An update on the progress of (and issues with) the UPI, UTI and LEI for EMIR trade reporting.

1. UPIs, UTIs and new OTC taxonomies
EMIR and MiFIR post-trade reporting
28 November 2013
PJ Di Giammarino, CEO, JWG
© JWG 2013
Confidential

2. Making sense of FS regulation since 2006
Publishing
news and
comment
Delivering
products
We create heat maps and
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Supporting
membership
We mirror the consolidated
‘regulatory radar’ back to the
community
We shape and define the operational
requirements via research, opinion and
advisory services
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3. Summary of trading identifier landscape
►
There are three/four key unique identifiers that you need to
know about:
1.
The Legal Entity Identifier (LEI)
2.
The Unique Product Identifier (UPI)
3.
The Unique Trade/Swap Identifier (UTI/USI)
►
LEI is most advanced in terms of its design
►
Derivatives traders will require UTI + LEI by February 2014
►
Other firms will require LEI by March/December 2014
►
USI already required in US
© JWG 2013
Confidential
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4. Regulatory impacts on market data
Timeline of G20 trading regulatory implementation
Regulatory impact
2013
Q1
Execution
Q2
Q3
2014
Q4
2015
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2016
Q4
Q1
Commodity
EM
DF
EM
FA
MI
SII
FX
EM
DF
EM
FA
MI
SII
Equity
EM
EM
FA
MI
SII
Credit
DF
EM
EM
FA
MI
SII
IRS
DF
EM
EM
FA
MI
SII
Non-derivative
DF
EM
FA
MI
SII
Commodity
DF
AS
EM
FX
Clearing
DF
AS/HK
EM
AS
EM
Equity
Credit
DF
AS
EM
IRS
DF
AS/HK
EM
ETDs
Reporting
Q2
EM
Trade reporting
(all instruments)
DF/AS
/MA
EM
Transaction reporting
(all instruments)
MI
Transaction reporting
(commodities)
KEY:
AS: ASIC OTC rules
DF: Dodd-Frank
EM: EMIR
RE
FA: FATCA
MI: MiFID II
HK: HKMA OTC rules RE: REMIT
MA: MAS OTC rules SII: Solvency
Predicted/expected
Confirmed implementation date
Source: FSB‟s “OTC Derivatives Market Reforms: Sixth Progress Report on Implementation”, September 2013,
JWG analysis, November 2013
© JWG 2013
Confidential
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5. Agenda
►
Unique product identifier (UPI)
►
Unique trade identifier (UTI)
►
Legal entity identifier (LEI)
►
Conclusions
© JWG 2013
Confidential
5

6. Unique product identifier (UPI)
►
Trade report contains a ‘Product
ID’ field
►
Q&As state reporting parties
should use interim taxonomy or
ISIN until UPI endorsed
An example product taxonomy
Credit
• Asset class
• Base
product
►
Will eventually require a UPI
Singlename CDS
►
Only one proposal out there –
the ISDA proposal for OTCDs
Corporate
• Sub-product
Standard
North
American
corporate
• Transaction
►
But proposal has been available
for more than 2 years; when will it
receive regulatory endorsement?
Source: ISDA‟s „Implementation Plan for Unique
Product Identifiers‟
Cannot afford to ignore UPI; must be prepared for interim and final requirements
© JWG 2013
Confidential
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7. Agenda
►
Unique product identifier (UPI)
►
Unique trade identifier (UTI)
►
Legal entity identifier (LEI)
►
Conclusions
© JWG 2013
Confidential
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8. The EU regulatory mandates
►
EMIR requires both parties to a
trade to report to a trade
repository (TR)
►
Technical standards require
counterparties to agree a unique
trade identifier (UTI) for each
derivative contract
►
No obligation for a certain party
to provide UTI (unlike US RCPs)
►
If no UTI taxonomy is endorsed, a
code should be bilaterally
assigned by the counterparties
and by the venue operator
Will a taxonomy be endorsed for both UPI/UTI by February?
© JWG 2013
Confidential
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9. Generating a UTI
►
►
Globally unique string of up to 52
alphanumeric characters (some
symbols are also allowed)
Given the requirements and the
use case, there are three
methods by which a UTI can be
generated:
1.
A 3rd party generates the UTI
and communicates it to both
parties (but has no obligation to
do so)
2.
Both parties generate the same
UTI based on an agreed method
(but how do you agree this
across the industry as a whole?)
Middle
ware
Party B
TR
One party generates UTI and
communicates it to the other
3.
© JWG 2013
Party A/
broker
Source: ISDA‟s „Unique Trade Identifier (UTI): Generation,
Communication and Matching‟
Confidential
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10. UTI issues, trends and impacts
Issue
Trend
Impact
Easier to
generate than
to receive
Small firms bear
operational risk,
especially when
trading with big
brokers
No obligation
for third parties
to provide UTIs
Inconsistent
provision of
service
throughout
market
Differences in
reporting
requirements
between asset
classes, etc.
Two UTI
generators end
up facing each
other
Additional
communication
makes it harder
to confirm UTI by
T+1 deadline
Disjunction
between
reporting and UTI
generation
cycles
Broker volumes
too high to wait
for UTI from
clients
© JWG 2013
Big firms
generating, small
firms forced to
adapt systems
Trades end up
being reported in
real time without
UTIs
More subsequent
reconciliations
with TRs
Confidential
10

11. Key deltas between UTI/USI
►
US’ swap transaction identifier
►
Required when reporting swaps
to SDRs
►
Must register with regulator, who
provides a unique seven-digit ID
►
Reporting counterparty is
responsible for generating the
USI unless the trade is carried
out on a SEF, in which case the
SEF generates
Source: ISDA‟s „Unique Swap Identifier (USI): An Overview
Document‟
But similarities will provide operational efficiencies for transatlantic firms
© JWG 2013
Confidential
11

12. Agenda
►
Unique product identifier (UPI)
►
Unique trade identifier (UTI)
►
Legal entity identifier (LEI)
►
Conclusions
© JWG 2013
Confidential
12

13. The interim LEI system
►
Regulatory Oversight Committee
(ROC) set up and recognising
pre-LOUs/LEIs
►
US and EU requirements only
recognise endorsed pre-LEIs
►
Currently 5 pre-LOUs ‘endorsed’
by ROC as issuers of compliant
pre-LEIs:
–
WM Datenservice (Germany)
–
INSEE (France)
–
CICI Utility (US)
–
Takasbank (Turkey)
–
LSE Group (UK)
►
►
Source: A Global Legal Entity Identifier for Financial Markets
http://www.financialstabilityboard.org/publications/r_120608.pdf
© JWG 2013
Confidential
10 more LOUs awaiting
endorsement
COU funding debate ongoing;
could possibility be set up by end
2014
13

14. The regulatory mandates
►
US requires all swap participants to have an endorsed pre-LEI
►
EMIR Q&A requires LEIs to be reported on trade reports
– i.e., all entities trading derivatives should be registered by
February 2014
►
EBA is consulting on a mandate that all CRD IV-regulated
institutions must have an LEI by March 2014
►
Under the consultation, all other EBA-regulated entities will
have to have an LEI by December 2014
►
How many entities will large institutions have to register?
►
How will LOUs deal with the surge in demand?
© JWG 2013
Confidential
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15. Agenda
►
Unique product identifier (UPI)
►
Unique trade identifier (UTI)
►
Legal entity identifier (LEI)
►
Conclusions
© JWG 2013
Confidential
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16. The identifier forecast
►
Identifiers remain regional, rather than global,
phenomena
►
Dodd-Frank requires LEIs and USIs
►
EMIR already requires LEIs and UTIs and will soon
require UPIs
►
MiFIR likely to follow EMIR but remains a big unknown
►
But firms running trade reporting (EMIR) and
transaction reporting (MiFID) in tandem until final
standards released (late 2014)
© JWG 2013
Confidential
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17. Thank you
JWG Group Ltd: admin@jwg-it.eu
www.jwg-it.eu
Join the RegTechFS discussion
www.regtechfs.com
Customer Data Management Group
www.The-CDMG.org
@jwg_group
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+44 (0)20 7870 8004
Confidential
/jwg-group-ltd
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18. Disclaimer
JWG has taken all reasonable care and skill in the
compilation of this report, however, JWG shall not be
under any liability for loss or damage (including
consequential loss) whatsoever or howsoever arising
as a result of errors or omissions or the use of this
publication by the customer, his servants, agents or
any third party
© JWG 2013
Confidential
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