If there is one requirement that regulatory reforms have brought to buy-side and corporate end-users of OTC derivatives, it’s mandatory trade reporting of derivatives trades to trade repositories.
Under the European Market Infrastructure Regulation (known as EMIR), a mandatory trade-reporting requirement for both listed and OTC derivatives will kick in on Feb. 12, 2014.
London-based GMEX Technologies, a wholly owned subsidiary of Global Markets Exchange Group International LLP, saw a gap in this area and has launched a derivatives trading reporting service called Global Reporting Company. GMEX Technologies formed GRC in partnership with Paris-based CoDiese, a regulatory and market infrastructure advisory firm.
The mission of GRC is to offer a neutral, fully outsourced regulatory trading reporting service that meets the trade reporting requirements imposed by G-20 led reforms with a focus on buy side and corporate clients.
“The drive now is get visibility in non-standard derivatives, but it covers any derivatives that is done OTC,” said Hirander Misra, CEO of GMEX Group and director and co-founder of GRC, in an interview. Let’s say an asset manager such as an insurance company trades a derivative product with another buy side layer or a corporate entity like Vodaphone, illustrates Misra. If the trade is done away from a public market, it has to be reported to a trade repository.
Buy side firms could do this directly, but it involves a big investment and IT implementation in writing to the trade repository, said Misra. If they are trading through one of the banks, they could ask the bank to report on their behalf, he said. However, buy side firms and corporate users are “worried about the integrity, independence and control over their data,” said Misra.
What GRC offers is a web front-end so the buy side and corporate end users can load up their OTC trades directly or by spreadsheet, which are then sent to the repository. Alternatively, GRC provides a service whereby clients can send individual trades to GRC as they are executed to load, or GRC can read the client’s internal systems.
“It takes all the cost and time and effort” out of the equation, plus the trade reporting vendor handles the archiving requirements. Misra explains that GRC must conform to the third-party vendor provisions under the European Securities and Markets Association (ESMA), which means it has to maintain a high degree of data integrity. “What they report is confidential and we’re not allowed to divulge what they report without their permission,” said Misra.
Some of the brokers are offering this regulatory trade-reporting service to their buy side clients. Already< ahref= http://www.bobsguide.com/guide/news/2013/Jul/30/bnp-paribas-to-provide-client-derivatives-reporting-under-emir-via-dtcc-trade-repository.html target=”_blank>BNP Paribas is outsourcing its derivatives trade reporting to DTCC Derivatives Repository Limited, in London. The European arm of the DTCC, one of the recently approved trade repositories (TRs) under Esma will help buy and sell-side clients comply with the new rules requiring OTC trades to be reported to a central repository.
But a lot of the buy side may have a headache if they are not in conformance, said Misra. Even though GRC is focusing on buy side and corporate end users, any one can use the service including US sell side and buy side institutions with operations in Europe.
Business Offshoots of Trade Reporting
Once OTC derivatives trades are reported to GRC, Misra sees an opportunity to create other value added products, such as derived data frin aggregating t. If GRC sees that certain swaps trade frequently, it can provide value added data (kept anonymous) to the wider market and share revenue with the participants. Based on the swap data, he sees potential to create “end-of-day indices for portfolio valuation purposes because they are an indication of what’s done,” he said. Misra is also contemplating the development of smart analytics around the post-trade data. A natural extension would be to connect the trade reporting service to a CCP (central clearing counterparty) since the buy side may want to put those trades in for clearing, said Misra.
“You start with the trade reporting and there’s lots of offshoots as you grown,” said Misra. GMEX Group is awaiting approval from the FCA to launch a multilateral trading facility for interest rate futures swaps. There can be synergies between the clients that use the GRC reporting service and those that want to trade swap futures on GMEX’s venue.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio