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ESMA: “No more guidance from us”

JWG analysis.

Depending on whom you listen to, Europe’s trade repositories either popped in for a chat with ESMA, or were hauled in for a stern reprimand last week.  Whichever it was, the resulting discussion was pretty explosive.  ESMA made themselves very clear; trade repositories must work harder to address low levels of inter-trade repository reconciliation and poor data quality.

According to a report published here, during the meeting Fabrizio Planta, team leader for post-trading at ESMA, had some choice words for the trade repositories.  Here are some highlights:

• “We already have said in setting standards what are the standards to be used.  We have already provided Q&As on how to implement the standards.  They should simply be followed.  Now we are asking the trade repositories to implement certain measures to make sure they are followed properly“
• “We understand that these things take time to be perfect.  It’s normal.  The fact is it’s a joint effort.  They cannot just say we need more guidance from ESMA, because when we provide the guidance, we expect it to be implemented.  So far some are still not implemented“
• “We are following the developments of the industry and also working with our fellow regulators that are focused on this as well, to make sure that we manage to have common standards.  It is an industry initiative.  The guidance that we have provided and the interim [unique trade identifier] solution is already there and should be agreed by the parties.  At this point in time, we do not expect to have more than that.  It is up to the industry to come up with a standard“
• “It was only when reporting started that the industry realised they needed more guidance.  There is a limit with what we can do with Q&As, but if you just look at the amount of Q&As and the amount of releases we’ve issued, I don’t think they can complain about our lack of guidance“

Rachel Wolcott, writing for Accelus’ Compliance Complete, reports on the details of the meeting:

• The CME Group, DTCC, Ice Trade Vault, KWDP and UnaVista, all of which are authorised trade repositories for EMIR, declined to comment on low reconciliation levels or the anticipated outcome of the trade repositories’ discussions with ESMA
• ESMA discussed a number of measures with trade repositories to improve data quality, and therefore reconciliation rates.  Planta declined to share all the different measures, but he did say the two main points were filtering and validation.
• Planta declined to comment on whether any fines or further supervisory actions would be levied on trade repositories or those parties with EMIR trade reporting obligations.  He did note that ESMA would monitor inter-trade repository reconciliation on a weekly basis, and would continue to work with industry to foster reporting standardisation.
• The well-documented problems with trade reporting and inter-trade repository reconciliation mean that there are high levels of anxiety among those buy-side firms that have delegated reporting to broker dealers or other third parties.  Equally, the sell side-firms providing EMIR trade reporting services are worried about the potential damage to client relationships which incorrect reporting might cause
• Buy-side derivatives market participants may delegate trade reporting, but ultimately the responsibility for the accuracy and completeness of those reports will stay with the buy-side client.
• Hedge funds and asset managers have become very anxious about the uncertainty regarding what data has been sent to the trade repositories and what, if anything, the regulator is scrutinising.  Over the last few months, asset managers and hedge funds have accessed reports held in data repositories and have been questioning their broker dealers about their accuracy and completeness.

At an Infoline conference this week chaired by PJ Di Giammarino, CEO of JWG, vendors made it clear that levels of matching between trade repositories are not even 1%.  This further underlines the fact that it is crucial that the industry resolves the question of how to fix these problems in a timely manner.  Answers on a postcard, please …