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UTI problems? Call Dr. IOSCO

A dictionary definition of “unique” provides “being the only one of its kind”, neatly encapsulating the current problem with Unique Trade Identifiers (UTIs). Counterparties to the same trade are reporting UTIs, but each is unique, rendering the matching process impossible. It has been widely reported that as of mid-July[1], only a nugatory 3% of inter-repository listed products can be matched; the higher 30% rate for OTC products is still so low as to negate the exercise.

The UTI steering committee has published a letter to IOSCO, updating it on (lack of) progress and asking for the FSB’s endorsement of a global UTI system (G-UTI). The steering committee consists of the BBA, the BVI, ISDA, the Investment Management Association, the Global Financial Markets Association and FIA Europe- it was convened with the specific purpose of promoting a G-UTI. The letter highlights the parlous state of play in Europe, “The current low matching rates for dual sided trade reporting in Europe can, for the most part, be explained by the lack of clear and consistent guidance regarding a standardized UTI construct, a defined method of generation and the subsequent communication of the UTI.” It points out the split between a US-based system (USI) and the current lack of system in Europe, asking for support for a standardised universal UTI construct, “We firmly believe that the lack of agreement between regulators will defeat this objective. Accordingly, we would like to discuss with you how IOSCO can help in bringing regulators and industry together to work on a global solution.”

The current “guidance” is contained in ESMA’s less-than-timely 11 February 2014 EMIR Q&A update. TR 18 provides a total of four different methods for UTI construction, noting that one of them is “sub-optimal” rather than recognising that the provision of alternatives is itself the problem. The situation is clearer with the UTI’s transatlantic cousin- the USI. The CFTC has provided clear and concise guidance, however its narrow prescription makes UTI-USI equivalence tediously difficult. The problem is compounded by essential differences in clearing models. While the US Principal Clearing model allows trade reporting by means of one USI\UTI, EMIR’s Agency structure also requires reporting the “mirror” trade between CCP and Clearing member. The US unique identifier points to a single trade, while in Europe a “single” trade has multiple “unique” identifiers. Given such inherent problems and the current “been better” amity between the EU and the US, it is no surprise that the Trade Associations have appealed to IOSCO for help.

Even if the aggregating LEI and UPI identifiers were working seamlessly, without the granular level provided by a global UTI, the G20 transparency mandate will be far from complete. Socrates famously said “The only true wisdom is in knowing you know nothing”, one suspects this was not the wisdom they had in mind.

[1] Timings are approximate since DTCC admits it is suffering at least a one-month trade-matching backlog

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