Sapient Global Markets has unveiled a new report examining the implementation and ongoing operational costs associated with over-the-counter (OTC) derivatives trade reporting.
The report, The Rising Cost of Trade Reporting: Can Firms Afford to Stay Compliant? scrutinizes firms’ expenditure to the meet the Dodd Frank and EMIR compliance deadlines and the ongoing costs associated with supporting and amending reporting systems. It demonstrates how the piecemeal and siloed nature of many implementations has resulted in a lack of flexibility and extensibility to meet future requirements.
Furthermore, as the global regulatory reporting landscape continues to evolve, the additional capital and staff investment required to remain compliant could be significant. The report scrutinizes the total cost of ownership (TCO) of trade reporting, based on implementation cost, IT and infrastructure expenditure, operations and support staff, and repository fees. It reveals, for example, how a Tier 2 investment bank could save millions of dollars over multiple years by adopting a managed service to meet its reporting requirements.
The report also highlights ongoing issues related to the current state of supporting trade reporting, noting why many firms are re-examining their strategies and internal infrastructures, including:
Difficulties achieving cross-jurisdiction compliance: Reporting requirements for the same trade can differ across jurisdictions depending on entity classification. Sophisticated rules engines, systems, and data management are needed to ensure full compliance; features most current in-house systems lack.
Poor data quality: Trades with counterparties in different jurisdictions often involve two or more incompatible data stores and trade processing systems. Couple this with new fields including the Legal Entity Identifier (LEI) and UTI / USI (Universal Trade / Swap Identifier), which trade capture systems must accommodate, and trade reporting becomes further fraught with data quality issues.
Siloed systems create risk and cost. This approach is creating a very complex framework, with duplicative and contradictory processes and documentation. Add to this the expense of maintaining multiple point software solutions and the cost of compliance can quickly spiral out of control.
“With many challenges surrounding trade reporting, the question we often hear is whether participants can afford to continue with their current approach. It is apparent, given the amounts already invested, that building, re-building and re-engineering current systems is not a viable option for what is a highly commoditized function,” said Randall Orbon, senior vice president at Sapient Global Markets.
“Now that several major deadlines have passed, many organizations are looking for alternative ways to lower their TCO without compromising reporting quality or compliance. As a result, there is likely to be a shift among market participants toward alternatives, for example managed or cloud-based services that can reduce the cost and complexity of trade reporting.”