Dodd-Frank Raises Data Challenges
The Dodd-Frank Act’s requirement to report derivatives transactions to trade repositories has underscored the need for sophisticated data management technology within the capital markets industry.
Beginning next month, the requirement, part of the long-awaited U.S. regulation to increase trading oversight on Wall Street, will require firms to identify individual foreign exchange transactions to new data repositories by using a universal swap identifier (USI) that uniquely identifies each trade.
All firms will be required to make changes to their trade workflow in order to support the reporting of USIs on transactions to a designated swap data repository.
“This regulation comes at a time when firms are under pressure to reduce operational risk and strengthen their business process controls in an environment of growing deal volumes and increasing trade complexity,” said Robin Kneale, head of strategy and product management, securities processing solutions, international, at Broadridge Financial Solutions, a technology provider.
Broadridge’s trade confirmation platform, PROactive Matching, has been enhanced to help financial organizations meet these new disclosure requirements for FX trade repositories.
An increase in electronic trading of FX derivatives is calling forth supporting post-trade processing services, similar to those provided for other OTC asset classes.
From a technology standpoint, the problem becomes one of navigating multiple silos of information that have been developed around different asset classes and geographies.
“In order to manage data effectively, and enable us to get the maximum benefit from it and from the products it supports, we need a data map, a form of indexing, or ‘metadata’, that tells us where we can find any particular piece of data in any specific state,” said Nick Jones, senior consultant at Citisoft, an operations and technology consulting firm that services the investment management community.
At its core, metadata “is a logical model of the data we are using, expressed and described in business terms”, said Jones. “As well as telling us what the data means, it can tell us where it is stored, how it reached its location and where it will be used,” he said. “Immediately this information is available it begins to provide benefits in terms of speed of requirements definitions, consistency of data use and change impact analysis.”
Once the data from disparate sources can all be addressed as if it is in a single place, with known and consistent forms and structures, it becomes possible to standardize procedures for operating on items, such as moving them between locations, or performing calculations and transformations.
Trading in derivatives is entering a new phase as regulators and industry participants push for greater control and transparency.
This is manifesting itself in cutting-edge technology that is being rolled out for creating integrated trade processing platforms for FX and other asset classes.
MarkitSERV, an electronic trade processing service for OTC derivatives, has developed its FX clearing gateway service in close consultation with major market participants. Executing brokers, clearing brokers and buy-side firms can match, legally confirm and route OTC FX transactions to the central counterparties of their choice.
Meanwhile, Broadridge’s PROactive Matching provides for matching and management of multiple confirmation sources, such as FpML (XML), Web Portal, email, fax, paper and Swift messaging.
It’s been enhanced to manage the receipt and transmission of USIs contained in confirmations as required by the forthcoming Dodd-Frank regulations, as well as meet similar regulatory requirements scheduled for Europe next year through the European Market Infrastructure Regulation (Emir).