CFTC Requires UPIs for Swaps Recordkeeping and Reporting

The U.S. will be the first jurisdiction to see reporting of the Unique Product Identifier (UPI) as the CFTC has recently set January 29, 2024, the date for market participants to start reporting this new element to Swap Data Repositories for Credit, Interest Rates, Foreign Exchange and Equities swaps. The Commodities asset class has been deferred to a later phase due to its implementation complexity. However, it’s worth noting that this new UPI element will have to be reported for new transactions and will also have to be added to all existing open positions.

The idea of UPI has been discussed in the industry for close to a decade as global regulators quickly realized that monitoring for systemic risk in the financial marketplace is not possible without having a standard way to aggregate risk across multiple trades as there was no standard way to know if it is the same product being traded and reported. The industry for the most part coalesced around the ISDA taxonomy as the de facto product nomenclature, but many market participants still relied on free texts and proprietary formats to submit trades to the Trade Repositories.

Over the last decade, financial regulators often complained about the poor data quality reported by the industry. Problems include firms using different Classifications of Financial Instruments (CFI) codes for the same products and inconsistent definitions of notional, price and deliverable currencies.

However, the effort to move to a UPI system cannot be understated, as it is a significant change that the industry has to bear alongside several key REFITs underway in the U.S., Europe and APAC simultaneously.

The ANNA Derivatives Service Bureau (ISIN, CFI, FISIN and others) has been appointed UPI operator for this significant market lift. They have already issued technical specifications covering numerous products to classify their corresponding UPI based on asset class attributes.

Additionally, they plan to release an “ISIN to UPI” service to enable the ISIN conversion process for the upcoming EMIR Refit scheduled for April 29, 2024. ESMA has already informed the market it will be mandatory for this reporting regime.

To comply with these new requirements, market participants must identify the different attributes required to classify each traded and reported instrument within the new UPI taxonomy, review all open positions reported for the CFTC regime, and update their records accordingly.

The ANNA DSB UAT environment is expected to go live in mid-April 2023, leaving firms eight months for implementation and UPI’s incorporation. Additionally, firms must be ready for the EMIR REFIT on April 29, 2024 with UPI.

Although much is known about how UPI will work, there are some key questions still unanswered:

1. What if the UPI service won’t have a UPI for your instrument?
2. Will Trade Repositories add reportable fields to adjust with the regulator requirements?
3. How much will the UPI license cost?
4. Can I report UPI in jurisdictions that don’t yet require it, or will I still need to use my legacy product identifiers?

Cappitech is at the forefront of regulatory change and is committed to supporting the UPI for our reporting clients. Contact us to learn more

About the author: Jonathan Moha

Mr Moha serves as Product Management Associate Director, S&P Global Market Intelligence Cappitech. Prior to joining Cappitech Jonathan was a senior Manager at ICE where he spent over 3 years as Data Product Manager focusing on OTC Derivatives and 2 years as a Data Analytics Manager. Before ICE he worked as an Analyst at Citi Interest Rates desk and as a Middle office analyst for the Treasury department. Jonathan holds an MBA in Financial Engineering from The Hebrew University of Jerusalem and a B.A in Economics.