This week, the European Securities and Markets Authority (ESMA) has published its consultation paper (CP) on OTC derivatives clearing and trade reporting — as would be required under the incoming European Market Infrastructure Regulation (EMIR). From a standards for reporting perspective (a subject that is top of mind for many firms at the moment), the paper indicates that reporting requirements could include use of the global legal entity identification (LEI) standard that has been suggested by the Financial Stability Board (FSB), or a number of other options.

These other options include the Swift Bank Identifier Code (BIC) or the Business Entity Identifier (BEI), which was developed by certain countries’ national number agencies and vendors under the auspices of the IBEI initiative (I = “international” in that acronym). An “interim” solution in lieu of a globally agreed-upon LEI might also be needed, suggests the CP, but it assures that “duplication should not occur” — suggesting that an interim solution might be the DTCC’s CICI, which is aiming to be backwards-compatible to the LEI.

As for instruments and trades, both of these will require unique identification, but further work is required in this area. On the trade side of things, the CP states: “ESMA believes that in order to effectively match counterparties to a trade, where those trades are reported separately by each counterparty (potentially to two different trade repositories), a Unique Trade Identifier (UTI) or other trade ID should be reported with each counterparty to allow for the matching of each side of the transaction.”

It indicates that not much work has been done in establishing a UTI, but ESMA will be following these developments “with interest.”

The instrument identification challenge, on the other hand, is complicated by the fact that the currently proposed ISDA Unique Product Identifier (UPI) does not cover all types of derivatives — notably the bespoke and hybrid varieties. Hence, it is passing the task on to trade repositories to further develop identification standards for dealing with baskets.

As for the level of granularity discussed for the reporting within the CP, ESMA is signaling a whole new level of detail, right down to technical recommendations with regard to field length and composition. The regulatory body might (by its own admission) be chronically understaffed and overworked, but its recommendations for this regulation (not directive) will have a significant impact on the way that data needs to be stored and reported.

Reading and responding carefully to the CP with any concerns in this regard is therefore of paramount importance. ESMA is also giving firms a chance to respond directly with a public hearing on 12 July in Paris at a yet-to-be-determined location (neutral ground rather than ESMA HQ).

You can check out the full CP here and register for the 12 July public hearing on EMIR here.