Why We Must Seize the Moment to Fix Reporting

From the retirement of LIBOR to the rollout of margin requirements for non-cleared derivatives, we've seen over the past decade how some of the thorniest challenges have been overcome through close collaboration between the industry and the public sector. We now have an opportunity to take a similar approach to fix the problems that have hindered trade reporting and prevented regulators from building a complete and accurate picture of derivatives trading activity. That's why we're eager to work with EU policymakers to simplify and reduce the reporting burden and to help the industry embrace a fully automated, scalable reporting system that delivers for the regulators.

The challenges of trade reporting have been widespread. Following the Group-of-20 mandate in 2009 to improve transparency by reporting trades to repositories, the rules have often been inconsistent, duplicative and costly to implement, leading to inaccuracies, repetition and omissions in reported data. The result, as ISDA has previously highlighted, is that the relevant information may be available in trade repositories, but regulators are not always able to efficiently access it or use it to identify the build-up of derivatives exposures and risks.

Policymakers have acknowledged these issues and want to address them. Earlier this year, the European Securities and Markets Authority (ESMA) sought industry feedback on the major cost drivers associated with reporting and how the burden could be simplified and reduced. Working with our members and other trade associations to develop an industry response to ESMA, we found a clear consensus on the key issues that drive up the cost of reporting in the EU. These include the obligation for both parties to report the same trade, duplicative requirements under multiple regulations for the same derivatives instruments to be reported and frequent changes in regulatory requirements that lead to further inconsistencies and duplication.

A key part of any solution would be to conduct a holistic review of the EU's multiple reporting regimes to clearly identify what information regulators need and to crystallize the reporting inefficiencies encountered by market participants. This would pave the way towards a single regime that optimizes reporting and enhances its value for the public sector, while reducing the burden for the market. This single reporting regime should comprise only the relevant data fields without duplicative or unnecessary reporting, requiring market participants to deliver a single transaction report to meet their obligations under the current Markets in Financial Instruments Regulation (MIFIR), European Market Infrastructure Regulation (EMIR) and Securities Financing Transactions Regulation (SFTR) regimes.

As it moves forward with its objective to simplify and reduce the reporting burden, ESMA has the opportunity to make meaningful, lasting change. We support its proposal to clearly delineate reporting by instrument type, with exchange-traded derivatives reported under MIFIR, over-the-counter derivatives under EMIR and securities remaining under SFTR. We also support the removal of the dual-sided reporting model to align with other jurisdictions where only one party is required to report a trade. This will significantly reduce the number of reports, avoid mismatches in what is reported and simplify processes. And we're strongly in favor of the removal of unnecessary or duplicative data fields. For example, market participants should not be required to report information that is already available to regulators through the entity- and transaction-level data embedded within legal entity identifiers and unique product identifiers.

We urge ESMA to push through these changes, which would bring significant improvements to the data set available to EU regulators and ease the trade reporting burden for market participants.

As reporting rules are improved, market participants must make sure they interpret and implement the requirements accurately and consistently. The most effective way to achieve this is by digitizing the rules and using that as the basis for implementation. ISDA's Digital Regulatory Reporting (DRR) initiative has transformed industry-agreed interpretations of eight sets of reporting requirements across different jurisdictions into unambiguous code, resulting in significant efficiencies and increased accuracy. As policymakers work to improve their reporting regimes, we will make sure the ISDA DRR evolves to keep pace with those developments.

As in the past, cooperation and coordination between the industry and the official sector will deliver the most effective results, creating a reporting framework that is fit for purpose and leads to real transparency. We must seize this opportunity and work with regulators to fix this problem once and for all.