Europe's overhaul of derivatives markets is hitting a new stage next week as Phase II of the European Market Infrastructure Regulation (EMIR) gets underway.
Starting on Aug. 12, banks and asset managers that qualify as counterparties to derivatives contracts under the European Economic Area (EEA) are required to report collateral and valuations to an approved trade repository.
"The next big thing on everyone's plate for EMIR reporting is collateral and valuation," said David Nowell, head of industry relations and compliance for London Stock Exchange Group's UnaVista Ltd. EMIR reporting went live on February 12, but the next phase is on August 12. "There are 10 extra fields. Any financial counterparty has to report that valuation and collateral data," said Nowell.
Executives from UnaVista, LSEG's post-trade services company, were in New York last month meeting with US compliance officers to help them prepare for the derivatives trade reporting requirement.
"Our role is to make sure the data we submit to regulators is accurate and timely,"commented Mark Husler, CEO at London-based UnaVista Ltd., during an interview in the firm's New York midtown Manhattan offices. LSEG opened the New York office in January of 2013, which also house its FTSE Index Group.
LSEG Expands in North America
Given the ongoing proliferation of global regulations, UnaVista is expanding in North America to help US, Canadian and European buy-side firms comply with the European, US and G-20 regulations. Today it has around 10,000 users across all clients, with a very large portion outside of Europe and in the US among sell-side firms.
"North America is very strategically important in this market," said Husler. "We're expanding and investing in people in the US," he said. LSEG opened its New York office in January 2013, where it houses the FTSE index group. As a European exchange operator, LSE has diversified through acquisitions in North America this year. On July 26, LSEG said it agreed to acquire Russell Investments, owner of the Russell indexes, for $2.7 billion, pushing further into US capital markets. In March, LSEG's MTS fixed income division agreed to buy Bonds.com for $15 million to enter the US corporate bond market.
While LSEG's UnaVista entered the MiFID reporting space in 2009, it has become one of the largest providers of those services in Europe in terms of numbers of trades and volume of clients. It processes 2.5 billion trades a year.
With multiple regulations impacting banks and now asset managers that enter into derivatives contracts, financial institutions are looking to players like UnaVista to collect, transform and reconcile their data before it gets to the regulators. UnaVista provides a range of services including post-trade reconciliations, reference data, trade confirmations and regulatory reporting.
"The regulator relies on us and other competitors to funnel all of that trading activity into their market surveillance systems," said Husler, who is also head of product management, information services, LSEG. Globally, however, while regulators are interested in trading activity, they're also increasingly interested in risk and controls. "It's not just about reporting your data correctly. It's to prove that you have the right standards and controls around that complete trade lifecycle," said Husler.
In Europe, there is a requirement for all sell-side institutions -- soon to be buy side as well -- to report all of their trade activity to a trade repository, emphasized Husler. This is important because regulators have previously handed out hefty fines in Europe, for example, if the front office executed a trade and didn't book it in the back office. Or, someone could have changed a buy into a sell or the counterparty data was accidentally manipulated before it gets to a regulator, illustrates Husler. The only way firms can avoid these errors is to reconcile data from front-to-middle-to-back and then from Unavista's trade repository with the regulator's database.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