The countdown to the 12 February 2014 launch of trade reporting under EMIR, the European Market Infrastructure Regulation, was initiated with the announcement 11 days ago by ESMA, the European Securities and Markets Authority, naming the first four EMIR trade repositories.
But as a UK regulator pointed out in a recent speech, there are two outstanding issues to be resolved before then.
Tom Springbett, head of OTC derivatives and post-trades policy at the Financial Conduct Authority, told the audience at the FIMA Europe conference in London that regulators are still working to develop systems for product identification and for each individual contract. A system of legal entity identifiers took a step closer in October.
“As far as possible, ESMA and we as the national authority, are trying to rely on existing solutions,” he said. “So where there is an instrument identifier available, we think that will be the right answer in the exchange-traded derivative world.
“That doesn’t work so well for OTC. ISDA, the International Swaps and Derivatives Association, is working with ESMA on that. There is no final decision yet but I think the direction of travel is heading towards reaching agreement. Watch this space.”
Work is also taking place to develop a unique trade identifier (UTI) for each individual contract. “There is a precedent here from the US,” Springbett said. “The US already has unique trade identifier system in place.” He explained that that system has a protocol for identifying which counterparty is responsible for allocating that UTI.
How regulators will use EMIR data
Responding to a question from The Forum for Regulatory Change, Springbett explained how the FCA and other UK regulators would use the torrent of data provided by EMIR reporting.
“We will use it at a number of levels. Probably the biggest UK user of this data will be the Bank of England with their new responsibility for systemic oversight,” he said. The Prudential Regulation Authority, part of the BoE, “will be doing things like exposure maps and looking for concentrations of exposure with particular firms.
“The FCA, as a conduct regulator with less of a focus on system and prudential regulation, might be looking, for example, for changes in a firm’s business model. So we will be looking to assure ourselves that the firms’ conduct safeguards are adequate for the types of business they are doing," Springbett explained. “If that business on one day is commodity derivatives and the next day that firm is number three firm in CDSs [credit default swaps], then that might well be a trigger for us to want to come and have a conversation with that firm to say, ‘Are your conduct safeguards still the appropriate ones?’”
The Financial Conduct Authority's EMIR page is available here.