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The Paper Chase - Implications of a tough approach to trade transparency

Published in Automated Trader Magazine Issue 33 Q2 2014

The US had paved the way with the start of swaps market reporting as called for under Dodd-Frank. Yet even with the benefit of that experience, the introduction of OTC derivatives reporting in Europe is proving to be a formidable test for trading firms and for the regulators themselves. Rochelle Toplensky reports.

If financial firms once harbored hopes that the US experience of introducing over the counter (OTC) derivatives reporting would ease the burden for reporting in Europe, they probably don't any more. European regulators have shown fierce determination to stick to the timelines and scope of the European Market Infrastructure Regulation (EMIR). And though the OTC reporting objectives and rules are similar, the differences are substantial enough to require completely new systems and processes that have some in the industry scrambling.

"We know clients, big tier one clients, who are analysing their trade transaction flows through their front office right now and there are literally thousands of different types of flow, just within one asset class," said Ian Salmon of ITRS, a provider of application, process and business monitoring. "And they are having to look across those to work out which things need to be reported on behalf of whom, and then resolve where they are going to report them and how. Those challenges aren't to be underestimated."

In an effort to increase transparency and decrease risk, EMIR has required European companies to report their OTC and exchanged-traded derivative transactions from 12 February 2014. Since that date, European companies have been sending a mountain of complex data to the European regulator.

Matthew Coupe, Director Regulation and Market Structure at software provider NICE Actimize, said regulators themselves are going to have to use the same level of technology that trading firms do.

"The regulators have got a massive challenge," Coupe said. "The data they are going to get is going to be massively useful, but they are going to have tons of it. They are going to have a haystack, and require intelligent analytics, and advanced technology that trading houses use for trading to find the needles."

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