Implementing Singapore’s New OTC Derivatives Reporting Regime

Broadridge’s Carl Hovland and David Farmery talk to Regulation Asia about the measures firms should consider as they implement new OTC derivatives reporting requirements in Singapore.

From the U.S., Europe, and Japan to Australia, Singapore, and Hong Kong, market participants for the last few years have been preparing to implement new regulatory requirements for the reporting of OTC derivatives trades.

The requirements have already gone live in two phases of the “CFTC Rewrite” in December 2022 and January 2024, followed by Japan on 1 April and “EMIR Refit” on 29 April. The UK will be next on 30 September; followed by Australia and Singapore on 21 October; and Hong Kong tentatively on 29 September 2025.

In Singapore, the regulator issued the final rules on for its new reporting regime in May 2024. While the Monetary Authority of Singapore (MAS) has sought to make sure the industry is not overburdened by the new requirements by aligning with global standards to the maximum extent possible, the new regime does present some real implementation challenges to in-scope firms.

In this article, we discuss the impact of the global trade reporting re-writes and how Broadridge can help firms navigate these changes.

Introduction

Many of the rule changes are driven by the desire for regulators globally to have better data that can be aggregated in a uniform way, help to avoid double counting across regimes, and ultimately improve monitoring of systemic risk.

The starting point is the deployment of ISO 20022 messaging for each regime as the standard for reporting to trade repositories. This represents a big change from today’s practice. We highlight the implications below.

To help with aggregating data in a uniform way, regulators have focused on two key initiatives, both of which introduce new data points and enrichment challenges for in-scope firms.

The first is the definition of Critical Data Elements (CDEs) for OTC derivatives. These are key data points defined and governed by the Regulatory Oversight Committee (ROC). These CDEs are being incorporated into each regime’s reporting standards to varying degrees.

The second initiative is the global introduction of the Unique Product Identifier (UPI), which will allow clear identification of each reportable product based on its high-level economic attributes.

In addition, to avoid double counting of the same trade between different regimes and counterparts, regulators are introducing Global Unique Transaction Identifiers (UTIs) as part of their re-writes.

A Global UTI means, in theory, that for each individual trade, both parties to the trade will report the same UTI to their respective regime, allowing for accurate aggregation by regulators. Implementing the Global UTI has implications for how firms generate and exchange UTIs and also how they book trades across regimes.

Messaging Format

The requirement to use the ISO 20022 XML format for submissions is seen as a relatively big change that has been challenging for some in-scope firms. To date, OTC derivatives reporting has been done using CSV uploads or FpML.

According to Carl Hovland, Vice President for Operations, Data and Enterprise Solutions in APAC at Broadridge, ISO 20022 is a simpler messaging format from a technical point of view, and will lead to significant long-run benefits in terms of standardisation, stronger audit control processes, and improved compliance with reporting obligations.

A key challenge during the course of 2024 will likely be related to the staggered adoption of ISO 20022 across different jurisdictions. For example, firms with multi-jurisdictional reporting obligations will still have to maintain legacy reporting formats for reporting in the U.S. and Canada, while progressively switching to ISO 20022’s harmonised XML format for the U.K., Singapore and Australia later in the year.

“What we will have through that journey are multiple code bases essentially,” Hovland said. “For example, if you’re an EU entity trading out of Singapore, you need to report in ISO 20022 for one part of your obligation, while still also having to report using FpML for another part.”

According to Hovland, to ensure reporting systems are performing as needed, it is key for in-scope firms to maintain good governance over the translations of reporting messages, and to have high quality regression testing processes in place.

Regression Testing

“The majority of firms will have to consider how to manage a regression base line model that is expressed in a format like FpML that will no longer be accepted in reporting, on a jurisdiction-by-jurisdiction basis,” Hovland said.

Indeed, among some Singapore firms, there are concerns that reliable regression can no longer be used to validate that existing fields are still being reported correctly after the change, in addition to the new fields that are required in submissions.

To address this, Broadridge uses what’s called a “continuous integration” approach that allows regression tests to be run on “each and every change across the complete data model”, focusing specifically on the reportable fields as well as accompanying metadata.

“We use this purpose-built regression framework to fully automate testing and rules validation directly against the regulation and each transformation, meaning that the data and the message are considered independently,” Hovland said.

“We concentrate very much on data governance and how we store data, and use that to drive regression. If your core data model is sound, the changes you make on your outgoing connections and in your reporting will have a lot more inherent veracity.”

UTI Waterfall

Another major change with the new reporting requirements is the introduction of the Global UTI. A waterfall approach is applied to define which counterparty would need to generate this identifier. Each regulation has documented a broadly similar UTI waterfall logic that applies the “first touch” approach.

However, the prescribed waterfall approach doesn’t specifically address two key issues – firstly, how do we work out who has soonest to report obligation in a cross jurisdictional trade; and secondly, how do we avoid the buy side becoming a UTI generator.

Industry trade bodies have discussed a UTI best practice which somewhat modifies the approach set out in the regulatory texts and which will hopefully provide clarity for these two issues.

Under this approach, the soonest to report test only applies to trades where one counterparty is subject to a North American regime, is a Swaps Dealer, and is deemed to be the Reporting Counterparty under such a regime. For all other trades, the cross jurisdictional check is not applicable and the subsequent steps in the waterfall are to be followed.

Although this approach makes it generally clear who should generate the UTI, there could be situations where firms may need to wait for a counterparty to generate and share the UTI needed in reporting. For example, generation by a European counterparty could delay reporting for the non-generating counterparty in Singapore, forcing the Singapore firm to initially report an interim UTI which would then need to be remediated later.

This would potentially lead to greater operational costs for the Singapore counterparty, in terms of procedure, process, controls, remediation and audit — not to mention additional risk. Though such situations may not end up being common, there is a need for in-scope firms to ensure the exchange of UTI is efficient and timely, and that the process is equitable.

“Some of these issues are familiar to firms who are reporting under EMIR, but they will be less familiar to many Singapore firms, particularly those on the buy-side,” Hovland said. “With the need to pair and share UTIs to avoid delays, and considering the benefits of being the UTI generator, it becomes more important than ever to be able to track the steps that lead to UTI decisions.”

To address this, Broadridge has codified the UTI waterfall as a core feature in its reporting platform, including tracking of all decision points in an auditable and transparent manner. “We also ensure flexible integrations to ensure UTIs are automatically fed back upstream to source systems, into confirmation processes, and into reporting,” Hovland said.

UPI Generation

Much like the UTI, the requirement to report a UPI has been a completely new requirement under the rewrites. In January, the CFTC adopted the UPI in its swaps data reporting framework, making the US  and Canada the first countries to leverage ANNA DSB’s new database in live reporting.

“The UPI makes important strides towards equivalence,” said David Farmery, Head of Regulatory Reporting Product at Broadridge. “Having a common perspective on product taxonomy for OTC derivatives, agreed between counterparties, clearly benefits both the regulators and the industry.”

But, adopting the UPI at the firm level is not without its challenges. There can be situations where counterparties to the same trade submit different attributes to ANNA DSB for UPI generation, resulting in two different UPIs being generated for the same transaction. This could occur, for example, if two banks have different interpretations of one of the attributes of a trade such as physical or cash settlement.

According to Farmery, in-scope firms need to have specific processes in place not only to obtain the UPI from ANNA DSB, but also to ensure the correct UPI is generated and to set out the actions that will be taken when a UPI doesn’t match up with that generated by a counterparty.

“All UPIs are issued by ANNA DSB, meaning either a real-time or batch integration with a third-party system is now unavoidable,” he said. “Plus, UPI is used as a crucial validation of the message itself, in that the content of the ISO message must match the parameters that the UPI specifies. For example, if your UPI says it’s an option product, you better make sure you populate the put or call fields.”

The Broadridge platform already provides direct connectivity with ANNA DSB, supports end-of-day feeds, and applies the UPI in its validation processes to complement other regulatory validations. Farmery said the platform’s approach was a “resounding success” for clients who went live with the second phase of the CFTC’s implementation in January.

Collateral Reporting

Under Singapore’s regime, collateral reporting is a brand new requirement that will go live in October. Collateral reporting has already been part of the regimes in Australia and the EU and was included in phase one of the CFTC rewrite. The difference is that initial and variation margin (IM/VM) will now have to be reported separately.

In-scope firms will need to report collateral valuations and IM/VM posted and received, pre-haircut as well as post-haircut. Reporting can be done either at the trade-level, where the margin update message is linked to the trade through the UTI, or the portfolio-level, where IM/VM collateral portfolio codes are used to link the margin update to the trade.

“This requires collateral portfolio codes to be reported on the original trade message,” Hovland said. “A lot of firms may not have the collateral portfolio code when the initial trade is reported, and therefore have to report a separate correction message when the collateral portfolio is available later through a separate source.”

Hovland said the timing and use of different sources needs to be controlled so that firms don’t end up reporting a collateral valuation that does not link to any trade, as this would cause a rejection.

Portfolio-level collateral valuation is only required when there are underlying trades eligible to the applicable jurisdiction. This means that firms doing multi-jurisdictional reporting through the same collateral source will need to perform additional lookups to identify which collateral portfolio codes have underlying trades that are eligible for each reporting jurisdiction.

“This may be challenging for some firms as some collateral sources may not have all the information required for collateral reporting, meaning additional enrichment through other sources may be required,” Hovland said.

“In addition, some firms may have their collateral source data captured in different formats, meaning additional transformation and aggregation is needed to prepare the data for reporting.”

Benefits of Mutualisation

The new reporting regimes for OTC derivatives also highlight a need to harmonise booking practices globally. According to Farmery, the rollout of global UTIs and UPIs will serve to highlight inconsistencies in booking practices across jurisdictions, particularly when in the trade is cross jurisdictional.

“For example, if I book a package in a different way to how my counterparty in another jurisdiction books it, and they are the UTI generator, it could well be that their UTIs don’t match the trades I need to report,” he said. “To us, this highlights the need to push hard for harmonisation of booking practices and regulatory alignment. Although big strides have been made, this is still very much work in progress.”

As part of its work in the trade reporting space, Broadridge participates in all the relevant industry bodies and working groups to better understand industry challenges and best practice, and to contribute its own input from a practical implementation perspective.

Farmery said the benefits of this mutualisation ultimately get passed down to clients, who likewise contribute to the Broadridge community both in terms of regulatory input and product feedback. “This gives us unrivalled access to perspectives from all walks of the financial community,” he said.

Broadridge also participates in other industry initiatives such as ISDA’s work on the Common Domain Model (CDM) and the Digital Regulatory Reporting (DRR) initiative, which Farmery said have the potential to expand the benefits of real mutualisation even further.

Into the Future

“At Broadridge, leveraging next-generation technologies to drive industry solutions is core to our mission statement,” Hovland said. “We see artificial intelligence for trade and transaction regulatory reporting as not just a technological leap but a paradigm shift in how we approach compliance and surveillance in the financial sector, significantly enhancing efficiency and saving valuable time and resources in the process.”

“While developing our BRx Regulatory AI solution, we focused on fast, simple and importantly, secure access to reporting data for our clients, giving transparency in operations, clear visibility into trade and transaction activities. Ultimately, the valuable insights and analytics offered by AI will empower our clients to make informed decisions, optimise their regulatory reporting processes, and drive meaningful business outcomes.

As firms across jurisdictions gear up to implement new OTC derivatives reporting requirements, the importance of proper preparation cannot be overstated, Hovland said.

To ensure a seamless transition and compliance with reporting obligations, it is essential for in-scope firms to focus on maintaining good governance over reporting messages, implementing high-quality regression testing processes, enhancing enrichment for new data points such as the UPI, and ensuring efficient and timely exchange of UTIs.

“Regulations are harmonising but we still live in a fragmented world where each regulation still has its own specifics which need to be catered for,” Farmery added. “Do not expect this to be the end of the journey; it is likely to just be the first of many futures re-writes.”

This article was written with support and collaboration from Broadridge.

Broadridge provides tools and support to help firms navigate this regulatory change initiative. With its purpose-built regression framework, continuous integration approach, and direct connectivity with ANNA DSB for UPI generation, it helps firms to streamline their reporting processes and ensure compliance.

Contact Broadridge here to learn more about navigating the shifting regulatory landscape and how to ensure a smooth transition to the new OTC derivatives reporting requirements.

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