Futures data will be useless to regulators without reporting delay, Esma warns

Steven Maijoor, Esma

Regulators will end up with useless data if Europe's new reporting regime starts on schedule in February, the European Securities and Markets Authority (Esma) has warned in a letter to the European Commission (EC) - the latest instalment in a wrangle between the two bodies over the timeline for the new rules. An earlier request from Esma for a year's delay was rejected by the EC.

In a letter dated November 14 and published on Esma's website, the regulator's chairman, Steven Maijoor, tells the EC's director-general for internal market and services, Jonathan Faull: "After analysing carefully your reasons for the intended rejection, we still consider that the definition of the reporting rules for exchange-traded derivatives would benefit from a delay of the start reporting date."

Maijoor goes on to say that Esma is already working on Q&A guidance for the industry, but notes it would be "developed in a limited time and without consultation". The result will be data that is not good enough for regulators to do their jobs, he warns.

Esma originally called for a delay on August 6, claiming it was proving difficult to work out which of the numerous participants in a listed derivatives trade - including the counterparties, exchanges, clearing houses and clearing members - should assume responsibility for reporting.

Unlike the US, rules in Europe extend new reporting requirements to the listed as well as over-the-counter derivatives market, and envisage both sides of the trade sending information to a repository.

We still consider that the definition of the reporting rules for exchange-traded derivatives would benefit from a delay of the start reporting date

Patrick Pearson, head of the financial markets unit within the EC's internal market and services directorate, shocked delegates at a Risk conference in September, when he revealed there would be no delay. Pearson said one way of solving the reporting impasse would be to place the burden on a single party to each trade - and this is one of the approaches Esma is now considering, according to Maijoor's letter.

If there is no change of heart at the EC, futures market participants worry they will not be given a clear roadmap to follow. A particular gripe is that the data required under the regime is designed for OTC trades, rather than listed derivatives.

"The Q&As to date have been very disappointing on a number of topics. Indications of what to do - and not to do - in the form of one- or two-line answers to lengthy questions aren't terribly useful," one senior London-based lobbyist told Risk in the wake of Pearson's comments.

"The presumption is that, if you're being asked to complete 85-odd fields on a standard reporting form, you ought to have a good reason for not filling one in. There needs to be an interpretative layer added on top of these fields before they make sense to futures market participants - otherwise, they take the risk that they're an outlier. Guidance needs to come from Esma, rather than national regulators, such that everyone is interpreting the rules the same way across Europe," the lobbyist added.

Maijoor goes some way to acknowledging that issue in his letter to Faull, noting there are "multiple scenarios that require precise guidance on how to populate the reports."

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