22 May 2014

Banks and corporates use SWIFT for OTC derivatives reporting

At a time when financial markets participants are struggling to handle multiple new regulatory requirements, notably in the Over-The-Counter (OTC) derivatives space, many are finding that they can leverage existing SWIFT services and capabilities.

For example, SWIFT is pleased to report that some 50 clients are using its messaging services to report OTC derivatives transactions to trade repositories (TRs). SWIFT has been working closely with several repositories, including REGIS-TR, one of six trade repositories (TRs) approved by European regulators under the European market infrastructure regulation (EMIR).

EMIR requires both parties to a derivatives trade to report the transaction to a registered trade repository (TR), in line with G-20 demands for greater transparency and oversight of the OTC derivatives markets following the 2008 financial crisis.

Market participants are re-using SWIFT's FileAct and FIN confirmations to report trades to REGIS-TR, a joint venture between Clearstream and Iberclear. FileAct allows secure and reliable transfer of files and is typically used to exchange batches of financial messages and large reports.

"The solution gives customers peace of mind when reporting their trades to a trade repository," Joe Halberstadt, Head of ‎FX and Derivatives Markets at SWIFT, said. "They can prepare their file, upload it and send it over SWIFT. That is a good reuse of investment in SWIFT, which gives them security, reliability and the guarantee of delivery."

Halberstadt said FileAct was also available for customers reporting their trades to other TRs in Europe, such as those operated by the Depository Trust and Clearing Corporation (DTCC) and the London Stock Exchange's UnaVista. "We also have customers using it for reporting in Russia and Hong Kong," he said.

An alternative solution that SWIFT has launched in conjunction with REGIS-TR allows clients to use SWIFT's FIN core messaging service to comply with EMIR. FIN already enables more than 8,300 financial institutions to exchange financial data securely, cost effectively and reliably. SWIFT FIN MT300 messages are widely used to confirm FX trades and supports forwards, non-deliverable forwards and FX swaps, as well as spot FX.

"With REGIS-TR, we've implemented the ability to take a copy of a confirmation and automatically send it to the trade repository to fulfill the client's reporting obligation," said Halberstadt.

Damien Gillespie, Executive Director, Head of Europe & Americas Sales, Regis-TR, says: "REGIS-TR is delighted to be the only European Trade Repository to partner with SWIFT to offer the automated integration of FX MT300 messages for EMIR reporting. SWIFT automatically routes FX messages to REGIS-TR meaning clients do not have to have duplicate their reporting efforts for this asset class. Our partnership with SWIFT has been a great success and mutual clients are benefitting enormously. REGIS-TR strives to offer a range of flexible solutions to help clients reduce their administrative burden of trade reporting."

In separate developments to support clients' global regulatory requirements, SWIFT has also worked to enable the exchange of unique trade identifiers (UTI), a critical lynchpin for successful reporting under new OTC derivatives regulations. The SWIFT treasury confirmation messages for currency and metals trades have become the industry standard mechanism for reliable, automated exchange of UTIs. As well as upgrading its OTC confirmation messages, SWIFT has upgraded its Accord confirmation matching platform to include support for the UTI fields.

SWIFT has also played a part in supporting the wider use of legal entity identifiers (LEI), which allow regulators to track counterparty entities and their activities more easily.

According to website OpenLEIs.com, there have been 248, 576 LEIs issued in 178 countries to date, with the joint SWIFT-DTCC CICI utility leading the way after issuing 132,321 identifiers.

While all market participants accept the need for greater transparency and reporting in the OTC derivatives markets, the reality of complying with so many new rules can be a significant challenge. But by working closely with service providers and infrastructure operators like SWIFT, firms may find that they do not have to reinvent the wheel to meet their new obligations cost-effectively.

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