Counterparty risk, EU securitisation and Emir problems

The week on, April 27–May 3, 2019

7 days montage 030519

SA-CCR may need more fundamental fixes

Quants propose tweaks to improve Basel counterparty credit risk framework

EU’s new securitisation market stumbles out of the gate

Lack of single supervisory authority is hampering EU efforts to create new markets

Data reveals Emir swaps report matching rates at 40%

Figure is better than some feared, but still calls into question the value of dual-sided reporting


COMMENTARY: Overreaching on trade matching

The truth is out – Emir’s grand plan is turning out very badly indeed. The European Market Infrastructure Regulation called for, among other things, compulsory swap trade reporting – since 2014, swaps market participants should have been reporting the details of every trade they make to a trade repository, which then pairs up the reports of each trade from both counterparties (pairing) and checks that both sides’ reports tally up (matching).

It has been known for some time that pairing hasn’t been very successful; pairing rates are in the high eighties (86% in February this year), which is not impressive given that all you have to do for a successful pairing is have both counterparties submit the same trade number (although it’s still a marked improvement on 55% in 2016).

But the European Securities and Markets Authority (Esma) only gave up information on matching rates this week, after submitted a freedom of information request.

The average matching rate for February this year was 40%. “I thought it would be lower,” chirped one industry source. The news adds more fuel to the debate over the Emir dual reporting requirement, now running for several years despite the 2017 review of Emir, and enhanced by recent fears over the practicalities of post-Brexit trade reporting.

In particular, it will strengthen calls for the standard to shift from dual-sided to single-sided reporting. But this remains a bad idea, in the same way that it would be a bad idea to address the issue of your watch telling a different time from your clock by throwing your watch away. Like double-entry book-keeping centuries before, dual-sided reporting is supposed to provide a check that the data submitted – and being used for systemic risk monitoring – is accurate; single-sided reporting simply ensures that an unknown but presumably large amount of it will go undetectably wrong.

The interesting question is what percentage of matching errors can be tolerated before the overall view of systemic risk becomes dangerously inaccurate. Esma and other European regulators should turn their attention to this. 



The branches of the largest foreign banking organisations (FBOs) in the US have cut their Federal Reserve balances by around 20% since the central bank began shrinking its balance sheet in late 2017. The combined reserves of the branches of 21 FBOs stood at $360 billion at end-2018



“One of the reasons we started looking at other locations was some of our clients were concerned about being associated with Trump Tower and being photographed” – Frank Morisano, ICBC

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