In what will undoubtedly be a surprise to the majority of the industry, ESMA has asked the trade repositories (TRs) to implement pairing and matching at position level. Previously, the pairing and matching had only taken place at the trade level reports. Whilst this undoubtedly makes sense, it could cause massive issues for investment firms as there appears to be no current mechanism or infrastructure to ensure the two counterparties use the same UTI at the position level.
It also appears unclear which position level reports will be subject to the reconciliation process. Originally, position level reporting was optional, but the requirement for cleared trade reports to use the CCP’s valuation implies that ETDs have to be reported at a position level where the CCP only provides position level valuation. However, there are a number of other derivative types that are not subject to clearing but can be reported at a position level such as spread bets and CFDs. If these are also to be subject to position level reconciliation, it could result in confusion as there appears to be no legal basis requiring both sides to report these instruments at a position level.
We understand that the position level reconciliation will be deployed by the TRs on 9 December this year. This gives firms precious little time to determine how they will agree on the UTI to be used at a position level and a process for the dissemination of this information to meet the T+1 reporting requirement. It is unfortunate that neither ESMA nor the FCA appears to have widely publicised this imminent requirement. As a new iteration of the ESMA Q&A on EMIR was only published earlier this month, it is surprising that ESMA did not take this opportunity to inform firms of the change.
At Kaizen, we always update our services to reflect regulatory changes. If pairing and matching is something you’re struggling with, our quality assurance services include checking that your EMIR position level reports truly reflect the corresponding trade reports submitted. For further details of our services please contact us to get your reporting complete and accurate.