Kynetix, the specialist technology solutions provider for physical delivery of commodities and fixed income and Contango, one of the world's leading independent derivatives and commodities consultancies, today announced the launch of Trams, a data matching tool designed to ease complex issues surrounding the Emir Trade Reporting requirements in Europe introduced in February.
Trades and positions must now be reported to a Trade Repository (TR), creating an enormous cost and resource burden for derivatives market participants throughout the value chain.
Richard Wilkinson, Director, Post Trade Solutions at Contango believes that the initial focus has been on short term fixes to transport the required data to the right venues. '' Now, an even more problematic and unforeseen issue is about to raise its head,'' he says. ''Data mismatches arising from T+1 changes to F&O trades are creating a huge backlog of unpaired trades,'' continues Wilkinson. ''Duplicate and erroneous UTIs are preventing true inter-¬‐TR reconciliations from being made. This can only be rectified through reconciliation of the trade reports emanating from the data in the TRs and the trade owner's books and records.''
''We're launching TRAMS because there is an urgent need for a data matching solution in the new multi-¬‐TR world to ease concerns about compliance and subsequent fines because short-¬‐term spreadsheet based solutions will not stand up to regulatory scrutiny once the current forbearance on enforcement ends.''
Complexity
The dual-¬‐sided nature of exchange traded derivatives means setting up a reporting structure is complex enough. Then, if an end user has multiple clearing relationships and each clearing firm reports to a different TR, the complexity grows exponentially with basic processes such as aggregation and reconciliation taking on nightmare proportions. And that is before the mandatory reporting of positions and collateral comes in later this year.
"There are 6 TRs, hundreds of brokers, thousands of clients and millions of lines of data,'' says Matt Dolton, Client Services Director at Kynetix. ''There are so many things that can go wrong from a commercial and regulatory perspective. ''
Delegating trade reporting is not the answer
''End users' compliance officers will be wary of having a third party produce reports and valuations,'' adds Dolton. ''Ultimately responsibility for an error lies with the owner of the trade, so outsourcing trade reporting does not abdicate this responsibility. They know it won't be long before regulators start handing out fines. There is a clear reason for them to collect this data and if something goes awry and they don't spot it in time they will have to answer to both their political masters and the industry.''
The solution
Wilkinson describes TRAMS as a reconciliation tool which cuts through the multiple layers of complexity. It ensures that the data sent to the TR is consistent with the firm's books and records and that outputs received from the TRs match up with it to ensure that, come FCA visit/audit time, they can show they are fully reconciled and compliant.
The technology is based on Kynetix's existing product, i-¬‐Balancer, the reconciliation and exception management platform developed specifically for the needs of brokerage teams dealing in exchange traded and OTC derivatives.
TRAMS can operate at multiple levels. At a high level it can reconcile data between the trade repositories where data integrity and the back-¬‐filling of incorrect information is a major issue. On another level, it can be a "white label" solution for GCMs to provide added value for their clients who may wish to outsource the process. Finally, it can be used as an end client reconciliation platform to fulfil trade and position reporting requirements.
Wilkinson is convinced market participants will be eager for solutions. ''Operations teams are already under extreme pressure. If the trade reporting issues are not resolved quickly, bearing in mind that they will still be getting clients on boarded for OTC clearing and dealing with a raft of other issues, they are likely to reach breaking point especially with potential fines hanging over their heads. We believe that TRAMS can provide a long term "utility" solution for the industry.''