Trade Repository Reporting

Trade Repository Reporting
by Thomas Schwiertz

Repository Reporting and XVA-Blockchain

Trade Repository Reporting is probably one of the most interesting use cases of the XVA Blockchain, as the benefits from applying blockchain technology to this use cases are directly related to the general characteristics of the blockchain and immediately apparent:

  • Risk reduction from decentral structure and transparency. In contrast to centralized IT systems our distributed ledger technology will reduce operational risk completely. There is no risk of terror attacks and there is no risk of internal fraud. Therefore contingency plans, secondary emergency locations and four-eyes-principles will vanish.
  • Massive efficiency improvements as a result. The superior security of blockchain technology reduces costs for Repository Reporting services tremendously and enables us to offer a very competitive offering to the existing market players.
  • Extremely efficient processing for reconciliation of data. Especially regarding the mandatory “double sided reporting” introduced by the regulations SFTR and EMIR STS.

Legal requirements from regulatory changes

From 1 November 2017, EMIR trade reporting went through significant changes. From this date onwards, ESMA introduced revised EMIR Technical Standards including new fields, changes to position reporting, collateral reporting and asset class specific fields with the aim to address potential improvements and existing deficiencies that have been identified since the reporting start date of EMIR in February 2014.
In parallel the implementation of MiFID II in January 2018 was by many market participants as a Big Bang moment for Europe’s financial markets.
Further, MiFID II is extra-territorial – many firms outside of the EU are beginning to realize that they are captured in the new rules when trading in European securities or with EU regulated firms. For example, this applies to the MiFID II rule on the unbundling and transparency of payment for sell-side research.
While there has been much discussion around how MiFID II will impact the trading landscape of Europe, thus far little has been considered about the effect of the forthcoming regulation on the post-trade space. In reality, MiFID II dramatically altered the post-trade landscape and requires affected firms to make significant changes to their middle and back office activities in order to comply with the new requirements.
The most significant post-trade changes by MiFID II are:

  •  Derivatives trading: greater transparency in derivatives markets through the migration of more over-the-counter (OTC) derivatives trading to trading venues.
  • Greater engagement of the buy-side in transaction reporting: this is likely as a result of the more onerous requirements of MiFID II transaction reporting, including the need to report additional data fields such as the identity of the decision maker in trading decisions.
  • Unbundling of research costs: MiFID II will require the unbundling and transparency of paymentfor sell-side research and will therefore enforce strict separation between payment for research and payment for execution commission.
  • Adoption of LEIs: from the start of MiFID II implementation, investment firms which are subject to its transaction reporting rules should not execute a trade for a client without that client having a valid and verified LEI.

Advanced Blockchain Solutions is at the gravity center of this development.

Please keep in mind: the complexity and scope of MiFIR/MiFID II was acknowledged by regulators when its implementation date was delayed by a year to January 2018, and industry collaboration to prepare for the changes is a positive trend.

Today MiFID II and MIFIR is in place and the industry needs to enhance implementing alterations to their post-trade processes in order to ensure they are ready for CSDR (Central Securities Depositories Regulation), SFTR (Securities Financing Transactions Regulation), and Margining.

Or in other words: the time is just right for Advanced Blockchain Solutions’ disruptive and innovative approach using blockchain technology to help the finance industry get ready and in place for its next chapter.

SFTR (Securities Financing Transactions Regulation) will be mandatory for most Banks in April 2020

XVA Blockchain is strongly focused on the new regulatory approaches like double-sided reporting in SFTR or EMIR STS and additional data demands emerging from the needs for bilateral margining, collateral management, and the mandatory introduction of initial margins in OTC markets.

Whenever existing reference and market data is sufficient within your existing IT systems or high transaction volumes are in place e.g. in standardized stock or energy markets traded via exchanges or CCPs some reconciliation is reduced and we move to centralized approaches.
In this space we are proud to partner with the leading Repository in the world. We are proud to be a partner of DTCC.