The International Swaps and Derivatives Association’s (ISDA) efforts to improve data standardisation across jurisdictions are getting more detailed, which is perhaps a sign that its goal to harmonise global regulatory standards is well underway.
Indeed, just today ISDA launched a new industry data project, aimed at developing an open-source standard derivatives product identification system that can be applied across all derivatives facilities, including trading venues, clearing houses, repositories and other infrastructures.
The initiative, dubbed the Symbology Project, comes in response to a variety of regulatory changes. More broadly, the project aligns with the efforts of G20 nations, which have agreed to a series of measures to increase the transparency of OTC (over-the-counter) derivatives markets and to reduce systemic risk.
Such measures include the European Union’s revised Markets in Financial Instruments Directive/Regulation (MIFID II/MIFIR) and the US Securities and Exchange Commission’s (SEC) reporting rules, stemming from the Dodd-Frank legislation.
However, regulators and financial service providers alike have run into difficulties as they prepare for full implementation of the new derivatives reporting rules. Specifically, they face a lack of standardisation and consistency across jurisdictions and concerns about the quality of the data being reported. This, in turn, leads to issues of effectiveness, complexity and cost.
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Global data harmonisation has therefore been on the agenda for some time. As such, the project announced by ISDA today is a sign that regulators are getting down to the “nuts and bolts” of cross-jurisdiction standardisation.
The drive for an industry wide, open-source standard with sufficient granularity to meet regulatory needs is now critical.
Indeed, the initiative seeks to develop a common methodology for classifying and identifying derivatives instruments across all platforms, which it says will also cut complexity and costs for market participants that need to connect to multiple trading venues, and simplify the distribution of liquidity.
A consortium, led by the Symbology Governance Committee, will consist of buy and sell-side market participants, vendors, platforms and trade associations. Thus far, 18 major industry players have agreed to participate, including Barclays, Bloomberg, Citigroup, Deutsche Bank, Goldman Sachs, ICAP-Traiana, Thomson Reuters and UBS.
Commenting on the new project, Scott O’Malia, ISDA’s Chief Executive, said: “The ISDA symbology project is a great example of the industry coming together to tackle an important challenge. With MIFID II and SEC regulatory requirements soon to be implemented, the drive for an industry wide, open-source standard with sufficient granularity to meet regulatory needs is now critical.”