Isda backs regulatory push on derivatives data project

Risk Live: Common standards for trade reporting should be mandatory, argues senior industry representative

Financial authorities should force markets to adopt a single format for transaction reporting, a senior figure at the International Swaps and Derivatives Association has said. The call comes as Isda promotes its own data standardisation project, the common domain model (CDM).

Asked if regulators should have proposed putting data standards in place before imposing transaction reporting, Ian Sloyan, director of market infrastructure and technology at Isda, said: “I would wholeheartedly support the regulators getting behind a standard and saying ‘this is the one that’s mandated’. As long as it’s the right one.”

In a reference to the CDM, Sloyan described the right type of standard as “dynamic, [one] that can be developed over time, that makes the right design decisions for it to be extensible”.

Authorities have struggled with poor quality regulatory reporting data. In April, Risk.net revealed that only 40% of swaps trades reported under the European Market Infrastructure Regulation are properly matched at trade repositories.

In derivatives markets, many banks and clearing houses have their own customised platforms, unable to speak to each other. It is estimated that the CDM could save dealers $3 billion a year on reconciling data on post-trade back-office processes for swaps. Despite that, the CDM has so far experienced patchy take-up among banks and market infrastructure firms. Some banks are said to be having trouble selling the case internally for something that would produce savings, but no revenue.

Sloyan suggested that a push from regulators to adopt a common standard could provide firms with the required incentive.

“It’s about a thought process that everyone’s got to come together to solve the problems in this space, and we’re going to use this solution as the standard going forward,” he said. “Getting regulatory support for such things would be great, and I think there’s a move to do that.” Sloyan was speaking at Risk Live 2019 yesterday (June 27).

Sloyan referenced Francis Gross, senior adviser at the European Central Bank, who recently argued that standards for financial contracts would need to be agreed by law and that law should mandate standardised digital contract representation.

“Regulation is a great way to get people to take their chequebooks out and drive a solution,” Sloyan added.

Isda has already deployed its CDM to support the UK Financial Conduct Authority, the Bank of England and participating financial institutions in testing a digital regulatory reporting pilot for derivatives. The initiative aims to use technology to help firms improve the quality of information for reporting purposes.

Sloyan said: “Regulators want granular data, they want to be able to do risk calculations themselves, to get the real transaction data. To do that they need to use the same standards and formats as are used in the books and records of the banks.”

Sloyan spoke at Risk Live, in London

He said Isda’s “stealth plan” for CDM adoption so far has partly been to encourage fintechs to use it in emerging technologies such as distributed ledgers. Isda is also seeking to apply the model to areas of finance that have a regulatory mandate.

“In future we will look to build out CDM for uncleared margin rules to make those flows simpler and processes more standardised. Also, the Fundamental Review of the Trading Book is well funded by the banks because there is a regulatory imperative,” he said.

Another panellist, Cameron Goh, global head of product for rates at clearing house LCH, said market participants must collaborate to reduce post-trade costs, giving the example of AcadiaSoft being selected by banks to provide a tech framework for the first phase of non-cleared margin rules.

Goh added that a survey of LCH’s tier one bank clients revealed they spend on average $500 million on derivatives operational costs and 10% of that goes on regulatory reporting: “That’s $50 million a year just sending trades into trade repositories.”

Speaking on the same panel, Jean-Marc Eber, CEO of LexiFi, a vendor that has developed its own data standards for structured products, agreed that the industry would be more likely to adopt a standard if it was “a regulatory imposed standard, or legally imposed”.

Arjun Jayaram, founder and CEO of tech firm Baton Systems, warned against the industry waiting for standards to be perfected before universally adopting them. He said: “The problem is waiting for a standard to be completely fleshed out, because by that time businesses have moved on and new products have come in. We shouldn’t wait for a perfect solution.”

Editing by Alex Krohn

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• Topics
• Data
• Infrastructure
• International Swaps and Derivatives Association (Isda)
• Post-trade
• Swap data reporting
• Derivatives
• Risk Live