Start Making Sense of the Data

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In 2009, a new international consensus was formed when the G-20 met in Pittsburgh. International leaders agreed that transparency and oversight of the OTC derivatives market was key to international financial stability.

trade reporting

One of the goals was that OTC derivative contracts should be reported to trade repositories. The global regulatory community took decisive action to make that goal a reality

With the introduction of data repositories and the specification of data required to be reported, regulators thought they would be able to understand aggregate exposure and risk in the swaps market. However, despite the significant resources spent by the industry on establishing and reporting to swap data repositories it is clear that just getting the data reported is necessary but not sufficient to achieve transparency and oversight. Problems persist. The data in trade repositories often cannot be identified or matched against counterparties. Incomplete information is reported, and the integrity of the data is compromised.

With reporting accuracy now in the regulatory crosshairs and financial and human resources limited, the pressure is mounting for a cost effective, efficient solution for market participants to validate and align their data.

Increasing regulatory scrutiny

In its advisory letter of November 17, 2015, the US CFTC reminded swap dealers and major swap participants “of their obligations with respect to the data reporting requirements.” In the face of persistent reporting issues and failures, the CFTC emphasized that, “Accurate and timely information and data is essential to maintain a transparent and well supervised swap marketplace.” Similarly in February, 2015, ESMA indicated that its “supervisory focus has now shifted to the quality of the reporting data.”

While the reporting regimes in the US (single-sided reporting) and Europe (double-sided reporting) do differ, the regulators in both jurisdictions mandate that whether the market participant self-reports or delegates its reporting, it remains responsible for complying with the reporting requirements and ensuring its timeliness and accuracy.

The recent drumbeat of commentary from regulators in the US and Europe emphasizes that now is the time to address the extensive inaccuracies in data reporting to ensure data integrity.

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Errors persist

There are still a lot of issues in the data that is being reported and these fall into several categories including:

  • mistakes in core economic data
  • inconsistent reporting of identifiers
  • duplicative reporting of swaps
  • data reporting delays and omissions

Clearly identifying these errors and then fixing them is the way to clean up reporting data. The key is doing this efficiently and intelligently. Getting a holistic view of all data that has been reported in your firm’s name is proving a challenge in itself. When you try to align that data with that of your counterparty, it becomes increasingly more complex. Adding to that, the challenge of data being reported in different repositories and jurisdictions, and the task becomes enormous. The industry must come together and find a solution. The question is, how can this be achieved?

Leveraging existing efforts

Regulators and market participants alike have long identified the benefits of bilateral proactive reconciliation. Proactive reconciliation has been key to minimizing the number of collateral disputes that market participants report under existing risk mitigation rules. The process is even mandated under global risk mitigation requirements (EMIR, Dodd Frank, etc.). Bilateral portfolio reconciliation have been one of the real success stories of the bilateral OTC derivatives market and leveraging this process will not only assist firms in improving the accuracy of regulatory reported data but will also benefit regulators when trying to make sense of the data in the trade repositories.

Proactive reconciliation of reported data enables trend analysis. If you reconcile your reported data daily and have the tools to log and investigate the differences you observe, over time you start seeing patterns in those differences. Once you understand where you regularly have problems, you can identify the cause of the issues and fix them upstream.

Key to this process is having a comprehensive break management workflow that is able to track the differences and assign root causes. As firms fix problems on a proactive basis, trade bookings and corresponding data will gradually align over time. Aligning your own internal data with your reported trade is a first step towards improving the data. Equally as important is reconciling your reported record with your counterparty’s reported record. Benchmarking yourself with the rest of the industry should not be overlooked and is an integral part of ensuring data accuracy. Improving the data quality will benefit the whole market and make the reporting regimes worthwhile.


This article was first published in edition 9 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.Rocket 8

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