After struggling to navigate Dodd-Frank’s derivatives requirements, global entities were hit by a second wave of regulation with the European Markets and Infrastructure Regulation ("EMIR"). Although similarities exist between Dodd-Frank and EMIR there are substantial differences with respect to scope and timing making EMIR preparation a significant undertaking with major challenges:
- Ambiguous rules creating a high level of uncertainty
- Complex requirements entailing significant infrastructure changes
- Pairing and Sharing of UTIs – a labor intensive exercise
- Insufficient Time, Resources and Support from Regulators
Industry players made great efforts to send all the necessary information to trade repositories to meet the February 12th deadline, and following this mad rush many issues are left to be addressed.
Unfortunately, Firms are still grappling with post go-live problems revolving around data collection, data clean-up and data transmission to the trade repositories all linked to a lack of clear standards. In particular, UTIs remains a fundamental area of concern.
While UTIs are expected to be agreed by the two counterparties to a derivative trade, there are still basic open questions regarding the UTI formatting standard, exchange and workflows.
Given the importance of UTIs, firms expected ESMA to come up with clear rules and guidance on how the overall process should work to ensure a successful implementation but there has been little support provided to date. As such, market participants are pushing for an industry standard.
In the interim, players continue the daunting task of collecting and cleaning up UTIs, which is a highly manual process with a slow progress rate. Given the number of open questions with UTIs, the 90-day window following the February 12th go-live may not be sufficient time to complete the UTI collection and clean-up tasks.
The UTI challenges that currently plague many firms for backloaded and new derivatives trades will only begin to fade as new standards are created to shape tighter processes to catch up to the regulations.