Collateral Reporting – Past, Present and Future

Collateral Reporting – Past, Present and Future image

The year is 2012

Rising K-pop star Psy has just released Gangnam Style (but you probably haven’t heard it yet). London is preparing to host the Summer Olympics and if you’re not reading 50 Shades of Grey you’re probably reading Appendix 1 of CFTC’s Part 45: The minimum primary economic terms of a swap.

The CFTC simply wants to know how each reportable contract is collateralised using a simple code to indicate partially, fully, one-way collateralised etc. There is no need to report any collateral valuations or margin data.

This should be easy.

The year is 2014

Gangnam Style has reached 1 billion views on Youtube (you can do the dance too).

England fail to bring football home at the Brazil World Cup and if you’re not taking part in the ‘Ice bucket challenge’ you’re probably getting up to speed with the new craze of ‘EMIR reporting’ that has swept Europe by storm.

EMIR reporting goes live in February and six months later collateral & valuation reporting begins.  Firms are required to report how each trade is collateralised and the ‘value of the collateral’ is required to be updated daily.  Many questions are asked about whether this should be a combination of initial and variation margin or something in between.

The ‘collateral portfolio code’ is introduced to link multiple trades to the same collateral pool.

It’s a bit more complicated than the CFTC requirements but should be manageable.  Surely the CFTC will follow suit soon?

The year is 2017

The world is trying to figure out what Donald Trump means by his ‘covfefe’ tweet.

After weeks of analysis, the only conclusion is that he was trying to tell us ‘Collateral Valuation Fields Expand For EMIR’.

He is referring to the EMIR RTS 2 go live of course. The number of collateral fields has increased from 4 to 15.  Reporting parties now need to split out the reporting of initial and variation margins.  They also need to report margins that were received as well as posted. Excess collateral needs to be reported separately.  There is still confusion as to whether margins reported should be pre or post haircut values.

Fittingly, LaLa land has won the Best Picture Oscar, hasn’t it?

The year is 2018

Gangnam style is a thing of the past.  You are now learning how to do The Floss instead.

England fail to bring football home at the Russia World Cup and if you’re not attending Harry and Megan’s Royal Wedding you’re probably reading ‘Harmonisation of critical OTC derivatives data elements’; the technical guidance published by CPMI-IOSCO.  The paper becomes commonly referred to as the CDE.

They propose that 19 fields are required to report collateral accurately.  They have gone one step further than EMIR and suggested that pre and post haircut values of initial and variation margin should be separated.

A white paper published by the CFTC states that they should implement the CPMI-IOSCO standards and that ‘the reporting of fewer, yet better defined and standardized, data fields should improve the quality of swaps’.

There shouldn’t be long to wait until that gets implemented…

The year is 2022

Chris Rock is still massaging his jaw after ‘The Slap’ and the England women’s team are still celebrating after bringing football home at the Euros.  The celebrations come to an abrupt stop as CFTC Rewrite reporting goes live on 5 December.

The US and European regulators have finally agreed on the spelling of ‘collateralisation’!

After a very long wait, prolonged by several delays, the CFTC reporting rules have finally been modernised.  The collateral reporting rules are mostly aligned with the CDE but with a few exceptions.  Notably, the CFTC requires separate portfolio codes for initial margin and variation margin and an indicator for portfolios that contain non-reportable trades.  They have ditched the CDE proposal to include post-haircut values for variation margins.

Christmas is cancelled as emergency post implementation fixes need to be prioritised.

The year is 2024

Notre-Dame reopens to the public as Paris prepares for the Summer Olympics.  Whilst cruising in your driverless car you have time to reflect on the EMIR Refit go live.

ESMA and the FCA require all the CDE fields with one addition, the ‘collateral timestamp’, which indicates when the value of the margins was calculated.

The gradual separation of different types of margins for reporting have made some reporting firms upset. Their systems were not made to deconstruct this data. Other firms are happy because this is exactly how their systems are built.  There are still complexities getting collateral data from some third parties and how margins are being reported.

The world is slowly moving to a more harmonised approach of reporting but there is still a long way to go.

The year is 3033

Alien contact has been made with Kepler-452b.

Humans live on Mars.

Interplanetary regulators are still trying to agree the correct way to report collateral data but feel it’s surely within reach.

  • When do you think regulators will agree how to report collateral data?  For a conversation with one of our reporting specialists or a free healthcheck of your reporting, please contact us.