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October 6, 2014

Trade reporting: next steps | The View From DTCC

Following the global financial crisis, the need for timely access to detailed and accurate data on derivatives activity gave way to a regulatory framework mandating reporting of derivatives trades to trade repositories under the auspices of the G20. 

By Marisol Collazo, Managing Director and U.S. CEO, DTCC Data Repository
And Peter Tierney, Managing Director, Head of Asia and CEO DTCC Data Repository (Singapore) Pte. Ltd.

Following the global financial crisis, the need for timely access to detailed and accurate data on derivatives activity gave way to a regulatory framework mandating reporting of derivatives trades to trade repositories under the auspices of the G20. 

Major jurisdictions around the world such as the US, Europe, Japan, Australia, Singapore and Hong Kong have put in place regulations which require derivatives transactions to be reported to trade repositories, some of which are being implemented under a phased-in approach. Other jurisdictions such as Switzerland and South Africa are finalising regulations. Canada is the latest jurisdiction to implement G20 requirements on derivatives trade reporting into law.

In December 2013, the Ontario Securities Commission, the Manitoba Securities Commission and the Autorité des marchés financiers, published rules requiring derivatives trade reporting to trade repositories with respect to transactions involving local counterparties. 

Nova Scotia, Alberta, New Brunswick, British Colombia and Saskatchewan have legislation pending allowing supervisory authorities in each province to regulate derivatives reporting. Notwithstanding the decentralised regulatory framework, the Canadian Securities Administrators forum has played a key role in promoting the adoption of harmonised rules for derivatives reporting across all provinces, reflecting the key elements of the legislation adopted by other G20 jurisdictions, albeit at different times.

The scope of legislation covers over-the-counter (OTC) interest rate, credit, equity, FX and commodity derivatives. The first reporting deadline applies to trades involving a dealer or a clearing agency which must be reported on 31st October 2014. OTC derivatives trades entered into prior to 31st October 2014 must be reported by 30th April 2015 if they are still outstanding at that time. The second reporting deadline will apply to buy-side counterparties and corporates who must begin reporting on 30th June 2015. 

Dealers and buy-side firms are required to report their trades based on the reporting party waterfall.  In some instances the regulations require that both parties report, such as the instance where two derivatives dealers face each other. However, firms are able to agree on who reports in order to avoid dual sided reporting in those situations.

Looking to Asia, while the G20 is restricted to Australia, China, Indonesia, Japan and Korea, all of the key Asian financial centres have implemented or are implementing trade reporting regulations. Indeed, regulators in the region have demonstrated a collaborative and consultative approach, phasing-in implementation across asset classes and market participants.

As such, it continues to be a busy time for firms preparing for their regulatory obligations in the region. For example, Australia is soon to introduce phase three of reporting: by 1st October 2014 all major financial counterparties – defined by the Australian Securities & Investments Commission (ASIC) as those with at least AUD 50 billion of notional outstanding positions – will be required to report their interest rate, credit, equity, FX and commodity derivatives trades. Entities with AUD 5 billion or more gross notional outstanding OTC derivatives positions need to report interest rate and credit derivatives by 13th April 2015 and equity, FX and commodity derivatives by 12th October 2015. The last phase of reporting is scheduled for 12th October 2015, when entities with less than AUD 5 billion gross notional outstanding OTC derivatives positions need to report interest rate, credit, equity, FX and commodity derivatives.

Similarly, in Singapore, significant derivatives holders with aggregate gross notional exceeding SGD 8 billion derivatives exposures will begin reporting their interest rate and credit derivatives trades from 1st October 2014. The reporting mandate for remaining asset classes, including equity, FX and commodity derivatives, will be introduced at a later date. 

In an effort to promote greater cooperation and standardization, the Monetary Authority of Singapore (MAS) and the ASIC recently signed a memorandum of understanding to allow trade repositories licensed in one jurisdiction to provide relevant data to the authority in the other jurisdiction. This agreement together with ASIC’s alternative trade reporting arrangements simplifies multiple jurisdiction reporting obligations and reduces duplicative trade repository supervision.

In Hong Kong, the Hong Kong Monetary Authority and the Securities and Futures Commission are preparing the rules for implementing the new regulatory framework, having just closed the public consultation on the draft detailed rules on 18th August 2014. Subject to the passage of the relevant legislation, the new regime is expected to take effect in early 2015.

As we approach these reporting deadlines in both Canada and Asia, it is essential that firms make the necessary preparations to comply. In doing so firms must make sure they understand what derivatives contracts should be reported, who is responsible for reporting and when the reporting timelines kick in.

While the trade reporting mandate is a work in progress, market participants have made great strides in meeting their regulatory obligations and five years since the G20 commitment, the global derivatives reporting jigsaw is almost complete. As market participants fulfil their reporting obligations in all of the major jurisdictions, regulators will move from data collection to interpretation, enabling them to better identify risk in the system and achieve the level of transparency deemed essential by the G20 to ensure financial stability.

 


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