Trade reporting in Europe – interview with ICE Trade Vault’s Bruce Tupper

The reporting landscape in Europe has finally taken shape and ESMA (European Securities and Markets Authority) is now gearing up for the commencement of the mandate on 12 February 2014. It is anticipated that the reporting of all OTC and exchange traded derivatives will bring a lot more transparency to the European derivatives markets, a central theme of the post 2007 financial crises and the subsequent regulatory overhaul.

The mandate has been live in the U.S for some time now, with three swap data repositories taking in all the data. Those three, CME, DTCC and ICE are all approved reporting bodies under EMIR (European Market Infrastructure Regulation) as well. There are, however, some major differences between the U.S obligation under Dodd-Frank and the regime in Europe. For a start, in Europe, both sides of the trade must be reported. This means that reconciliation between authorised bodies is essential in order to achieve the end goal of increased transparency. Another key difference is the European desire to have ETD trades reported, as well as OTC. This will result in huge volumes of data flowing through, which poses separate challenges both for the repositories and the regulator.

In coalition with CME, DTCC, UnaVista, REGIS-TR and KDPW, ICE Trade Vault Europe has a major role to play in the European mandate. It was approved, along with CME, on 28 November and is busy preparing for the 12 February start date. Whilst this is a relatively short time frame, there is at least clarity for market participants and for the repositories.

“We had to wait to distribute our schedules and enrolment agreements to our clients, so approval has enabled us to do that and to start working proactively with our clients,” says Bruce Tupper, president of ICE Trade Vault. “Under the U.S reporting mandate we were the first swap data repository to be approved and we have a large commodity customer base, with over 700 customers enrolled. We also have a significant offering for cleared credit default swaps. These two offerings and our experience has been leveraged in Europe. We have been working with a number of European customers on our product and connectivity for some time, and now that it is official we have been able to enrol a number of clients in Europe.

“There are also a number of European market participants that we don’t have existing relationships with that we have been in contact with. So we have been pretty busy since ESMA approved us as a European trade repository.”

There is certainly something of a scramble to get ready for reporting. Many participants, understandably, sat back and waited for authorisation to be given to the repositories before approaching them to discuss their needs. “When we started in the U.S, there were two go-live dates,” continues Bruce. “There was one for the swap dealers and one for the smaller users. We had around 250 enrolled at the commencement date for the swap dealers and now we are over 700. Under EMIR, we are facing a single go-live date. There will be no phased approach. I anticipate that there will be a surge in activity around 12 February when the mandate goes live and shortly after. We haven’t had corporates reaching out as much and I believe that they’ll be hopeful of there being delegated reporting solutions put in place by their market makers. I think a lot of people are expecting that.”

Alongside plans for delegated reporting, which will likely generate larger volumes from banks, for example, as they offer a solution to their clients, CCPs will also be generators of large volumes into the repositories. “As a provider, we have enrolled ICE Clear Europe and will support all of their reporting needs,” explains Bruce. “ICE Clear Europe has a reporting obligation, primarily with its clearing members, and they will do all of their reporting into us. We also have direct links with the ICE Exchanges in order to support delegated reporting services.”

With so much going on behind the scenes, one area that ICE Trade Vault has been able to smoothly on-board clients is in the crossover from its U.S client base that has a reporting in Europe as well. “A lot of our major clients in the U.S are multinationals,” says Bruce. “So naturally, this was one of our first points of contact in the European reporting space and we have been visiting all of the London offices to discuss their needs. We have been operating a system called ICE eConfirm, which is a confirmation system, for the past 12 years. I was involved in the inception of this system and it has enabled us to have connectivity with our customer’s trade capture and operational systems. This has been a great Segway into the repository services that these companies need.”

It is also one of the reasons ICE moved into the trade repository space. “There are really two main reasons why ICE decided to open repository services,” explains Bruce. “One is that we wanted to make sure from the clearing and execution services that there would be no friction, or reporting obligations that would prohibit our customers from using ICE Services. So we felt that we were best placed to provide a repository to our clearing and execution customers.

“The second point is that we had these two embedded systems. There was ICE eConfirm on the commodities side and with CDS we had ICE Link, which was formerly known as T-Zero. When you put those two together and looked at ICE’s clearing and execution system and the desire we had to offer a full chain of services, the decision was made very early that we would have a global repository.”

The theme of offering global reporting solutions is becoming increasingly prominent as other regulators in other markets implement their own trade reporting mandates. “There are two other main markets that we are focussed on right now,” says Bruce. “We have been in regular contact with MAS in Singapore for some time now and submitted comment letters on the drafting of their rules. Our acquisition of the Singapore Mercantile Exchange is opening new doors for us. Any regulatory regime that has a real effect in the commodities and CDS, we have expressed an interest in providing repository services for our customers’ reporting needs.

“The other area that we have been working closely with is Canada. Our ICE eConfirm system has been live in Canada for a decade and Calgary is where much of the physical trading is done and so we have long term users there that have asked us about how we can help them with their reporting obligations.”

One of the issues that is still being resolved in the European reporting space is interoperability between the repositories for the purposes of data reconciliation. “The main challenge here is the number of repositories in Europe; six doesn’t sound a lot, but it is when you are talking about central providers,” says Bruce. “In addition, trade repositories will be asked to exchange data with other repositories, rather than via the regulator. We have recently created a legal working group that is chaired by Carolyn Van den Daelen, ICE Trade Vault Europe CCO, to ensure trade repositories have legal agreements in place for this reconciliation process. We also have to have terms in place to protect each other’s clients.”

It is a separate challenge and another difference from the U.S mandate. “We’re facing two challenges,” continues Bruce. “Challenge one is just setting up connectivity with your customer. Can we help them to meet their obligations and can we stand up a market infrastructure? Our answer is yes and our track record supports this claim. The second challenge is finding a way of connecting with the other trade repositories and exchanging data. I think that the idea of reconciling ETD data on a daily basis, where there are millions of transactions, will be a challenge. It’s going to require a significant investment in IT systems to handle that kind of volume. However, we are actively working with other trade repositories on this reconciliation process.”

Another potential issue for market participants is the back-loading of data to August 2012. It is a challenge ICE has faced previously in the U.S. “Under Dodd-Frank there was also historical back-loading of data as well,” says Bruce. “This passage extended to July 2010 when the act took effect. We took in several million trades as a result of this. So the customers where there is crossover between the U.S and Europe are ready and we were successful in helping them with this in the U.S. The challenge that the market faces in Europe, that is different to the U.S, is ETD reporting. We are closely working with ICE Clear Europe to ensure the back-loading of ETDs will be seamless. In the OTC space, however, we feel that we have demonstrated our competency in helping clients with their obligations.”

Whilst many challenges remain, the start date of 12 February is fast approaching and the start of 2014 will be a busy period in the trade repository space. The final question, then; is the European market ready for trade reporting? “ICE will be ready on 12 February 2014,” asserts Bruce. “ICE Trade Vault Europe has been established and approved solely for the reporting mandate in Europe. We are working very diligently with our customers to help them as best we can, to make sure that they are ready to submit to the right data on time. Participants will make best-faith efforts to be compliant. From experience, I think that everyone wants to see market participants and providers doing all that they can to be compliant with the mandate on time. As a provider we must demonstrate that our systems, capabilities and technologies are all in place and we will be ready on 12 February.”

Tags: Trade RepositoriesICEICE Trade VaultRegulationEMIRDodd FrankESMA