech was created to reduce the compliance burden by taking care of your trade reporting.
The requirements vary by jurisdiction and the following information may need to be reported:
- The type of derivative
- The counterparties to the trade
- Any intra-day modifications
- A Legal Entity Identifier (“LEI”) and transaction and product identifiers
The data needs to be reported to the relevant regulator through a Trade Repository (“TR”) or other body nominated by the regulator.
The Objectives of Trade Reporting Requirements for OTC derivatives
The overarching objectives of the OTC derivatives reforms are:
- to enhance the transparency of transaction information available to relevant authorities and the public;
- to promote financial stability; and
- to support the detection and prevention of market abuse.
Some of the Trade Reporting Regimes around the World
The Markets in Financial Instruments Directive 2014/65 (“MiFID II”) and its related regulation the Markets in Financial Instruments Regulation 600/2014 (“MiFIR”) is European legislation with an implementation date of 3 January 2018 which introduces reporting requirements for monitoring and market abuse purposes. It effectively covers all OTC derivatives in Europe and has 65 information fields.
The European Market Infrastructure Regulation (“EMIR”) is a separate regulatory regime requiring reporting of information related to OTC derivatives. It has applied since early 2013 and requires reporting for financial system risk reduction purposes. Part of the requirements overlap with those of MiFIR, however certain requirements are separate and are remitted to different entities, necessitating separate reporting from MiFID II reporting.
OTC derivative information is reportable under the Derivative Transaction Rules (Reporting) 2013 to a trade repository that is licensed in Australia as an Australian Derivatives Trade Repository (“ADTR”). The entities that are required to report include foreign entities with branches and subsidiaries in Australia. In the case of hedge trades, relief may be available where the hedging counterparty is reporting.
The Monetary Authority of Singapore (“MAS”) requires parties to a Specified Derivatives Contract (“SDC”) to report to a licensed trade repository or licensed foreign trade repository.
Currently, only interest rate, credit and foreign exchange derivatives contracts are required to be reported to a licensed trade repository in Singapore and only when traded by certain entities. Equity and commodity derivatives are expected to be reportable in the future.
Background and law reform
Global commitment to OTC derivatives reform arose out of the Global Financial Crisis (“GFC”) in 2008. The GFC highlighted structural deficiencies in the global OTC derivatives markets and the systemic risk that those deficiencies posed to wider financial markets and the real economy.
In the lead-up to the GFC, those structural deficiencies contributed to the build-up of large counterparty exposures for which the risks were not appropriately managed. With details of OTC derivative transactions generally held only between the counterparties, in many cases those exposures were not transparent to other market participants and regulators.
The regulatory response came in the form of commitments by regulators around the world to implement OTC derivatives reform, made at the Group of Twenty (“G20”) Summit in Pittsburgh in 2009. Since then, transaction reporting regimes have been introduced in multiple jurisdictions and are continuing to be amended and updated.
What can TRAction Fintech do for you?
We can connect directly to your platform to extract, enrich and convert your data into a form acceptable by trade repositories and report the data on your behalf. We can directly connect with a number of platforms and automate the data extraction process. Alternatively, we can manually upload your data through files you submit to us. Our charges are not in excess of what you would pay if reporting directly, so we save you both time and money.
We would love to talk to you about your trade reporting obligations around the world. Feel free to contact us for an obligation-free consultation with one of our experienced staff, on +44 20 8050 1317 in the UK or +61 2 8960 7249 in Australia.