November 22, 2014 – By: Bahar Sezer, Research Analyst, Policy and Product Strategy EMEA
This has been a hectic year for those who trade derivatives in Europe, with the introduction of transaction reporting in February as part of the European Market Infrastructure Regulation (EMIR), which was followed soon after by requirements to report valuation and collateral data.
The European Securities and Markets Authority (ESMA) cast its net wide when drawing up the transaction reporting requirements. Market participants in Europe now have to report on both new and adjusted over-the-counter (OTC) and exchange-trade derivatives (ETD) trades, whether they are cleared or uncleared.
The deadlines involved are also challenging. Firms only have until the end of the day on T+1 to submit long and complicated reports about their transactions to newly-established trade repositories, where the data is collected for analysis by the regulator.
So far, the aggressive timelines have focused people’s minds on the need to create and submit reports quickly. However, the best prepared market participants realize that speed alone is not enough and that they need a solution which also enables them to regularly check the completeness and accuracy of their reporting.
Because of the T+1 reporting deadline, most firms rely on information that comes from their trading systems to understand which trades they must report on. This approach may be fast, but the information from the trading systems is subject to change. As a result, firms need to do regular reconciliations between the trades they have reported and the auditable data in their books and records. This highlights any trades they have missed and gives them a chance to report these.
Unfortunately, the messaging infrastructure that many firms rely on for EMIR reporting does not maintain a granular view of all of the trades they have reported. This makes it is virtually impossible to reconcile the reported trades with the data in the books and records. Firms that cannot perform this type of reconciliation run the risk of under-reporting and could be fined by the regulator.
In order to be completely confident about their reporting, leading firms have implemented systems that not only create and submit their EMIR reports, but also maintain a granular view of the reports, which they can validate against their books and records. With a full-proof set-up like this, compliance officers can sleep soundly at night.
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