How Brokers Need to Report Transactions with Changing Regulations?

Regulators across the globe have signalled their intention to overhaul the global derivatives reporting regime. This trend is gathering pace with ASIC announcing its intention to ‘modernise’ the derivatives reporting rules.

The ASIC Derivative Transaction Rules (Reporting) 2013 were introduced in response to the 2009 G20 Pittsburgh Summit. The Commodity Futures Trading Commission (CFTC) in the US and the European Securities Markets Authority (ESMA) have announced tweaks to their trade reporting regimes.

Changes to the ASIC rules will remove the transitional arrangements, which no longer apply, while also seeking to harmonise reporting requirements between jurisdictions globally.

The ASIC changes, like those for ESMA and the CFTC, will draw heavily on international standards for transaction, product and party identifiers data elements including:

• CPMI IOSCO Guidance Harmonisation of the Unique Transaction Identifier (UTI);
• CPMI IOSCO Technical Guidance Harmonisation of Unique Product Identifier (UPI); and
• CPMI IOSCO Harmonisation of critical OTC derivatives data elements (other than UTI and UPI).

What Is a Unique Transaction Identifier (UTI)?

The Unique Transaction Identifier (UTI) is a key Data Element for reporting over-the-counter (OTC) derivative transactions (although the UTI could also be used for the reporting of other financial transactions).

What Is the Purpose of Using a UTI?

The primary purpose of a UTI is to uniquely identify individual OTC derivatives transactions on reports to Trade Repositories (TRs). A UTI will help to ensure the consistent aggregation of OTC derivatives transactions by minimising the likelihood that the same transaction will be counted more than once.

It is worth mentioning that introduction of mandatory and harmonised UTI reporting requirements could require significant resources for reporting purposes for brokers who are engaging in hedged trades as both sides will need to report the same UTI.

The changes hope to reduce compliance costs incurred by multinationals with multiple reporting obligations across different jurisdictions. The harmonisation will also assist regulators in meeting their objective of monitoring counterparty risk within the global economy.

One strategy for reducing resources on implementation and minimising risk of non-compliance is to use the same reporting provider as your Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term provider. This could be potentially beneficial as it will enable the reporting entity to work together to report the correct UTI.

When Will the Requirement Start?

ASIC has provided an indicative timeline with consultations opening during November 2020 and closing February 2021. The second round of consultation will occur in the months of May and June 2021. Rules are expected to be announced in Q3 or Q4 of 2021 and will come into force either Q3 or Q4 of 2022.

The CFTC’s changes to the reporting regime were finalised in September 2020 and will become effective in March 2022. While ESMA has not released a timeline for implementation, they did release a consultation paper in March 2020.

Already the International Swaps and Derivatives Association (ISDA) has highlighted the challenges and potential adverse ramifications for industry participants that may result from inconsistent adoption of UTI.

We will keep you informed as the consultation and implementation progresses.

Quinn Perrott is the Co-CEO and Founder of TRAction who focuses on assisting clients in Europe, Asia and Australia to meet their regulatory requirements with trade and transaction reporting solutions as well as the development of the best Execution Execution Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Execution is the process during which a client submits an order to the brokerage, which consequently executes it resulting in an open position in a given asset. The execution of the order occurs only when it is filled. There is typically a time delay between the placement of the order and the execution which is called latency.In the retail FX space, reliable brokers always strive to deliver best execution to their clients in order to maintain a solid business relationship with them. This is a co Read this Term platform.