Trade association FIA has recently published a report, calling for changes in the way relevant firms need to report exchange-traded derivatives (ETDs), claiming that the current framework has created many difficulties for reporting firms.
Back in 2009, the G-20 Pittsburgh Summit introduced a global framework in order to protect the financial market against another financial crisis. From this framework, reporting regulations for over-the-counter (OTC) derivative contracts was introduced in order to better understand counterparty risks and exposure.
While well-intentioned, the FIA explains in its report published in June that different approaches across the world have resulted in complex and conflicting regulation, making it harder for firms.
FIA outlines problems in EMIR regulation
In its report, the FIA highlights that Europe’s European Market Infrastructure Regulation (EMIR) regulation is particularly unique. This is because it requires dual-sided reporting and includes OTC and ETD transactions. As highlighted by the association, the reporting standards were created for OTC trades but are also being used for ETDs.
“However, the application of a single reporting framework applying to both OTC and ETD contracts, which are fundamentally different products, has resulted in regulatory ambiguity and challenges to report complete and accurate data,” the report states.
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In order to make this process more efficient, FIA recommends in its report to modify the legislation in order to allow EU regulators the authority to allow reporting firms to submit ETD position reports and remove the obligation to report transaction-level details.
“This would significantly reduce the number of reports submitted by entities trading in ETD contracts without impacting the regulator’s ability to conduct analysis of systemic risk in ETD markets. Furthermore, this would reduce the operational burden faced by reporting firms, whilst enabling firms to enhance remediation capabilities on key data issues.”
Will ESMA take FIA’s comments onboard?
FIA is not the first to criticize the EMIR regulation. In fact, in 2017, the European Commission identified issues with ETD reporting as well, and the International Swaps and Derivatives Association (ISDA) has also called for changes.
Speaking to Finance Magnates, Ron Finberg, Business Development at Cappitech said: “Via the EU’s 2017 EMIR review and EMIR Refit this year, it shows that ESMA is analyzing the effectiveness of EMIR and have shown they are willing to make some changes to it.
“In 2018, one of their big campaigns was working with local regulators to review EMIR data for quality assurance reasons. This exercise revealed a number of different problems that exist in the market and may make them more open to the FIA’s recommendations in the future.”