The Changing Trade Repository Landscape – What We Have Learned & How it Can Help You
Last year saw the closure of CME’s Trade repositories (TR) and their reporting services in Europe and Australia. Recently, UnaVista announced that it will be withdrawing its SFTR TR services. In both cases, the TRs played a significant role in the market and were to a large extent at the heart of the reporting eco-system.
Each time such an unexpected announcement like this is made, there is a very real impact on those obligated to report. The regulatory reporting space is fast-moving with multiple new regulations being introduced every year and frequent iterations to current regulations being made. Simply looking at the next twelve months, there are several regulatory changes coming into play, including the final phase of MAS OTC Derivative Reporting coming in October 2021, SEC go-live in November 2021, SFTR ISO changes in Jan 2022, the CFTC Re-Write in May 2022, Canada Re-Write in August 2022 as well as EMIR Refit in 2023. Compliance managers are already heavily tasked with maintaining the integrity of their day-to-day reporting while navigating the constant changes in the regulations; so curve-balls like a TR exiting adds to the already enormous burden.
The amount of disruption that reporting to a new destination has depends if you are reporting directly to a TR or through a vendor. Those reporting directly are tasked with finding a new trade repository, signing a new contact, amending their technology to align with the new TR’s format and of course handling the process alone without necessarily having previous migration experience. Those using a capable vendor who are connected to multiple trade repositories will be insulated from most of the process.
IHS Markit is uniquely positioned and experienced in navigating large scale regulatory changes, particularly the porting of data from one TR to another. With the CME exit, for instance, we were heavily involved in porting clients from CME and facilitated the first data porting for CME clients to Regis-TR. Additionally, we helped clients who were reporting to a TR directly migrate to using a vendor platform to help insulate them going forward.
Below are some key lessons learned from disruptive service changes and more specifically around the porting of data:
1. Alignment with the New TR’s Requirements
When submitting data to a new TR, ideally, you want to be able to provide the same raw file you were sending previously to your TR, requiring less work to adapt to a new provider and making it more likely that they can meet the migration deadline.
The input files submitted to UnaVista and the ones required by DTCC or RegisTR are fairly similar. However, in cases where firms are sending UnaVista a CSV file and UnaVista is converting the file to XML, this process would need to be replicated. For our clients, this is a simple configuration exercise on our end as all input files have all the reporting data.
Furthermore, the response files and end of day files are different and requires those reporting on their own to UnaVista to develop a mechanism to read those files from the new TR. For our clients, all the data is available on our regulatory reporting dashboard already organized and visualized in a user-friendly manner.
2. Technology Impact
There are several technical requirements to consider ensuring seamless switchovers, such as message formatting, SFTP connectivity for sending and receiving files, and additional TR specific fields.
As an example, with the upcoming changes in the ISO schema, reporting through a vendor will eliminate the need to analyze, design and develop such formatting changes. Testing will be led by the vendor and open to all participants for validation of continuous smooth reporting.
3. Deadline and Timing
Porting data to a new TR can only be achieved over weekends when markets are closed. When a large part of the industry is required to move TRs simultaneously, like in the case of the CME closure and now the UnaVista closure, this becomes a much more significant undertaking than when individual clients choose to move TRs for any reason. Slots for porting need to be booked in advance with the old and new TR. To ensure sufficient time for the transition, vendors and TRs need to be fully engaged with clients to ensure this can be completed in time.
The final deadline for those affected by UnaVista is January 2022, which is less than 5 months away. Therefore, make sure that the work is being done now in preparation for your porting date so that you can be confident that your data is moved on time.
4. Measuring Data Migration Success
The process of porting to a new Trade Repository can be complicated. It is easy for things to go wrong or data to be misinterpreted. This brings real risks that the quality and timeliness of reporting could be impacted for firms affected by the closure. Once the porting is completed, it’s imperative to perform a reconciliation process to ensure that the data ported is complete and accurate.
When porting between TRs there are two levels of reconciliations that need to happen:
1. Verifying that all open positions that needed to be ported were ported. This is a relatively straightforward process and is easy to reconcile.
2. Verifying all data elements that can impact the conditionality of fields reported in future life cycle events are populated as expected. Without this validation, future submissions can be rejected, and manual fixes need to take place until all the data elements are aligned. This is a tedious process and if not handled upon first submissions, can take many weeks to align.
Depending on which TR is being used, we have seen that even when data is ported, you need to focus and work on resolving rejections you might not have had at the previous TR. This scenario can arise because of the structure of how the data is kept and the validations each TR has in place. We assist our clients in clearning these rejections during the first week after their porting.
5. Expect the Unexpected
If we have learned anything from the last couple of years, large scale industry changes can come out of the left field. Of course, not every firm has the means to have an extra buffer budget or resources waiting for idly for such events, but every firm can find a way to future-proof their reporting as much as possible.
Take a moment to consider the ramifications of future similar changes and look for solutions that will safeguard you. For example, a vendor with connectivity to multiple end-points will allow you to switch endpoints without much work on your part, which is a factor to consider. Choosing a vendor that is financially stable and committed to the space with intentions to stay in the reporting sector for the long term is another. Finally, choose a solution that has you covered when new regulations are introduced or changes are made to existing regulations you fall under scope for.
6. Making Lemons out of Lemonade – Opportunities for Improvement
For those starting the selection process of a new TR, it’s advisable to take the opportunity to enhance your reporting processes, efficiencies, cost, added value etc. For instance, for those reporting more than one regulation using multiple vendors and endpoints, it’s worthwhile considering bringing your regulatory reporting for all your reporting regimes under one roof. For a start, this will improve your reporting operations and accuracy and make the ongoing monitoring and control of reporting that much easier over the long term.
Are you looking for way to port your data to a new TR and future-proof your regulatory reporting? Contact us to learn how we can help you.