EMIR trade reporting: lifting the lid on pairing and matching

EMIR trade reporting is part of the regulatory response to the financial crisis of 2007/2008.  It requires complete and accurate reporting of derivatives to trade repositories (TRs) to enable regulators to monitor for any build-up of systemic risk. Unlike Dodd Frank, EMIR is a dual reporting regime – both counterparties have a reporting obligation (if they are captured by EMIR). This has caused consternation among some parts of the industry as they believe the inherent duplication is wasteful and just increases costs for the industry. The other side of the argument is that dual-sided reporting reinforces the quality of the data by highlighting errors if the two sides of the report don’t “pair” or “match”. The TRs inform the reporting firms where the trade reports have not matched or even paired with the versions supplied by their counterparty.

How do the TRs pair and match the trade reports?

The first stage is to find out if both counterparties to the trade have a reporting obligation. This is done by examining the values in the ‘ID of the other counterparty’ field (1.4) and the ‘Country of the other Counterparty’ field (1.5). If these indicate that the ‘other counterparty’ has a reporting obligation, then the TR will set out to find the other side of the trade report – ie. to ‘pair’ it with the report submitted by the ‘other counterparty’.

This ‘pairing’ is achieved by using the ‘Unique Trade Identifier’ (UTI) in each report and the LEIs in the ‘Reporting Counterparty ID’ field (1.2) and ‘ID of the Other Counterparty’ field (1.4). If the receiving TR does not have both sides of the report, it will request the data from the other TRs. If the two reporting counterparties have failed to use the same UTI, or if they have entered the wrong LEI in either counterparty field, then the TRs will not be able to ‘pair’ the trade.

If the TRs are able to pair both ‘sides’ of the trade report, they will then check a subset of the fields to ensure that they ‘match’ (as each counterparty is reporting the same trade, the trade details should match). The current set of fields subject to this matching process are as follows:

  • Counterparty side
    (aka buy/sell indicator)
    if one counterparty
    has said ‘B’ the other
    must be ‘S’ and vice versa.
  • Contract Type
  • Asset Class
  • Product Classification Type
  • Product Classification
  • Product Identification Type
  • Product Identification
  • Underlying ID Type
  • Underlying ID
  • Notional Currency 1
  • Notional Currency 2
  • Trade ID
  • Venue of Execution
  • Compression
  • Price/Rate
  • Price Notation
  • Currency of Price
  • Notional
  • Price Multiplier
  • Quantity
  • Delivery Type
  • Execution Timestamp
  • Effective Date
  • Maturity Date
  • Termination Date
  • Confirmation Timestamp
  • Confirmation Means
  • Clearing Obligation
  • Cleared
  • Clearing Timestamp
  • CCP
  • Intragroup
  • Fixed Rate Leg 1
  • Fixed Rate Leg 2
  • Exchange Rate 1
  • Forward Exchange Rate
  • Exchange Rate Basis
  • Commodity Base
  • Commodity Details
  • Option Type
  • Option Exercise Style
  • Strike Price
  • Strike Price Notation
  • Maturity Date of the Underlying
  • Seniority
  • Reference Entity
  • Frequency of Payment
  • Series
  • Version
  • Index Factor
  • Tranche
  • Attachment Point
  • Detachment Point

Many of these fields must match exactly, whilst others have to match within a tolerance. The matching on a few of these fields is conditional – for example, the Underlying ID must match where the Underlying ID Type is ‘I’ (for ISIN), but does not need to match where the Underlying ID Type is ‘X’ (for index) and free text has been used.

What happens if the report fails to pair or all the fields do not match?

The TRs will still accept the report, but they will inform the reporting counterparty if the report does not pair and it will also identify all the fields that have not matched if a pair has been found. The reporting counterparties are then expected to resolve the issues with their counterparty.

How good are the pairing and matching rates?

The pairing rates are a little disappointing and the matching rates are extremely low. Whilst the pairing rates have increased since the implementation of the revised reporting technical standards last year (probably due to the guidance on the UTI generating party being formally added to the regulation), the matching rates have not.

Does this matter?

Yes. Remember, one of the drivers behind dual-sided reporting is to reinforce the quality of the data and the disappointing rates indicate that there are issues with data quality. While firms may not have seen much action from the NCAs on EMIR data quality aspects (although the £35m fine levied by the UK FCA may have come as a shock), ESMA clearly flagged that it will focus on data quality in its annual report and work plan:

“ESMA continued to closely engage with NCAs and exchange data to identify counterparties where reporting causes large amounts of breaks in the reconciliation process. ESMA plans to further intensify its engagement with the NCAs as part of the NCA cooperation process related to data quality.”

Firms most definitely need to be aware that NCAs are monitoring the pairing and matching rates and could target those firms seen as outliers. Whilst the reason for unpaired or unmatched reports could lay with the ‘other counterparty’, those firms with comparatively low pairing and matching rates overall will be in the sights of the NCAs.

What can firms do to improve matching rates?

Low matching rates are a very good indication of poor quality EMIR trade reports. Sadly, there’s no short cut on this one; to improve the matching rates, firms need to improve the quality of the data they submit. This is where Kaizen can help. We can offer a reconciliation from the front office trading data to the data submitted in your name to the trade repository. We can also run an accuracy test on all your trade and position reports, including a check that your outstanding positions are an accurate reflection of your trade reports. We also offer training on the EMIR reporting standards. For further information please contact us.