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Under EMIR, both counterparties to a trade are held accountable for ensuring trades are reported, unlike the US Dodd-Frank Act, where the responsibility lies with only one side. This is causing problems for the foreign exchange market, which has no central infrastructure that could issue a single unique trade identifier (UTI) to both counterparties.
To address this issue, the Global Financial Markets Association (GFMA) proposed a ‘my-ref-your-ref' model to ESMA in June (link), under which each party to a trade could assign a UTI and make it available to the other counterparty at the confirmation stage. They would then each include the opposing counterparty's UTI when reporting, and the trade repository would match the two unique references.
Bill Stenning, head of clearing, regulatory and strategic affairs at Société Générale Corporate & Investment Banking, says the issue of matching UTIs in foreign exchange has not been a "critical path item" in developing the bank's reporting infrastructure so far, but soon will be.
"ESMA feels its needs one unique identifier to enable it to carry out its mission, so we will work towards that. We just need to find a solution that meets the needs of all. The hardest piece is, if you're going to have a single identifier, how do you communicate it to each other? It's not a question of whether you can or can't communicate it, but rather the degree of efficiency, scalability and automation you could build for day one", he says.
According to Kemp, the required infrastructure changes would be the same regardless of whether UTIs are matched before or after being submitted to a repository, as various pieces of information will still need to be exchanged. However, he agrees challenges still exist in generating a common UTI and exchanging data.
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