Buy-side firms and other market players want to expand the scope of transaction reporting to comply with European legislation on best execution to over-the-counter derivatives and introduce position reporting for OTC derivatives as well .
But there are some caveats: the onus should fall on broker-dealers and market makers and the reporting should be done either through trade repositories or directly to regulators, say financial firms.
Over a dozen fund managers, securities depositories and trade groups representing fund managers responded to a consultation paper published on July 19 by the
In its role of harmonizing financial regulations across Europe CESR is guiding the
Under MiFID, buy- and sell-side investment firms must forward transaction reports on bonds, exchange-listed equities and all exchange-traded derivative transactions to regulators in their home market or elsewhere. Reports must be delivered within one day of the execution of trades. So far firms have not sent transaction reports for OTC derivatives nor do they file any reports on the positions in OTC derivatives they hold.
The CESR’s request for comment about transaction reporting for OTC derivatives couldn’t come at a worse time for financial firms. The London offices of some of the world’s largest financial firms have come under fire for their poor transaction reporting and the Financial Services Authority has been swift to levy plenty of fines for either mistakes in transaction reports or not receiving any reports for equity trades.
Transaction reports are more detailed versions of typical intraday trade reports and must include not only an identification code of the security or financial contract involved, but also a description of the transaction, where it was traded and each firm trading it. Currently, firms can send the reports to regulators directly, through the trading venue or through an accredited organization such as Xtrakter in London. Xtrakter is owned by the Euroclear SA family of securities depositories.
Transaction reports are used by so-called competent authorities – aka regulators – to detect market abuse. Position reports allow regulators to more easily view the current outstanding market exposures of given market participants to detect the concentration of systemic risk in the financial system. While transaction reports are prepared daily, position reports could be prepared far less frequently.
“The obligation to transaction report, either under MiFID or to the trade repository should attach to the market-maker or broker-dealer; it should only attach to the end user if there is no market-maker or broker-dealer involved,” wrote Peter De Proft, director of the
The German fund management association
The
The
“SWIFT has supplied CESR with full documentation on the transaction reporting ISO 20022 messages in the past, but we would be pleased to supply the material again if needed,” wrote Richard Young, director of securities market management for SWIFT, in a letter to CESR. “We are willing to meet with CESR to discuss how these formats would work in the context of any extension of OTC derivatives transaction reporting.”
In an Aug. 18 letter to CESR,
“The Competent Authority will extract positions and send them to the relevant Trade Repository,” wrote Xtrakter and Euroclear. However, they noted that this alternative approach would require adjustments to TREM (The Transaction Reporting Exchange Mechanism), a private network which transmits data between European regulatory agencies, so that TREM could send reports on positions to the relevant trade authority.
In its Aug. 13 letter to CESR, the
“Regional repositories would not, in practice, allow regulators to complete the tasks they have been set, i.e. the identification of systemic riak and market abuse,” wrote Andrew Douglas, head of public affairs for DTCC in Europe. “Of considerable more value to the regulator is a solution where regional mandates are combined to form a global mandate and therefore a global database. Such a combination of mandates into a global solution [as opposed to a single global mandate] does not necessarily mean the emergence of a monopoly provider, but could lead to one.”
To reduce market concerns about the possible abuse of the repository’s monopolistic position, Douglas advocated the creation of an at-cost cooperative model. He also recommended the adoption of the financial products markup language (FpML) message standard for transaction and position reporting.
Last year, the