Best Practice Approach to Global Unique Trade Identifiers (UTI)

Transcription

1 Best Practice Approach to Global Unique Trade Identifiers (UTI) 2013 November International Swaps and Derivatives Association, Inc. ISDA is a registered trademark of the International Swaps and Derivatives Association, Inc.

2 Agenda ISDA Reference Data & Workflow Working Group Introduction Global UTI Workflow Whitepaper Scope; Key Principles UTI Prefix Construct and Waterfall UTI Communication Flows Selected Examples Conclusion and Next Steps 2

3 ISDA Reference Data & Workflow Working Group Introduction 3

4 ISDA Reference Data & Workflow Working Group Within Industry Governance Committee (IIGC) infrastructure 4

5 ISDA Reference Data & Workflow Working Group Data & Reporting Governance structure Data & Reporting Governance Framework Expanded ISDA Coordination with (i) other IIGC Forums and (ii) Regional Policy Leads IIGC Data & Reporting RIC Appointed workstream chairs and full IIGC representation Programme Oversight and direction Setting Industry Chairs: Stuart McClymont (DB) / Oliver Stuart (MS) ISDA Staff: Karel Engelen(NYC) PMO: Sapient FPML Standards Committee Technical data standards oversight Regulators Communications* FMLG ISDA Legal WG ISDA EMIR 1 WG ISDA Product WGs SIFMA/AFME FOA Vendors Reference Date - Workflow Working Group Appointed workflow workstream with dedicated working group Coordination of efforts relating to reporting workflows & technical application of data and product standards Historical Trade UTI/USI Populations OTC Workflows Captive SDRs Alpha Trades Lifecycle Events Multiple SDRs PreLEIs/LOUs ISDA Staff: Tara Kruse (NYC) Industry Chair: Clare Eastburn (Citi) PMO: Satori US Reporting Compliance WG Compliance workstream with dedicated US working group Coordination of US regulatory discussions with CFTC & SEC SEF Reporting Extraterritoriality Complex & Bespoke No-Action Requests Privacy Laws SEC Compliance Dates Block Trade Indicator Reporting Valuation Data for Cleared Swaps ISDA Staff: Karel Engelen & Tara Kruse (NYC) / Ind. Chair: Catherine Napolitano (BAML) / PMO: TBD EU Reporting Compliance WG Compliance workstream with dedicated EU working group Coordination of EU regulatory discussions between ESMA & other National Competent Authorities Product Identification Cpty Identification EU Reference Data Delegated Reporting FAQ Responses EU Workflows Regulator Interactions ISDA Staff: Clive Ansell (LDN) Industry Chair: Paul Nichol (BAML), Carole Sandrini (SG) PMO: Sapient Asia AEJ Reporting Compliance WG Japan Reporting Compliance WG Compliance workstream with 2 dedicated working groups Coordination of regulatory discussions and developments across Asia regulators AEJ HKMA AEJ ASIC AEJ MAS JAPAN JFSA ISDA AEJ Staff: Jeffrey Kan (HK); Ind. AEJ Chairs: Shannon Spriggs (Macq), David Noyce (SC) & Gary Lok (MS). ISDA Japan Staff: Kaori Horaguchi (TKY) Ind. Japan Chairs: Keiko Fukuda (MS), Keiko Echigo (ML) / PMO: Sapient RU Reporting Compliance Group Compliance workstream with dedicated RU working group Coordination of RU regulatory discussions with FFMS/Central Bank. Master Agreements Quarterly Repoting Collateral Reporting Russian entity definition FX Swaps Reconciliation Russian Resident definition ISDA Staff: Karel Engelen Industry Chair: Bert Moyaers (BNPP), Jacek Kubas (EBRD) PMO: Sapient Industry Outreach & Communications* KEY: Established ISDA Forum Working Group focus areas Update Forum Only

6 Global UTI Workflow Paper: Unique Trade Identifier (UTI): Generation, Communication and Matching Scope and Goals 6

7 Scope and Goals Global UTI Workflow whitepaper Unique Trade Identifier (UTI): Generation, Communication and Matching Scope: an overview of generation, communication and matching of the Unique Trade Identifier (UTI). Counterparties need to report using a common identifier to be compliant with regulation. The paper: Outlines best practices, unless otherwise negotiated between Parties. 1 Follows findings conveyed in ISDA s Unique Swap Identifier (USI): An Overview Document. (updated 5 September 2013) Is a living document, so will be updated in as a result of discussions and views of industry participants and evolving trading standards and practices. 1 Note that the best practice UTI construct outlined in this whitepaper is not subject to bilateral negotiation 7

8 Global UTI Workflow Paper: Unique Trade Identifier (UTI): Generation, Communication and Matching Key Principles 8

9 Key Principles - Overview Global UTI Workflow whitepaper 1) All trades should have a Unique Trade Identifier (UTI) which is generated, communicated and, for historical trade populations, matched. 2) If a trade requires a Unique Swap Identifier (USI), this should be used as UTI. 3) Determination of who generates the UTI for paper trades should follow existing industry best practices for that asset class. For trades where the UTI Generating Party (GP) is unclear, the Parties can agree bilaterally on who will be the UTI GP Examples include 2 : FX Seller of the option will generate UTI. Credit - Where floating rate payer (seller) can be identified, then float rate payer generates UTI. Rates For a Fix-Float IRS, the payer of fixed will generate UTI. Equities - Seller of performance on any product in the taxonomy will generate UTI. 2 Refer to Unique Trade Identifier (UTI): Generation, Communication and Matching for further details. 9

10 Key Principles Overview (cont d) Global UTI Workflow whitepaper 4) UTI generation, communication and matching should occur at earliest possible point in trade flow. In order of preference: Centrally executed trades: reference is generated and communicated at point of execution on a platform that can generate a UTI and ensure uniqueness. Up-front affirmed: reference is generated and communicated at point of submission to an affirmation platform or service. Electronic confirmation matched (post-trade): reference is generated at submission and communicated at point of confirmation. Paper trades: unless otherwise communicated, a reference is generated by individual firms who share via paper, and update their reporting to reference the UTI for the trade, once agreed by Parties. 10

11 Global Unique Trade Identifier (UTI) Prefix Construct and Waterfall 11

12 UTI Prefix Construct & Waterfall Based on the global (pre-)lei system In order to ensure uniqueness across all reportable transactions, a Unique Trade Identifier (UTI) is comprised of 2 parts, illustrated on slide UTI Prefix and UTI Construct : 1. a UTI Prefix that is unique to the party generating the UTI; and 2. a Transaction Identifier Provided the UTI Generating Party (GP) ensures it always issues a new Transaction Identifier in relation to their UTI Prefix, each UTI should be unique. In order to ensure each party has a reserved UTI Prefix, the industry has agreed the approach described on slides UTI Prefix Waterfall. 12

13 UTI Prefix Construct & Waterfall Based on the global (pre-)lei system Parties should first look to use the CFTC USI Namespace as UTI prefix. Since the USI Namespace is only available to those who register with the CFTC 3, not all trading counterparties are going to have one. If a Party has neither, and needs to generate a UTI for global reporting, use characters 7-16 of the global (pre-)lei as the 10 character UTI prefix. 3 For CFTC specifications on USI Namespace, refer to "Unique Swap Identifier (USI) Data Standard" 2012 October

14 Waterfall 4 - UTI Prefix Based on the global (pre-)lei system Do you have a CFTC USI Namespace? Yes Use the Namespace as UTI Prefix No Have a 20 character global LEI? Yes Use characters 7-16 as UTI prefix No Obtain a 20 character global LEI Use characters 7-16 as UTI prefix 4 (a) If a trade is not reportable to the CFTC, but a Party has a USI Namespace, that USI Namespace should still be used. (b) For UTI prefix, the European Association of Clearing Houses (EACH) recommends that CCPs use the CFTC Namespace where possible. Where a CCP does not have a CFTC issued Namespace, EACH proposes CCPs use the Market Identifier Code (MIC), a 4 alpha character code (ISO 10383), to create the 10 character "MIC Namespace" UTI prefix by starting with 3 zeros, followed by the MIC code, and then three additional zeros. For example 000CCPA

15 Construct - UTI Prefix and UTI Based on the global (pre-)lei system 5 UTI Prefix Construct: UTI Construct = UTI Prefix + Transaction Identifier: 5 FSB, Third progress note on the Global LEI Initiative Annex 2, October LEI ROC, Allocation of Pre-LOU Prefixes for Pre-LEI Issuance 14 June International Organization for Standardization, "ISO 17442:2012 Financial services Legal Entity Identifier (LEI) 15

16 UTI Communication Flows Select Flows from Whitepaper 16

17 Electronic Execution No Allocation Platform Party A Party B TR 1 Execution 2 Platform generates UTI (UTI1) 3 Platform shares UTI1 with Party A 3 Platform shares UTI1 with Party B 4 Party B reports UTI1 4 Party A reports UTI1 See Unique Trade Identifier (UTI): Generation, Communication and Matching workflow

18 Paper Trades Party A Party B TR 1 Execution b/w Parties 2 B (in this example) generates UTI1 3 B reports with UTI1 3 Party A reports with own trade reference, if UTI1 has not been received by time of reporting 4 Exchange Confirms; UTI generator B includes UTI1 5 Party A re-reports with UTI1 See Unique Trade Identifier (UTI): Generation, Communication and Matching workflow

19 Cleared Flow Affirm in Middleware Alpha Trade Party A Party B Broker Middleware TR 1 Execution 2 Trade input into Middleware by Broker or one of the Parties 3 Middleware shares alpha UTI w/ Party A 3 Middleware generates UTI (alpha) 3 Middleware shares alpha UTI w/ Party B 4 Middleware can report for Parties, or Parties can report themselves 4 Party B can report trade with alpha UTI themselves 4 Party A can report trade with alpha UTI themselves See Unique Trade Identifier (UTI): Generation, Communication and Matching workflow

20 Cleared Flow - Affirm in Middleware Beta and Gamma legs Party A Party B CCP Middleware TR 5 UTI for alpha is sent to CCP by Party A/B or Middleware 5 UTI for alpha is sent to CCP by Party A/B or Middleware 6 Upon clearing, CCP sends new UTI (beta) to Party A for beta trade (direct or via Middleware). 6 Upon clearing, CCP sends new UTI (gamma) to Party B for gamma trade (direct or via Middleware). 7 CCP reports trade to TR with beta/gamma UTIs (Lifecycle event) 7 Trade can also be reported by Middleware to TR with beta/gamma UTIs (Lifecycle event) 7 Trade can also be reported by Party B to TR with gamma UTI (Lifecycle event) 7 Trade can also be reported by Party A to TR with beta UTI (Lifecycle event) See Unique Trade Identifier (UTI): Generation, Communication and Matching workflow

21 Novated over Middleware Trade between original Parties is agreed and already has UTI 1. Remaining Stepping Out Middleware Stepping In TR 1 Original Trade w/ already determined original UTI (UTI1) Stepping out Party alleges novation in Middleware 2 Stepping in Party agrees novation in Middleware Remaining Party agrees novation in Middleware 2 3 Middleware generates new UTI (UTI2). Middleware shares UTI2 with Remaining Party 4 Middleware shares UTI2 Stepping In Party 5 Middleware can report trade for Parties (UTI2) 5 Stepping In Party can report trade themselves (UTI2) 5 Stepping Out Party may need to report they are no longer Principal (UTI 1) 5 Remaining Party can report trade themselves (UTI2) See Unique Trade Identifier (UTI): Generation, Communication and Matching workflow

22 Conclusion and Next Steps 22

23 Conclusion and Next Steps Global UTI Workflow whitepaper Achieve broad industry agreement. ISDA Reference Data & Workflow Working Group will continue to meet regulators and industry groups to socialize whitepaper. As it is a living document, will be periodically updated in line with evolving standards and practices, and discussions and industry views. Further questions or comments? Contact Karel Engelen at KEngelen@isda.org and Tara Kruse at TKruse@isda.org 23