The beginning of December sees the rolling out of the ESMA “Level 1” requirements for EMIR Trade Reporting. This represents an attempt by ESMA to improve reconciliation rates at and between the TRs for trade reporting, which so far have been said to be very low.
This has many causes, but in particular it has been around lack of clarity in what should be populated in certain fields. The requirement are far more specific about which fields can be left blank, and in some cases where an “NA” should be placed into a field when it is not used. In addition, it pushes for the “E” format to be used for the Unique Trade Identifier (UTI). Most TRs will now only attempt to reconcile records that use this format.
This initiative is not energy and commodities specific, and therefore does not address the many outstanding questions that the sector has on formats. For example, it is still not clear how to break down a trade into deliveries. Not is it possible to represent a trade with more than one commodity.
The initiative is currently having an impact on the industry at large, in that everyone is trying to comply with the new requirements. Each TR will require a different piece of work to bring it into line; market participants and technology companies are all working hard to be ready for this.
But the larger piece of work comes after go live: Once more trades are being reconciled, we are likely to see more “breaks” and this in turn will lead to many adjustments being required so that trade records match. A great deal of this process will be bilateral, and it is likely to take several iterations before any new industry standards emerge.
It is hoped that the outcome of this initiative is aligned standards on what goes into each data field. The road to that will not be smooth, because of the bilateral nature of the matching. That ensures that it will take several iterations before any standard emerges.
For us in energy and commodities this will take longer. The variety of trades, and the fact that the formats are not “commodity friendly” means that the reaching of a standard is likely to be a painful process.