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Already the first mutterings about trade reporting have been heard. Apparently, it’s going to be “hell”; “there are significant risks to getting it wrong”; “the extent of the data required is troubling”; “a lot of unknowns about how to meet one’s obligations”; and “a mammoth onboarding effort from the repositories”.
As with SEFs, some of the grievances have merit. Unlike the US, Europe has mandated that both listed derivatives and OTC derivatives be reported, as well as both sides of the trade. Not only that but the obligation will apply to derivatives entered into on August 16, 2012. Trades outstanding on that day, even if they have since been closed, are also captured.
The financial services industry is unlikely ever to agree there will be a good time to introduce rules. The time for debating the wisdom of the policy is past. At this stage it is better to have something and iron out the flaws. The experience of the CFTC and SEFs appear to bear this out. The regulator won no points for subtlety; problems emerged. However, they are being worked through.
Apart from learning a trick about dealing with the financial services industry from departing chairman Mr Gensler, the commission’s intervention is also much needed.
Creating a record of all derivatives trades was a key part of the G20 agreement of Pittsburgh in 2009 to reform the industry. The deadline for reform was 11 months ago and the US is pressing ahead. Europe, the other key global derivatives market, could ill-afford delays. Instead, the three-month timescale has given them time to catch up.
By the time the two sides hit their final negotiations on the arcane but critical details around definitions of legal extraterritoriality and mutual recognition, Europe may have also concluded its trialogue on the review of MiFID. Consequently it may have a far clearer idea what it wants, or won’t accept. That clarity can only be beneficial for all.
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