Why data harmonisation is key to efficient and effective Trade and Transaction Reporting
David Farmery from Message Automation discusses the need for a harmonised data platform at the heart of any strategic Trade and Transaction Reporting solution.
Many financial institutions are struggling to maintain efficient and effective trade and transaction reporting solutions, as the waves of regulation keep crashing in. With major changes to EMIR; and new requirements from SFTR and MiFID2 all due to add to the storm over the next one to two years those institutions without robust and flexible reporting solutions will inevitably continue to suffer.
Although perhaps stating the obvious, firstly maybe we should define our view of ‘efficient’ and ‘effective’.
Efficient would look like this:
- A very high percentage of trades go from entry into source systems through to the TR or ARM with no manual intervention or keying of additional data.
- The number of breaks or issues reported back from the TR or ARM is very small and the solution includes workflow to enable these to be managed and rectified with minimal manual intervention.
- Changes from the regulator, or the addition of new jurisdictions/regulations can be implemented in a very few weeks through rules configuration only. Testing of new functionality is against a comprehensive data set already held in a single database, containing full economic details of all trades across asset classes. (And regression testing is automated)
Effective would look like this:
- The solution should enable operations and compliance staff to see the full history of a trade, who is reported to and why. Importantly they should also be able to see why a trade was not reported to any particular jurisdiction to enable clarity for themselves, auditors and regulators.
- Where required data is not available from source systems, the solution should provide an automated, audited method for adding that data to the trade record in a controlled fashion.
- The solution should enable flexible end-user views of the overall trade data ‘sliced and diced’ as required. For example: all trades reported to DTCC under EMIR, all trades not reported as the responsibility was with the counterparty.
- The ability to easily reconcile TR trades and positions back to original source systems (i.e. books and records, not merely to the reporting engine where the population might already be incorrect.)
What should be clear from the above is that solutions which draw only the relevant data and then report separately from each source system are neither efficient nor effective. As a result many financial institutions are now bearing the pain and cost of this in the form of punitive manpower overheads and regulatory issues.
The success story covered in the attached case study could only have been achieved via the implementation of a genuine centralised, harmonised data model and database. In conversation sometimes this is greeted with scepticism, but this does not need to be a three-year gazillion dollar project, it really doesn’t. Ensuring this contains all the economic details of every trade serves to ‘future proof’ against the next regulatory hurricane twisting in, so the medium term benefits are very substantial.
Case Study: How a major International Bank reaped benefits from a strategic trade reporting solution
The Banks’s initial requirement from Message Automation was for an EMIR trade reporting solution in very short timescales. This first engagement with them proved so successful that they quickly decided to expand the solution to include Canadian Trade Reporting. Subsequent to this they also switched their existing Dodd Frank reporting system over to the MA platform.
The inherent agility of the MA offering has enabled the bank to expand usage of the solution to support the changing regulatory requirements across multiple jurisdictions, as and when, they arise. For example, the bank is now using the MA platform to support a new regulatory requirement for the reporting of bond trades (not derivatives).
Key Business Drivers
- Significant cost reduction
- Increased efficiency
- Increased compliance levels – first time
David Farmery, Chief Operating Officer at Message Automation said. “The bank already had an incumbent supplier for Dodd Frank reporting, but they were not happy with the results, from either the speed of response or the costs involved. With the EMIR deadlines looming, they invited us to propose an alternative to their existing Dodd Frank reporting supplier. In a competitive pitch, which kicked off in late November 2013, we conducted a demo that impressed both the business users and the IT team. The following week we ran some sample data through the solution which was then successfully submitted to DTCC. Within just one month contracts were signed and despite a very tight deadline, the bank went live for EMIR reporting by 12th February 2014 for Rates, Credits, FX and Equities derivatives.”
A Long Term partnership
David continued. “The success of this first engagement is developing into a long term and fruitful partnership. The next step of the relationship was to implement a Canadian reporting solution and then MA took over the entire Dodd Frank reporting system enabling the bank to de-commission the original vendor solution. They had the confidence that MA would deliver a solution to handle the new Canadian reporting requirements as part of a strategic, multi jurisdiction, system. Working closely as a team with the MA staff, the bank has been able to meet all subsequent reporting deadlines despite the very tight timescales involved.
As well as reporting trades, it was equally important for the bank to be able to prove that it has done so completely and accurately by reconciling positions reported at multiple TRs back to its source systems. For this the bank decided to replace an in house solution with the MA TR position verification solution which is live for the Canadian jurisdiction and is being rolled out for other jurisdictions.”
As a result of using the MA suite of solutions and despite increasing regulation, the bank has been able to manage operating costs across the board, and the relationship continues to go from strength to strength. The Bank now views MA as the default provider for all regulatory reporting requirements and is looking closely at adding MiFID 2 reporting to the MA platform.
This article was first published in edition 6 of Rocket, our magazine. Download available Rocket editions here, and save your up to date address in your profile to to indicate your interest in receiving a printed copy of the magazine. Copies are also available to purchase and subscribe to via the shop.
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