European Swaps Regulation - OTC Derivatives Reporting - Comment Letters

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Comment letters addressing OTC derivatives reporting requirements.

Deutsche Bank - April 14, 2010[edit]

Guidance to Report Transactions on OTC Derivative Instruments - CESR
April 14, 2010

In this comment letter, Deutsche Bank responds to CESR's consultation paper regarding transaction reporting for European OTC derivative instruments. In general Deutsche Bank agreed with CESR's analysis and recommendations proposed in the consultation paper, though there were several main areas where they proposed adjustments:

  • The Markit RED code has an advantage over the Bond ISIN as a method for identifying the reference obligation of a CDS trade. Consideration of the benefits of the RED code should be weighed against the required system changes for those firms currently reporting the Bond ISIN to the UK FSA.
  • To ensure accurate but flexible reporting, any definition of a "complex derivative" should avoid being overly prescriptive. This should allow reporting firms to self-identify those trades that they consider complex.
  • If business events are to be included, then both amendments and terminations should be reported.
  • The proposed methodology to report equity swaps with two equity legs may lack feasibility due to data validation issues.
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ISDA - April 14, 2010[edit]

Guidance to Report Transactions on OTC Derivative Instruments - CESR
April 14, 2010
This comment letter from the International Swaps and Derivatives Association (ISDA) responds to the consultation paper from CESR regarding OTC derivative transaction reporting. Several of the main points that ISDA discusses in the letter include:

  • Red codes should be used for reporting on the underlying instrument for a CDS, and not ISIN's, as they do not enable accurate identification of the reference entity.
  • In regards to price expressed in basis points - CDS transactions always have a coupon and may have an initial payment, therefore ISDA recommends that the coupon be recorded in the "Strike" field. The initial payment (if any) expressed in basis points of notional, not annualized, should be reported in the "unit price" field.
  • ISDA strongly recommends that early terminations not be included in the scope of the reporting, because they do not represent new positions.
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Futures and Options Association - April 14, 2010[edit]

Guidance to Report Transactions on OTC Derivative Instruments - CESR
April 14, 2010

This Futures and Options Association (FOA) comment letter responds to CESR's consultation paper regarding transaction reporting for European OTC derivative instruments. The FOA states that they are in agreement with the British Bankers Association/Xtracter's already submitted response regarding equity swaps, credit default swaps and complex derivatives. Several of the other main topics addressed in this letter include:

  • There is no unanimous view amongst FOA member firms on whether the unit price should be the premium per single underlying of the contract or per contract.
  • In a transaction report, the price notation field should reflect the currency of the spread bet – i.e. the currency of the stake.
  • A transaction report is required for opening and closing a spread bet and for the expiration of a spread bet, with the exception of daily rolling spread bets. For these instruments, firms should just report once when the bet is opened, and again when the bet is eventually closed.
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British Bankers Association - April 14, 2010[edit]

Guidance to Report Transactions on OTC Derivative Instruments - CESR
April 14, 2010

In this comment letter, the British Bankers Association (BBA) and Xtrakter (a provider of capital markets data, operational risk management, trade matching and regulatory reporting services) respond to CESR's consultation paper regarding European OTC derivative instrument transaction reporting. The BBA and Xtrakter cautions CESR that any pan-European ‘users pack’ - such as what they are recommending in their consultation paper - that are designed to help guide firms in their reporting of OTC derivative instruments would need to be accompanied by a suitably responsive industry working group at European level. Several of the other main topics that the letter discusses include:

  • There is no unanimous view amongst the British Bankers Association and Xtrakter membership firms on whether the unit price should be the premium per single underlying of the contract, or per contract.
  • When an equity swap is traded without the initial reference price known, it should not be considered a complex derivative.
  • The issues associated with implementing the infrastructure required to make two transaction reports for a single transaction would be insurmountable.
  • The BBA and Xtrakter suggests that reporting the ISIN of the reference obligation is the best approach for reporting CDS trades.
  • The BBA does not consider that the reporting of early terminations of credit-default swaps should be made mandatory.
  • The BBA recomends that where possible, firms should use the seven specific derivative types outlined in CESR's consultation paper to classify the OTC derivative instrument being reported. However, as CESR note, there are certain OTC derivative instruments that are particularly complex in structure, meaning that there are instances where if firms were forced to report ‘complex’ derivatives in the usual manner it would not always be possible to accurately reflect the instrument being reported.
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Nordic Securities Association - April 14, 2010[edit]

Guidance to Report Transactions on OTC Derivative Instruments - CESR
April 14, 2010

In this comment letter, the Nordic Securities Association (NSA) responds to CESR's consultation paper regarding European OTC derivative instrument transaction reporting. Members of the NSA are the Danish Securities Dealers Association, the Finnish Federation of Financial Services, the Norwegian Securities Dealers Association and the Swedish Securities Dealers Association. Several of the main points that the comment letter discusses includes:

  • The exchange of information between regulatory authorities works well therefore it is time to let the reporting company report to the

regulating authority in the home country or of its choice, in order to decrease the cost of reporting.

  • Swap legs of OTC derivatives based on commodities, rates, and currencies should not be reported, unless one swap leg fulfills the demand for reporting
  • If the OTC derivative has an ISIN or an AII code it should be enough to report that code as it gives all information regarding that instrument, other information should be optional to report
  • What is a "complex derivative" should be clarified by CESR
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References[edit]

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