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Trade bodies urge regulators to sort out derivatives reporting

[LONDON] A wide range of market participants called on Monday for regulators to end confusion over derivatives trades reporting, which was brought in to help avert another financial crisis.

The Group of 20 economies called in 2009 for off-exchange swap trades to be reported to create a snapshot of who is exposed and to spot destabilising risks early. New reporting requirements came in at the start of 2014.

In a sign of unity across the financial sector, banks, industry bodies, hedge funds, major investors and mutual funds have proposed five action points to resolve the confusion in a letter to the US Commodity Futures Trading Commission, European Central Bank, Japan Financial Services Agency and other regulators.

"A major concern relates to the quality of the derivatives data reported," the letter published on Monday by the International Swaps and Derivatives Association (ISDA) said.

"Poor data quality reduced the value of the data for regulators and limits their ability to fulfil their regulatory tasks."

Different reporting formats increase the risks of misinterpretation and bump up compliance costs, the letter said.

Trades are reported to scores of repositories (TRs) that"don't talk to each other" and are thus not providing a single global snapshot of each firm's holdings, regulators have said.

The call for more transparent reporting followed the collapse of Lehman Brothers in 2008 which left regulators unsure who was on the other side of the bank's derivatives trades.

The letter called for harmonised rules, common trade"identifiers", common solutions where no global standards exist, and a change in laws to let regulators access and share data.

One US regulator has described the data as a mess.

Verena Ross, executive director of the EU's European Securities and Markets Authority (ESMA), which regulates trade repositories in Europe, said reporting by firms was still poor.

Six TRs in Europe process more than 300 million reports a week, or 16.5 billion since reporting began in 2014, according to ESMA figures.

"It is rare to see data quality at an acceptable level," Ms Ross told a conference last week.

Edwin Schooling-Latter, head of market infrastructure at Britain's Financial Conduct Authority, told the same conference trade reports were proving valuable but "painstaking work" was needed to raise their quality.

"We need to have a better view of the derivatives market and know what's going on there," said Sander Van Leijenhorst, senior supervisor at the Dutch Authority for Financial Markets.