DTCC Proposes Way Forward to Achieving Global Data Harmonization in Derivatives Trade Reporting
New perspectives paper recommends course correction to eliminate cross-jurisdictional differences in trade reporting standards to boost transparency and the monitoring of systemic risk.
New York/London/Hong Kong/Singapore/Sydney, 16 March 2021 ‒ The Depository Trust & Clearing Corporation (DTCC), the premier market infrastructure for the global financial services industry, today outlined a three-prong plan to further harmonize derivatives trade reporting requirements and deliver against the objectives that were originally established by the Group of 20 (G20) at its historic 2009 summit in Pittsburgh.
In a new paper released today, titled, Course Correction: Finding a New Path to Global Data Harmonization in Derivatives Trade Reporting,” DTCC outlines its recommendations for a path forward in reaching global data harmonization in the over-the-counter (OTC) derivatives market.
“OTC derivatives trade reporting standardization would enable regulators to reach the level of transparency and global risk monitoring identified as critical by the G20 summit, but has been a challenge to achieve for individual jurisdictions,” said Chris Childs, DTCC Managing Director and Head of Repository and Derivatives Services. “With several trade reporting rule sets currently under regulatory review, now is the time to work together and continue to progress against these objectives, and more specifically, to align individual jurisdiction trade reporting rules to facilitate global market transparency.”
Challenges in Achieving Standardization in Trade Reporting
While the industry and regulators now have greater insights into local market risk, insufficient alignment of reporting requirements across jurisdictions could impede the global aggregation and analysis of OTC derivatives transaction data reported to trade repositories. This could lead to a lack of transparency across jurisdictions, which could hinder regulators’ ability to adequately monitor systemic risk.
Several regulatory bodies are now embarking on the adoption of critical data elements (CDE) for derivatives trade reporting as identified by the Committee on Payments and Market Infrastructures (CPMI) and the Board of the International Organization of Securities Commissions (IOSCO) working group on harmonization (Harmonization Group). The CDE initiative was designed to promote the data harmonization critical to enabling data aggregation and systemic risk transparency. However, disparate adoption of the CDE and other reporting standards across jurisdictions will hinder the achievement of the G20’s risk mitigation objectives, and create complex implementation burdens for market participants.
A New Path Forward
Within the paper, DTCC outlines three steps the industry should take to improve in this area and advance toward the transparency and systemic risk monitoring goals envisioned by the G20.
1. Cross-jurisdictional differences: The industry, regulators and other key stakeholders must work together to eliminate cross-jurisdictional differences in the adoption of CDE trade reporting requirements to avoid ongoing re-harmonization efforts and future regulatory amendments. This would involve paring down the CPMI IOSCO list of 110 CDE to only the most important elements that then can be aggregated across jurisdictions.
2. ISO 20022: With the help of ISO 20022 Derivatives SubSEG working group, the industry must finish the ISO 20022 CDE message scheme for OTC derivatives, setting a definitive timetable for completion, and universally adopt a single ISO 20022 message as the common data standard and format for reporting to trade repositories. A common messaging standard would help drive data consistency across trade repositories and jurisdictions.
3. LEI ROC: The industry must furnish the LEI ROC with adequate resources in order for it to successfully serve as the central governance body for CDE, universal product identifiers (UPI) and universal transaction identifiers (UTI), as designated by the Financial Stability Board (FSB) on October 1, 2020.
Childs concluded, “It is critically important that we embark on these efforts now and capitalize on this unique moment to enhance systemic risk mitigation before market participants begin their next round of updates to conform to the latest rules revisions, some of which are projected for implementation in 2022.”
With over 45 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry. From operating facilities, data centers and offices in 15 countries, DTCC, through its subsidiaries, automates, centralizes and standardizes the processing of financial transactions, mitigating risk, increasing transparency and driving efficiency for thousands of broker/dealers, custodian banks and asset managers. Industry owned and governed, the firm simplifies the complexities of clearing, settlement, asset servicing, data management, data reporting and information services across asset classes, bringing increased security and soundness to financial markets. In 2019, DTCC’s subsidiaries processed securities transactions valued at more than U.S. $2.15 quadrillion. Its depository provides custody and asset servicing for securities issues from 170 countries and territories valued at U.S. $63.0 trillion. DTCC’s Global Trade Repository service, through locally registered, licensed, or approved trade repositories, processes over 14 billion messages annually. To learn more, please visit us at www.dtcc.com or connect with us on LinkedIn, Twitter, YouTube and Facebook.