The path to global UTI harmonisation
19 May 2023
Jonathan Tsang, business development director, Europe at S&P Global Market Intelligence Cappitech, explores the industry鈥檚 transition to further harmonisation through the sharing of unique transaction identifiers, and the move to apply this concept to the derivatives market
Image: stock.adobe.com/royyimzy
As regulatory reporting continues to evolve, transaction reporting is converging towards harmonisation on a global scale. The next raft of rewrites in the derivative space will bring this closer to fruition.
The global industry has made a concerted effort over the last several years to standardise critical data elements (CDE) and create unique product identifiers (UPI), as demonstrated by the guidance authored by CPMI-IOSCO in 2018. MiFID led the way in standardised submission formats, introducing ISO 20022 XML into MiFID II. Successive regulatory technical standards and implementing technical standards released by the European 色花堂Markets Authority (ESMA) since 2015 have reflected the efforts towards harmonisation.
Regulators are now considering constraints from upstream data models to better understand how transaction data is initially captured and how this translates into reporting schemas. With a more standardised approach to transaction reporting, data will be more comparable, less ambiguous and easier to interpret, not just for the regulator, but also for clients who have multi-jurisdictional obligations.
The introduction of the 色花堂Financing Transactions Regulation (SFTR) as the first transaction reporting regulation for the securities finance industry has shown progress towards harmonisation, compared to the European Market Infrastructure Regulation (EMIR). SFTR persisted harmonised elements such as the legal entity identifier (LEI), pairing and matching, and T+1 reporting. It followed a MiFID II precedent by adopting the ISO XML 20022 reporting standard. A beneficial step to improve the unique transaction identifier (UTI) pairing was to mandate reporting parties to share UTIs by T+1, instead of the usual workaround of each party using non-shared UTIs.
As we approach the imminent G20 rewrites, there are important lessons learned from SFTR that are critical to improving data quality and ensuring that both counterparties on a trade are using the same UTI. One key aspect being introduced into EMIR Refit guidelines requires clients to share UTIs by 10:00 UTC on T+1, which is manageable for exchange-traded derivatives, cleared and electronically confirmed trades.
However, the tranche of manually agreed paper confirmed over-the-counter (OTC) derivative trades must be addressed. This requirement is similar to what is in place in SFTR today, which has achieved a better pairing rate of 64 per cent after two years of reporting compared to 60 per cent under the current EMIR regime.
The success of the SFTR regime in data quality can be largely attributed to an industry solution developed by S&P Global (IHS Markit at the time) and the SFT industry to design a mechanism facilitating the exchange of UTIs between market participants and their counterparties. It applies directly to the challenge presented by EMIR Refit, as well as any other dual-sided regime which will mandate the sharing of common UTI in their rewrites.
UTI Connect, as the solution is called, is widely used today by market participants, including agent lenders, custodians, borrowers and lenders alike, to exchange UTI information. S&P is now introducing UTI Connect to the bilateral OTC derivatives industry to help market participants with the new sharing and pairing requirements across various dual-sided regimes, starting with Japan鈥檚 Financial Services Agency (JFSA) and EMIR in April 2024.
As an overview, Global UTI Connect offers:
鈥� a centralised approach for sharing and distributing UTIs before submission, which ensures that both sides report the same UTI.
鈥� UTI Connect portal functions in real-time, meaning it operates seamlessly in the reporting lifecycle post-trade, but pre-submission to insert a UTI into the data flow.
鈥� A single platform in a common standard format that allows counterparties to connect, retrieve and manage UTIs, reducing reliance on emails and PDFs.
鈥� a configuration screen enables customers to manage their UTI-generating responsibility with their counterparties, thereby avoiding confusion about who the UTI generator is.
鈥� adaptation of UTI Connect for different global dual-sided regimes, promoting harmonisation in UTI and facilitating the exchange of UTIs between clients in different jurisdictions.
The balance of evidence shows that regulatory reporting regimes are converging. Sharing a common and consistent UTI for the same trade within and across jurisdictions is a significant step in furthering this goal. These new requirements will help address critical gaps in the OTC bilateral derivatives market, provide better data quality and bring the industry together as it strives to meet the regulatory demands, while improving systemic risk monitoring.
The global industry has made a concerted effort over the last several years to standardise critical data elements (CDE) and create unique product identifiers (UPI), as demonstrated by the guidance authored by CPMI-IOSCO in 2018. MiFID led the way in standardised submission formats, introducing ISO 20022 XML into MiFID II. Successive regulatory technical standards and implementing technical standards released by the European 色花堂Markets Authority (ESMA) since 2015 have reflected the efforts towards harmonisation.
Regulators are now considering constraints from upstream data models to better understand how transaction data is initially captured and how this translates into reporting schemas. With a more standardised approach to transaction reporting, data will be more comparable, less ambiguous and easier to interpret, not just for the regulator, but also for clients who have multi-jurisdictional obligations.
The introduction of the 色花堂Financing Transactions Regulation (SFTR) as the first transaction reporting regulation for the securities finance industry has shown progress towards harmonisation, compared to the European Market Infrastructure Regulation (EMIR). SFTR persisted harmonised elements such as the legal entity identifier (LEI), pairing and matching, and T+1 reporting. It followed a MiFID II precedent by adopting the ISO XML 20022 reporting standard. A beneficial step to improve the unique transaction identifier (UTI) pairing was to mandate reporting parties to share UTIs by T+1, instead of the usual workaround of each party using non-shared UTIs.
As we approach the imminent G20 rewrites, there are important lessons learned from SFTR that are critical to improving data quality and ensuring that both counterparties on a trade are using the same UTI. One key aspect being introduced into EMIR Refit guidelines requires clients to share UTIs by 10:00 UTC on T+1, which is manageable for exchange-traded derivatives, cleared and electronically confirmed trades.
However, the tranche of manually agreed paper confirmed over-the-counter (OTC) derivative trades must be addressed. This requirement is similar to what is in place in SFTR today, which has achieved a better pairing rate of 64 per cent after two years of reporting compared to 60 per cent under the current EMIR regime.
The success of the SFTR regime in data quality can be largely attributed to an industry solution developed by S&P Global (IHS Markit at the time) and the SFT industry to design a mechanism facilitating the exchange of UTIs between market participants and their counterparties. It applies directly to the challenge presented by EMIR Refit, as well as any other dual-sided regime which will mandate the sharing of common UTI in their rewrites.
UTI Connect, as the solution is called, is widely used today by market participants, including agent lenders, custodians, borrowers and lenders alike, to exchange UTI information. S&P is now introducing UTI Connect to the bilateral OTC derivatives industry to help market participants with the new sharing and pairing requirements across various dual-sided regimes, starting with Japan鈥檚 Financial Services Agency (JFSA) and EMIR in April 2024.
As an overview, Global UTI Connect offers:
鈥� a centralised approach for sharing and distributing UTIs before submission, which ensures that both sides report the same UTI.
鈥� UTI Connect portal functions in real-time, meaning it operates seamlessly in the reporting lifecycle post-trade, but pre-submission to insert a UTI into the data flow.
鈥� A single platform in a common standard format that allows counterparties to connect, retrieve and manage UTIs, reducing reliance on emails and PDFs.
鈥� a configuration screen enables customers to manage their UTI-generating responsibility with their counterparties, thereby avoiding confusion about who the UTI generator is.
鈥� adaptation of UTI Connect for different global dual-sided regimes, promoting harmonisation in UTI and facilitating the exchange of UTIs between clients in different jurisdictions.
The balance of evidence shows that regulatory reporting regimes are converging. Sharing a common and consistent UTI for the same trade within and across jurisdictions is a significant step in furthering this goal. These new requirements will help address critical gaps in the OTC bilateral derivatives market, provide better data quality and bring the industry together as it strives to meet the regulatory demands, while improving systemic risk monitoring.
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