UTIs, Pre-LEIs Are Top Concerns as EMIR Reporting Begins

Requirements to report unique trade identifiers (UTIs) and pre-legal entity identifiers (pre-LEI) are expected to cause the most significant challenges, particularly for smaller financial institutions, as European Market Infrastructure Regulation (EMIR) reporting requirements come into effect for derivatives trades in Europe on February 12.

UTIs and pre-LEIs are among a series of attributes that will have to be reported for all exchange-traded derivatives, over-the-counter (OTC) derivatives and foreign-exchange forwards, when an entity trades either directly with a European Union (EU) counterparty or in EU products.

UTIs are the greatest cause for concern because the European Securities and Markets Authority has not been prescriptive about the form these should take or who should report them.

Emily Cates, London-based operational processing specialist at Rule Financial consultancy, says when the Dodd-Frank Act introduced similar trade reporting requirements in the US, regulators were very specific about the identifier that should be used. However, in Europe, there is less certainty about who should produce and report UTIs, and how they should be disseminated.

Cates says some market participants have tried to model their UTIs on the Unique Swap Identifiers they are already using in the US, but have experienced trouble distributing these because they include semi colons, underscores and slashes, which are incompatible with some commonly-used communication channels.

Darren Marsh, London-based senior product manager at data vendor SIX Financial Information, says the situation is also complicated by the fact that only an interim taxonomy is available for the UTI at the moment and this will be replaced with a permanent taxonomy when it has been finalized.

There have been significant increases in the numbers of entities registering for pre-LEIs in recent weeks, but Cates and Marsh both believe many of the entities that will be affected by EMIR are yet to apply for pre-LEIs.

"The biggest challenge around the pre-LEI is getting them registered for your clients," says Marsh. "Market awareness of the need for pre-LEIs probably hasn't been as high as it could have been, but that is primarily because a lot of organizations are affected that wouldn't necessarily have visibility of these kinds of issues. So really the onus is on organizations to do outreach work. They have been doing a lot of outreach, but there is only so much you can do within a constrained timeframe."

Like many industry participants, Cates believes smaller financial firms will struggle the most to comply with EMIR reporting requirements. "Some of the major financial institutions that have very large portfolios have been putting a lot of resources into this for quite some time," she says. "So there will be a shake-out period, but they will fall into line. The ones that are struggling more are the smaller players, the ones who maybe only do a few of these types of trades. There has been a lot of confusion over what should be reported and what shouldn't be."

More information on the challenges of managing UTIs can be found here.