TriOptima unveils product to assist firms in pairing of reported OTC instruments under EMIR
TriOptima has announced that its triResolve service, a portfolio reconciliation tool, could help financial institutions pair unmatched over-the-counter (OTC) derivatives reported to trade repositories as mandated under the European Market Infrastructure Regulation (EMIR).
The implementation of EMIR has been mired with difficulties. Unlike the Commodity Futures Trading Commission’s (CFTC) rules on swaps reporting, EMIR requires both counterparties to a trade to report to the trade repository. The European Securities and Markets Authority (ESMA) has been urged to issue firm guidance to trade repositories to enable them to better reconcile trades. ESMA did not provide guidance on the Unique Trade Identifier (UTI) generation until February 11, 2014 – the day before EMIR took effect. The UTI is an alphanumeric code designed to enable repositories to pair trades.
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 exchange traded derivatives (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.
triResolve’s repository reconciliation service allows firms to send directly or authorise the trade repositories to send their repository records to triResolve. triResolve, through its algorithms, is able to match trades without UTIs or Legal Entity Identifiers (LEIs) which cannot be achieved in the repositories. triResolve can also identify discrepancies across the approximately 60 additional data fields so firms can resolve the data problems and agree the identifiers and trade terms with their counterparties. The system is connected to most of the trade repositories approved by ESMA bar KDPW, the Polish trade repository although this is likely to happen in due course.
“We have been reconciling OTCs since we introduced triResolve in 2006 and this was a natural progression for us. A number of trades being reported are not being matched because there are differences between the UTIs as different counterparties to swaps transactions are producing them. Even without a valid UTI or LEI, we can pair this up using our proprietary technology, and provide a visibility for our clients outlining where there are inconsistencies with the data. For example, we see a lot of conflicting UTIs and LEIs and we work with counterparties to fix these,” said David White, triResolve product marketing executive.
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.