Of all the problems that have hindered effective trade reporting in the derivatives market, one of the most difficult to resolve has been duplication. In the EU, both parties to a trade are mandated to submit the same information, while multiple regulations can require the same trade to be reported several times. This not only adds to cost and resources, but it also means trade repositories and supervisors have a hard time reconciling repetitive data to build an accurate picture of risk. The good news is that the European Securities and Markets Authority (ESMA) has now decided to move towards a so-called ‘report once’ framework – a change that, if done correctly, could materially improve reporting for both market participants and regulators.

Following its call for evidence last year on ways to simplify and reduce the burden of transaction reporting, ESMA published a final report earlier this month, projecting that its proposals could deliver annual savings across the industry of up to €1 billion and a reduction in recurring costs of around 22%-24%, although some types of firms will benefit more than others. Recognizing that siloed reporting under three separate regulations – the Markets in Financial Instruments Regulation (MIFIR), the European Market Infrastructure Regulation (EMIR) and the Securities Financing Transactions Regulation (SFTR) – has become fragmented, duplicative and costly, ESMA set a long-term objective to build a single reporting framework in which transaction data is only reported once and can be reused across multiple authorities and mandates if required.

This is a major change that will take several years to achieve. In the meantime, ESMA has set out a series of short- and medium-term measures that are needed, including revising dual-sided reporting requirements, deprioritizing targeted MIFIR fields and adjusting EMIR reconciliation fields. These granular changes are important as they will deliver significant cost savings and pave the way towards the ultimate objective of a single reporting framework, so it’s vital we get them right.

As ESMA has recognized from the responses to its call for evidence, dual-sided reporting – and the field reconciliations it requires – is one of the top causes of cost in the current framework and carries a huge operational burden, requiring dedicated systems, staffing and coordination across reporting entities. To relieve this burden, ISDA has long advocated for a move to single-sided reporting in the EU, with the responsibility falling on one counterparty. This would be the optimum solution and would result in more accurate and efficient reporting.

In the final report, ESMA stops short of single-sided reporting and instead proposes to expand the use of mandatory delegated reporting under EMIR and SFTR, in which one party would be solely responsible and legally liable for reporting the trade, but the other would still need to provide that party with certain static data it might not possess. If this solution is used, it must be appropriately implemented, with a sufficiently broad scope so the non-reporting entity isn’t confined to a small subsection of the market. We must also make sure non-reporting entities aren’t required to submit data on a trade-by-trade basis and that trade-repository-level reconciliation requirements are removed. Ultimately, the solution must actually reduce costs, rather than simply shifting them elsewhere.

In the longer term, bringing together the reporting requirements from MIFIR, EMIR and SFTR into a single framework will be a major transition. ISDA’s Digital Regulatory Reporting (DRR) initiative, which has so far converted industry-agreed interpretations of nine sets of reporting rules into machine-executable code, will continue to evolve to support the development of reporting rules in the EU and beyond. As a rising number of firms test and adopt the ISDA DRR, they are realizing the benefits of an industry-standard solution to implement reporting rules accurately and consistently.

Effective trade reporting that delivers meaningful transparency has been the most elusive of the post-financial crisis reforms, thwarted by duplication, inaccuracies and omissions in reported data. ESMA’s vision of a single reporting framework is a huge opportunity to finally develop an efficient EU framework that is less burdensome for market participants and delivers meaningful transparency for supervisors. The final report is the first step – let’s seize the opportunity and make it work.