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Trade and Transaction Reporting 2019 – the mid-year update

It’s that time of year again. Out of office messages come flowing in, thermostat wars rage on throughout the northern hemisphere, dress codes are thrown out the window. Summer is in full swing!

As much of our industry enjoys a well-deserved break, we take a moment to reflect on some of the most significant developments year-to-date and explore the themes likely to impact work agendas for the rest of the year.

SFTR confirmed for 2020

After much market speculation around potential further delays, the Securities Financing Transaction Regulation (SFTR) was published in the Official Journal of the European Union earlier this year. This sets the go-live date for the first wave of firms impacted to April 2020, leaving them less than a year to get to grips with the considerable reporting challenge. Hailed as the most complex reporting challenge to date, the new regime will require firms to report over 150 data fields, many of which weren’t readily available to firms at the time of publication. Time is of the essence and competing priorities such as Brexit-related changes shouldn’t divert firms’ attention. That’s if they want to be ready by next Spring.

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The great Dodd-Frank revival

With the commotion caused by new and evolving regulatory reporting obligations in Europe over the last several years, firms can be forgiven for forgetting about the Dodd-Frank Act. EMIR, MiFIR, MMSR, SFTR, and Brexit have monopolized resources and kept compliance, operations and technology teams busy. But the status quo on the other side of the Atlantic is coming to an end, and now is a good time to start paying attention again. In May, the CFTC published a first set of proposals, mainly around Part 49 of the regulation which governs swap depositories. The proposed changes for Part 43 and 45 are due to be published later this summer. With the re-architecture of the DTCC US data centre (where CFTC reporting is supported) also scheduled in the next year, we expect activity to ramp up significantly in North America.

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Data quality issues continue to plague firms

According to a recent survey by our partners at Bovill, more than 1,000 investment firms fail MiFID II transaction reporting requirements. Recurring issues highlighted by regulators include inaccurate details for trading date, time, price, and venue, but also large volumes of incorrect party identifiers and instrument reference data. And MiFID II isn’t the only regulation under the spotlight. A recent Freedom of Information led ESMA to reveal that EMIR pairing and matching rates as of February 2019 were at 86% and 40% respectively. Considering EMIR entered into force in 2014, we wouldn’t be surprised to see the issue make it to the top of regulator’s agenda in the near future.

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Regulators up the ante

Reminders of the importance of data quality have come in all shapes and forms this first half of the year. And for two Tier 1 Investment Firms, these reminders have come with hefty price tags. In March, the FCA issued its biggest trade and transaction reporting related fines to date: £34.3million and £27.6million to be precise. In both cases, the UK regulator published detailed reports of the firms’ failings to their reporting obligations. Breaches include large volumes of over- and under-reported transactions, as well as erroneous data, leading the regulator to remind firms of the need for robust controls to help identify any issues. Without sounding too speculative, buy-side firms have been relatively spared from trade and transaction reporting regulatory enforcement so far, and one might expect the regulator to take a closer look at their operations.  More generally, all this activity signals that the settling in period is over (at least for Mifid), and firms should brace themselves for more scrutiny.

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The Buy-Side plays catch up

Fundamental differences in approaches and structures have rendered transaction reporting a particularly tedious task for the buy-side. Typically, small operations and IT teams and a culture of outsourcing are just a few of the challenges they encounter. And while some them have delegated their reporting to their sell-side counterparts to date, a shift in attitude has begun. Buy-side firms are becoming increasingly aware of the responsibility they have with regard to the quality of their reporting data. They have also become increasingly aware that whether they report it themselves or not is irrelevant to the regulators, the buck stops with them. We have noticed a growing number of buy-side firms investing in the area, making transparency and control key principles of their transaction reporting programme. With SFTR in the pipeline and sell-side firms still undecided on offering delegated reporting or not, we expect the trend to accelerate for the rest of 2019 and deep into 2020.

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All in all, a busy end of year seems to await market participants. But in the meantime, we’ll go back to the thermostat wars and wish you a great summer!