EC urges industry solution on UTI challenges

01 Dec, 2014

The European Commission has said the financial industry - as opposed to regulatory bodies – is better placed to reach an agreement over which counterparty develops the Unique Trade Identifiers (UTI), the alphanumerical code designed to enable trade repositories to reconcile reported over-the-counter (OTC) derivatives and exchange traded derivatives (ETDs) as mandated under the European Market Infrastructure Regulation (EMIR).

“On the creation of UTIs, we believe the industry is best placed here to developing a form of best practice,” said a source close to the European Commission.  EMIR’s implementation has been mired with difficulty. Unlike the Commodity Futures Trading Commission’s (CFTC) rules on swaps reporting, EMIR obligates both counterparties to a trade to report to one of the six trade repositories approved by the European Securities and Markets Authority (ESMA).

ESMA has been urged to issue firm guidance to trade repositories to enable them to better reconcile trades. ESMA did not provide guidance on UTI generation until February 11, 2014 – the day before EMIR took effect. Its guidance was muddled and simply said counterparties to an OTC transaction develop the UTI leaving it open as to which counterparty produced the UTI and which one should endorse it.  Predictably, both counterparties are producing UTIs, which can often be wildly different. As a result, barely any OTC derivatives and ETDs that are being reported to trade repositories are being paired. This has hindered regulators’ ability to monitor build ups of systemic risks in the derivatives markets. An executive from the Depository Trust & Clearing Corporation (DTCC) told a recent conference in London that just 30% of inter-repository OTC derivative and 3% of ETD transactions that were reported are being paired successfully.

It has been reported that ESMA will force trade repositories to reject erroneous trade reports as of December 1 so as to bolster the quality of the data. It is widely expected that market participants that submit inaccurate reports to the repositories could face sanctions and fines.

There is also the possibility the EC could permit single-sided reporting. “The CFTC’s decision to permit single sided reporting is attributable to the fact that reporting is only applied to swap dealers and major swap participants whereas the scope of EMIR is far broader. There is a review of EMIR in 2015, and there is a possibility single sided reporting could be considered if there are sufficient grounds,” said the source.

COOConnect has published a guide to regulatory reporting which can be viewed here.






European CommissionESMAEMIRTrade ReportingDTCC