There is a view, which owes something to Friedrich Nietzsche and even more to Benoit Mandelbrot, that patterns are discernible even in the most abject chaos. It is nevertheless disconcerting to find regulators, of all people, apparently engaged in the deliberate cultivation of a lavish degree of chaos in the financial markets. They are, after all, charged specifically by the Group of 20 (G20) with garnering enough data about the capital and derivative markets to mitigate the risks of financial disorder being unleashed upon the world.
Yet the regulators are, in a sense, blameless. The European Securities and Markets Authority (ESMA) asked the European Commission to postpone the derivative trade reporting deadline of 12 February 2014, sensing that neither derivatives market participants nor the providers of trade repository services, to say nothing of its own shortcomings, were quite ready to embark on the greatest exercise in detailed information-gathering since the invention of the income tax.
The Commission insisted the deadline was met. So it was ordained that from 12 February 2014 the derivative users of Europe must report all their OTC and exchange traded transactions not to one trade repository, but to six. There were burdened with this duty while even the definition of a derivative was left open to interpretation; on the basis that reports from one side of a derivatives trade were inadequate; while the descriptions of the methodologies by which particular trades might be paired up remained open-ended; and in the face of a volume of data multiplied greatly by the addition of exchange-traded derivatives.
The disorder which characterised the period immediately after the deadline was too predictable to be interesting. The fascinating question is what motivated the Commission to detonate the turmoil. Haste was probably a factor, with a new Commission due after the elections in May 2014. Contempt for the investment banking industry in general, and cynicism about its constant pleas for more time, was probably more decisive.
But it is hard also to avoid the suspicion that reformers, confronted by the forces of cunctation, occasionally yield to the temptation to play poker. If it has made the composition for fund managers of a guide to derivative reporting in Europe a more interesting task than it sounds, it has also made it considerably harder. Almost every aspect of derivative trade reporting was in constant motion for weeks before 12 February 2014, and none has ceased to gyrate since. So those of us who contributed to the text which we now lay before you do so as mindful of the regret of David Hume (who thought his treatise “fell still-born from the press”) as the confidence of Phil Graham (who defended journalism as the “first rough draft of history”).
We trust our readers will accept it in that same spirit, since we know that The COOConnect Guide to Derivative Reporting in Europe is no more than a first edition. On 12 February 2014, the derivatives industry embarked on a long journey. As it proceeds, the quotient of order is bound to increase, while that of variety is certain to decrease. Hopes, especially of the contribution that data can make to the enlargement of financial stability, will be disappointed. But if regulators are bold enough to follow the example of their political masters, and release the data which is being gathered to the markets, nothing will ever be the same again.