REGIS-TR: The global registry for derivatives - David Retana
After concerns about timing and fears of a meltdown, the EMIR trade reporting regulation is in full swing across Europe. Future Banking talks to David Retana, managing director, REGIS-TR, about how things have gone and what lies ahead.
It was one of the most significant moments the European market had seen since the onset of the crisis. In February 2014, the European Commission introduced a rule central to the overhaul of a trading market with a global value of €692 trillion.
The requirement was clear - all counterparties must report details of any derivative contract to a registered trade repository. But while it sounds simple and most people agreed with the premise, observers were far from optimistic.
"Before the regulation, they were predicting wholesale non-compliance or apocalyptic meltdown of trade reporting platforms," says David Retana, managing director, REGIS-TR.
The main issue was timing. Late in 2013, the Commission rejected a request from the European Securities Markets Authority (ESMA) to push implementation of ETD trade reporting back by a year. That meant banks and corporations faced a race against time to comply. It didn't help that the European regulatory authority was still issuing new rules and guidelines the day before the deadline.
Some organisations were well prepared despite these problems. REGIS-TR had been offering a test environment since 2012, and a number of high-volume financial institutions completed their on-boarding in good time. But, levels of awareness differed across client size and segment.
Prepare for the worst, expect the best
For a number of smaller corporates with no representation in industry bodies, and no legal and compliance team, the European Market Infrastructure Regulation (EMIR) was a big surprise; many didn't even know it applied to them. Even for the larger buy-side clients there was an expectation that implementation of the regulation would be staggered or that their bank would take care of it on their behalf.
"The number of customers using our test environment multiplied six fold following the November announcement," Retana says. "More than 80% of our entire client base only submitted their account documentation within the five weeks prior to reporting start date."
When the regulation did arrive, nothing like the meltdown anticipated actually came to fruition. At REGIS-TR, things went more smoothly than expected.
"We had every reason to be confident regarding our system performance," Retana says. "And everything held up as robustly as we had planned, and that's with customers reporting on average more than 6.5 million trades and more than 1.5 million positions on a daily basis. We are now at a stage where hundreds of millions of trades have already been reported by tens of thousands of market participants. Intra-TR reconciliation has started, and regulators have already started to review data.
"We had a mirror-image test environment in place since 2012, and we also spent a lot of time consulting with a number of our biggest customers to get a firm idea for capacity and volume benchmarks."
Of course, some problems did arise, particularly around rejection, pairing and reconciliation. But work has already begun at REGIS-TR to smooth over those initial teething problems.
"We are working with our customers to identify the issues," Retana says. "Hopefully, tweaking should see the majority of rejections cease. And with pairing, we have seen some issues form because the legal-entity identifier regime has not yet been fully fleshed out. But this is an interim issue that we are working to resolve by using other available data."
Perhaps a more fundamental issue for all participants is the lack of clarity around unique trade identifier (UTI) and unique product identifier (UPI) allocation. For the former, there is currently no industry consensus on the right approach; counterparties will need to agree bilaterally on how they will be generated, by whom and for whose consumption. For the latter, though both parties may be reporting correctly, without a common standard protocol, different identifiers can be used and reconciliation breaks may occur.
One might wonder, given these issues, whether the Commission was right to reject the ESMA's request for a 12-month delay. But for Retana, the time was correct.
"I don't subscribe to this," he says. "Many of our customers tell us that they are jumping from implementing one piece of legislation to the next based on the urgency of the implementation date. On this basis, a postponement to RSD would likely not have resulted in significantly more time being spent on preparing for it; rather, the time would be spent on the next hard regulatory challenge. With something as complex as this, there was always going to be an element of having to learn by doing."
Having gone through the initial compliance period, many participants are beginning to assess how the service flexibility options offered by their provider measures up to other trade repositories. At REGIS-TR, Retana is confident their platform offers the right approach and solution.
"We have a product that has been very strong since its inception in terms of service flexibility options," Retana says. "From the start, we had the philosophy that participants should not have to shoehorn our reporting model into their existing framework. We've been open to facilitating practical solutions to meet genuine market requirements and have entered a number of strategic partnerships aimed at providing flexibility."
The company is already looking to expand on its established product suite with features that can help its customers reduce the administrative burden of EMIR.
"Trade reporting is a nascent area, and our product roadmap plans for sophisticated features like 'super-user access'," Retana says. "Our roadmap continues to be informed by bilateral meetings with our participants - they remain the most valuable input in our product process."
Only the beginning
It is of course, only the start for trade repositories, banks and organisations involved in EMIR. Valuation reporting and other reporting obligations are yet to come to the market.
"This was only the start of the journey," Retana says. "While we are proud of our achievements, now the focus is shifting from account opening to data quality, helping our clients fine-tune their reporting and achieve the highest level of automation."
As for the timing of EMIR, whatever view one takes, there's no going back. "It's been difficult," Retana says. "But a rocky start is, in my view, better than no start."