LONDON, June 14 (IFR) - Revised European rules for over-the-counter derivatives reporting, set to become effective on November 1, could hamper readiness for sweeping MiFID II requirements that come into play just two months later, market participants have warned.
An overhaul of regulatory and implementing technical standards (RTS/ITS) for Article 9 of the European Markets Infrastructure Regulation aims to improve data clarity in OTC swaps reporting, which came into effect in February 2014.
Updated Level III text was submitted by the European Securities and Markets Authority in late 2015 and adopted by the European Commission a year later.
“There’s no lack of clarity over what needs to be done but the industry is largely underprepared for the scale of the changes,” said Collin Coleman, head of NEX Regulatory Reporting, a transaction reporting platform that uses technology from Abide Financial, which was acquired by the NEX Group last October.
“Simply looking at this as a technical change is the wrong way as the industry is going to have to report twice as many fields and almost 80% of the fields are new, or changed.”
As part of the overhaul, derivatives counterparties will be required to make fundamental changes to database structures in order to manage an array of changes that include additional data on the type of trading model used in each transaction. Analysis by Abide shows that the rewrite comprises 51 new fields, 22 amended fields and seven deletions.
A rush for compliance could have a knock-on effect for MiFID II preparations, Coleman said, with the sweeping requirements for pre and post-trade transparency across securities and derivatives markets set to go live on January 3.
“Even in an organisation of moderate complexity, you’ve probably got five to 10 systems that need to be updated, so it’s a big upheaval and could have a significant impact on MiFID II preparations,” said Coleman.
Already delayed by one year, regulators see no scope for extending the MiFID II deadline.
“Contrary to some recent coverage and commentary, MiFID II/MiFIR will come into effect on January 3 2018, there will be no further delay in its implementation,” chair of the European Securities and Markets Authority Steven Maijoor said at the FIA’s IDX conference in London last week. “One delay has been enough for all concerned.”
EMIR reporting changes come into effect as European policymakers embark on a broader review of regulation that entered into force in 2012. As part of the EMIR review, published last month, the European Commission proposed a change to the controversial dual-sided reporting requirement that requires both parties on an transaction to report their trade to a registered repository.
Under new recommendations - yet to be approved by the European Parliament and European Council - non-financial counterparties would cease to be subject to swaps reporting, instead handing responsibility over to their financial counterparties.
“For small and medium-sized firms doing FX hedging, it’s a very big lift to meet the changes to the RTS/ITS in November, particularly if the wider macro EMIR review leaves them out of scope altogether,” said Coleman.
NEX Regulatory Reporting, which went live earlier this year, has around 135 buyside and sellside clients accessing its global regulatory reporting services. (Reporting by Helen Bartholomew)