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EMIR, REMIT

The proliferation of Trade Repositories

See here for an article on the EurActive web site about the proliferation of Trade Repositories in order to meet the G20 2009 requirement for transparency in the OTC derivatives market.

The article highlights the fact that there are at least 25 repositories across the globe to meet these requirements, with some jurisdictions having many. For example in Europe there are 6 approved trade repositories under EMIR.

Each of the repositories (at least in a specific jurisdiction) has differing standards, which has made it very difficult for regulators to read the data, even in one area. Being able to read data across jurisdictions is hard technically, and also legally because of sharing restrictions. As a result, the objective of transparency has not yet been met.

It has already been stated by many, including IOSCO and ISDA, that the situation should be rectified, and that this needs to start with the wider adoption of standard identifiers such as LEIs and UPIs. ESMA have also recently announced their intent to unify the data in the EMIR TRs using a similar approach.

Learning from REMIT
The article suggests that moving to a single repository per asset class is the answer. In reality, doing this globally is likely to meet with resistance, and competition amongst repositories also has benefits. Instead, it may be worth better defining standards for far more fields per asset class. This could be carried out using a common and non commercial standard, or by the builders of “aggregate repositories” (such as ESMA) outlining more prescriptive definitions of the data required.

If we consider how REMIT is working on the energy side, we may be able to learn a few lessons. Since ACER are ultimately collecting all of the data into one database, they have defined a format, which is both non commercial and covers all of the fields. The format is intended to be used by “Registered Reporting Mechanisms” who will forward the data to ACER, but are free to accept data however they wish. There will be several RRMs competing, and some will use different formats for different reasons. But many are also planning to accept data in “ACER XML”.  We may well see ACER XML turning into a standard in itself (where a “standard” is defined as a format that is used by many competing services, rather than the format of one).

In addition, ACER have gone to great lengths to properly define how the data is to be sent, issuing the Trade Reporting User Manual, which goes into great detail for each and every field. This will lead to far less confusion, and a lower number of mismatches.

No easy answer
While the REMIT approach does solve some issues, it is only focused on two commodities in one region. If we expand the effort to all commodities across the globe the challenge becomes greater. The difficulty of handling commodity trades has already been seen with EMIR, where there are many ways in which commodity data can be submitted.

Never the less, in addition to the already mandated standardisation, the REMIT approach may be a first step in achieving readable data on the derivatives side, at least in commodities. It will be interesting to see how it pans out.

About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.

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