Trayport: Moving towards REMIT reporting
Trayport recently hosted a client forum to discuss the
regulatory risk, compliance and technical challenges facing our clients and the
industry as a whole. We wanted to understand how our customers are being
impacted by Emir and how firms need to prepare in order to meet the Remit
reporting requirements once they come into effect.
Based on these discussions, we found that there are a number
of key themes of concern for the industry at the moment: including the discord
around Unique Trade Identifier (UTI) generation and distribution, the
backloading of trades and the potential cost impact on post-trade operations.
UTI generation and distribution
As has been the case under Emir and will be the case under Remit,
all trades will need to be assigned a unique trade identifier (UTI). The
challenge around the UTI is there is no prescriptive information about who
should develop it and how it needs to be implemented. There has been some
guidance from ISDA around UTI creation and distribution, but generally what we
see happening is that larger players are creating their own UTI formats and
sending them to their counterparties.
This has caused some discord in a market that is looking for
an industry-wide solution covering a range of disparate asset classes. The
ideal solution would be to have a collective approach to harmonising UTI
generation, one that is logical and comprehensive. At the moment, no one has a
road-map for how this will be achieved, and who the dominant driving force
behind it will be; regulation-driven or industry-led.
There remains uncertainty on what to use for trades executed
off-screen and whether this should be extended to everything. To do this
however, would throw out the current convention, and no one wants to make this
more expensive or complicated than it needs to be.
Backloading trades and orders to trade
The second theme that emerged focused on how to handle the
reporting of backloaded trades. The backloading requirement for open trades
could extend to any trade still outstanding when reporting starts.
This means firms will have to prepare for the possibility of
supplying information on backloaded orders and transactions, both matched and
unmatched. In addition, participants at the forum expressed uncertainty around
whether there would be a requirement to fulfil backloading for orders to trade.
There are a couple issues here. The first is that
historically most firms have not been collecting and storing their orders. This
means that they might have to approach their trading venue to seek that
information. The second issue concerns the lack of detail and clarity around
the requirements themselves.
Firms aren’t clear yet what will be required of them. There
is also little clarity on why the regulator requires this information, how it
will be used and how the industry will benefit. In combination, the issue of
backloading gave cause for concern, debate and call for greater clarity.
Cost of post-trade operations
The final prominent theme focused on post-trade operations.
In general, the subject of the electronification of trades and more
specifically the cost of trade confirmations. One key challenge facing our
clients is the issue around moving from confirmations in T+4 to T+2. They will need to settle trades more quickly,
move towards electronic trade confirmations and provide a much tighter timescale
for their manual processes. The general concern was that if this entailed a
move towards electronic confirmations, this could be expensive to execute,
representing an additional and undesirable cost burden to the firm in order to
be compliant.
Looking forward
The Remit Implementation Act has been delayed until the
autumn, at which time firms will need to have structures in place to handle the
demand of reporting requirements. Once the Implementation Act is in place, all
the other Remit activities will follow, starting with reporting standardised
trades six months after the Implementation Act.
At some point firms
will also have to start reporting non-standardised trades. Finally, after the
trade reporting requirements for standardised and non-standardised trades come
into force, firms will be required to provide ACER with backloaded trades and
orders. We expect further clarity on the actual dates of implementation within
the next few weeks.
Given the differing degrees of confusion on the issues
highlighted above and the delay in providing
guidance, we have understandably seen
concern in the market about what is expected from trading participants
in order to comply with the upcoming REMIT obligations.
“There are many challenges when it comes to anticipating and
responding to as yet undetermined regulatory obligations to become REMIT
compliant,” comments Elliott Piggott, CEO, Trayport. “We have seen a growing
demand from industry participants for a full service offering integrated with
core market infrastructure rather than rely on internal software development.
There is a recognition that the ongoing burden of regulatory reporting is
proving higher than initially was envisaged.”
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