Knowledge Highlights 19 July 2021
On 5 July 2021, the Monetary Authority of Singapore (“MAS”) issued a consultation paper on proposed amendments to the Securities and Futures (Reporting of Derivatives Contracts) Regulations 2013 (“SF(RDC)R”). The consultation closes on 3 September 2021.
The reporting regime for over-the-counter (“OTC”) derivatives contracts is set out in the Securities and Futures Act (“SFA”) and the SF(RDC)R.
To facilitate the aggregation of OTC derivatives data through standardisation and harmonisation of data elements, the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions (“CPMI-IOSCO”) published technical guidance on the harmonisation of:
- the unique transaction identifier (“UTI Technical Guidance”) in 2014;
- the unique product identifier (“UPI Technical Guidance”) in 2017; and
- critical OTC derivatives data elements (other than the unique transaction identifier and unique product identifier) (“CDE Technical Guidance”) in 2018.
The technical guidance sets out approaches, definitions and characteristics of key reportable data elements namely, the unique transaction identifier (“UTI”), unique product identifier (“UPI”) and other critical data elements (“CDE”), for authorities to consider in implementing their OTC derivatives reporting regimes.
MAS supports these initiatives and intends to adopt and implement the technical guidance published by CPMI-IOSCO. In this regard, MAS seeks to update MAS’ reporting requirements and has set out in the consultation paper its proposed approach towards UTI generation and the proposed reportable data fields under the SF(RDC)R, including UTI, UPI and CDE. With harmonised data elements, OTC derivatives data will be of higher quality and enable MAS to better monitor risks in the OTC derivatives market and conduct investigation concerning market abuse.
1. Uniqueness of UTI and the impact of life cycle events
Amendments to the SF(RDC)R are proposed to require reporting entities to report a UTI which is uniquely assigned to each OTC derivatives contract. The same UTI should be reported where a contract is reported more than once due to requirements in the SF(RDC)R or reporting requirements of another jurisdiction. The UTI allocated to an OTC derivatives contract should remain as the identifier throughout the life of the contract, and reporting entities should continue to reference the same UTI when reporting any amendment, modification, variation or change to any information in relation to a previously reported OTC derivatives contract. However, where a life cycle event terminates an OTC derivatives contract and/or replaces it with one or more new reportable OTC derivatives contracts, a new UTI should be generated and reported for each new reportable OTC derivatives contract.
2. Responsibility for generating UTI
The UTI Technical Guidance sets out a waterfall of factors (“CPMI-IOSCO Waterfall”) (see Annex B) for authorities to consider in allocating responsibility for UTI generation, although not all factors would be relevant for all jurisdictions. Only one entity should be responsible for generating the UTI (“UTI-generator”) for a reportable OTC derivatives contract so as to avoid the risk of multiple UTIs being generated for the same reportable OTC derivatives contract.
To facilitate a globally harmonised approach, MAS intends to follow the CPMI-IOSCO Waterfall as closely as possible, and will work with other regulators and the industry to find an appropriate solution in the event of potential conflicts with the rules or requirements of other jurisdictions. MAS has identified some potential areas that may need further consideration and seeks feedback on the possible approaches to determine the UTI-generator. MAS also intends to publish guidelines to provide guidance on the steps to determine the UTI-generator for the purpose of the SF(RDC)R.
A Cross-jurisdictional OTC derivatives contracts
Under the CPMI-IOSCO Waterfall, it is relevant to consider the cross-jurisdictional nature of an OTC derivatives contract (i.e. where the counterparties to the contract are subject to more than one jurisdiction’s reporting rules) only where it is non-centrally cleared and non-centrally executed. If the contract is cross-jurisdictional, the UTI generation rules of the jurisdiction with the sooner reporting deadline should be followed.
To achieve a smooth implementation of the CPMI-IOSCO Waterfall, all jurisdictions should recognise centrally-cleared and centrally-executed OTC derivatives contracts in a consistent manner for the purpose of UTI-generation, as an inconsistent application may create unintended conflicts between rules of different jurisdictions.
MAS proposes a few options to avoid unintended conflicts with the rules of other jurisdictions. One option is to prioritise the determination of cross-jurisdictional contracts higher in the waterfall. This means that a counterparty to the contract will first determine if the contract is cross-jurisdictional before assessing whether the contract is centrally-cleared or centrally-executed. Where a contract is cross-jurisdictional, the UTI-generator will be determined based on the rules of the jurisdiction with the sooner reporting deadline. Annex C contains the flowchart illustrating steps strictly following CPMI-IOSCO Waterfall approach, while Annex D contains the flowchart illustrating this alternative option of prioritising the determination of a cross-jurisdictional contract.
In the consultation paper, MAS also proposes the manner in which the UTI-generator should be determined where no jurisdiction has a sooner reporting deadline:
- For contracts that are centrally-cleared, the central clearing counterparty (“CCP”) will be the UTI-generator. Otherwise, the clearing member will be the UTI-generator;
- For contracts that are centrally-executed but not centrally-cleared, the trading venue will be the UTI-generator;
- For contracts which are neither centrally-cleared nor centrally-executed:
- the UTI-generator will be the entity as agreed by the counterparties to the contract. For the purposes of agreeing on the UTI-generator, a possible approach is for counterparties to follow the UTI-generation rules of the jurisdiction which appears first in an “agreed” list of jurisdictions which is sorted alphabetically, e.g. Hong Kong before Singapore. Such an approach could be implemented by the industry (e.g. via industry associations such as the International Swaps Derivatives Association) or via regulators (whose efforts should be coordinated by an international body for global harmonisation).
- otherwise, if the contract was electronically confirmed, the confirmation platform will be the UTI-generator;
- otherwise, if the contract will be reported to a single trade repository, the trade repository will be the UTI-generator;
- otherwise, as a last resort, one of the counterparties of the contract will be the UTI-generator: based on sorting of the identifiers of the counterparties with the characters of the identifier reversed and picking the counterparty that comes first in this sorted sequence.
B OTC derivatives contracts that are centrally-cleared, or centrally-executed but not centrally-cleared
For OTC derivatives contracts that are centrally-cleared, MAS proposes that the CCP or the clearing member that is a party to the contract generates the UTI, and this applies to both the principal and agency clearing model, as the case may be. For contracts that are centrally-executed but not centrally-cleared, MAS proposes that the trading venue generates the UTI. Should a CCP, clearing member or trading venue be unable or unwilling to generate the UTI, MAS further proposes that reporting entities could identify a UTI-generator by going to the next step as if there is no CCP, clearing member or trading venue involved. The mechanism of the proposed steps is illustrated in Annex C (in the case where the CPMI-IOSCO Waterfall is adopted) and Annex D (in the case where the alternative option of prioritising the determination of a cross-jurisdictional contract is adopted).
C OTC derivatives contracts that are not cross-jurisdictional, and neither centrally-cleared nor centrally-executed
An OTC derivatives contract is considered a domestic contract if counterparties to the contract are only subject to the reporting obligations of one jurisdiction. For domestic contracts which are neither centrally-cleared nor centrally-executed, and where only one counterparty to the contract is subject to reporting obligations under the SFA (i.e. the reporting entity), MAS proposes that the reporting entity generates the UTI.
For domestic contracts where both counterparties are subject to reporting obligations under the SFA, MAS proposes that the UTI-generator be determined in the following manner:
- for contracts which are electronically confirmed, the confirmation platform will be the UTI-generator;
- otherwise, the UTI-generator will be the entity as agreed by the counterparties to the contract;
- otherwise, if the contract will be reported to a single trade repository, the trade repository will be the UTI-generator;
- otherwise, as a last resort, one of the counterparties to the contract will be the UTI-generator: based on sorting of the identifiers of the counterparties with the characters of the identifier reversed and picking the counterparty that comes first in this sorted sequence.
D Implications on agency reporting requirements under the SFA
Under the SFA, a reporting entity, who executes or causes an OTC derivatives contract to be executed as an agent of a party to the contract, is required to report the contract if it is booked in or traded in Singapore. As an agent to the transaction is typically not a counterparty to the contract, MAS does not expect a reporting entity which is acting as an agent to be a UTI-generator. Instead, such a reporting entity would obtain the UTI from the UTI-generator or counterparties to the OTC derivatives contract. However, where (i) no counterparty to an OTC derivatives contract has a reporting obligation in Singapore or elsewhere, and (ii) a reporting entity executes or causes the contract to be executed as an agent of a party to the contract that is booked in or traded in Singapore, MAS proposes that the UTI-generator be determined according to sub-sections B and C above by replacing “counterparties” with “agents of parties to the contract”.
3. Responsibility to provide or obtain a UTI in a timely manner
To facilitate the timely identification of a UTI-generator for compliance with the reporting deadline in the SF(RDC)R and in other jurisdictions, UTI-generators (whether or not a reporting entity) are encouraged to inform their counterparties or clients that it can generate a UTI. A reporting entity that is the UTI-generator should make reasonable efforts to provide the UTI in a timely manner to any entity who requests for the UTI to comply with the SF(RDC)R or the reporting requirements of another jurisdiction. A reporting entity that is not the UTI-generating entity should make reasonable efforts to obtain the UTI, whether from the UTI-generating entity or a counterparty to the OTC derivatives contract, in a timely manner. MAS expects reporting entities to establish internal policies and arrangements commensurate with their scale of business to obtain UTIs in a timely manner.
Further, MAS proposes to allow a reporting entity that is unable to obtain the UTI within the reporting deadline despite making reasonable efforts, to internally generate an interim-UTI and report that interim-UTI, while it continues to make reasonable efforts to obtain the UTI from the UTI-generator or a counterparty to the contract. Where the reporting entity subsequently obtains the UTI from the UTI-generator, it should report the UTI no later than two business days after obtaining it.
4. Proposed changes to reportable data fields in the First Schedule to the SF(RDC)R
The First Schedule to the SF(RDC)R (“First Schedule”) sets out the data fields required to be reported for each OTC derivatives contract. Amendments to the First Schedule are proposed to include additional data fields which will align the definitions of common data fields to the CDE Technical Guidance as closely as possible. MAS also proposes to provide guidance on the interpretation of the data fields by issuing guidelines to supplement the First Schedule (“Guidelines”). Further, MAS proposes to adopt international standards available for the structure and format of a data field value (e.g. for UTI). Where international standards are not yet fully developed, MAS will defer reporting of these fields and update the field values requirements as the standards become available. In the case of data fields not covered by the CDE Technical Guidance, but required to be reported by other authorities, MAS proposes to align the definitions with those used by other authorities as closely as practicable to facilitate global reporting. The draft revised First Schedule and draft Guidelines can be found at Annex E and Annex F to the consultation paper respectively.
MAS proposes changes in relation to the following reportable data fields under the SF(RDC)R:
- UPI: UPI serves to denote a specific OTC derivatives product reported to a trade repository to facilitate global data aggregation of the specific product in the OTC derivatives market. The Financial Stability Board has designated the Derivatives Services Bureau Ltd (“DSB”) to be the service provider of the global UPI system. DSB is in the process of developing the global UPI system, which is expected to be implemented no later than Q3 of 2022. Under the global UPI system, the allowable value for UPI will be a code generated by or through DSB that will comprise information on (i) instrument type (e.g. forward, option, swap), (ii) instrument characteristics (e.g. physical delivery), and (iii) elements of the underlier (e.g. asset class, identifier). When the global UPI becomes available, MAS will update the Guidelines to the First Schedule to require the reporting of global UPI generated by or through DSB. Reporting entities will be given a transition period to prepare for the change. Before the global UPI is implemented, MAS proposes to continue requiring reporting entities to report information on instrument type, instrument characteristics and elements of the underlier. When the transition to the global UPI is completed, MAS will consider removing from the First Schedule certain data fields which capture information contained within the global UPI.
- Directional elements: The CDE Technical Guidance has identified two ways to report elements that relate to the direction (i.e. buyer, seller, payer or receiver) of the trade: direction of the trade from the reporting entity’s perspective, or identifier of the counterparty for each direction. MAS is proposing to adopt the former, i.e. direction of the trade from the reporting entity’s perspective (see fields 5 to 7).
- Collateral & Margin: MAS proposes not to require the reporting of data fields relating to Collateral & Margin (fields 58 to 76) for OTC derivatives contracts where the reporting entity is not a counterparty to the contract, as the reporting entity is unlikely to have such information. This proposal will not apply to fund/real estate investment trust (“REIT”) managers executing OTC derivatives contracts on behalf of a fund/REIT it manages. Such a fund/REIT manager would be required to provide Collateral & Margin information given the inherent role a fund/REIT manager plays in managing a fund/REIT. This proposal will be implemented through the proposed new regulation 10AA of the SF(RDC)R, as set out in Annex G.
- Custom basket: MAS proposes to only require the reporting of all Custom Basket fields (fields 50 to 53) after international guidance is made available on field 52 “Basket constituent unit of measure” and the global UPI system is implemented. MAS will provide a transition period for reporting entities to prepare for the change.
- Foreign exchange swaps: MAS is considering requiring foreign exchange swaps to be reported as a single contract as this would aid data analysis. Currently, a swap is reported as two separate contracts.
5. Implementation timeline and approach
To allow reporting entities time to prepare for implementation in various jurisdictions, MAS intends to finalise the reportable data fields in the First Schedule and the UTI Guidelines by Q2 2022 and implement the revised requirements in Q2 2023. However, those fields that are dependent on international developments may be implemented at a later time.
MAS proposes to require re-reporting of existing contracts (i.e. contracts entered into prior to the effective date of the revised First Schedule) only when the contract has remaining maturity of at least one year as at the effective date of the revised First Schedule. As reporting entities would need time to gather the information required, MAS further proposes that reporting entities be provided six months to report such existing contracts. Once an existing contract is re-reported, any change to the data fields required under the revised First Schedule will need to be reported within two business days.
6. Adoption of ISO 20022 Standard
As set out in the CPMI-IOSCO Governance Arrangements for critical OTC derivatives data elements (other than UTI and UPI), CDE data elements will be included in the ISO 20022 data dictionary and an ISO 20022 message format will be developed for OTC derivatives reporting. MAS recognises the benefits of a single standard for OTC derivatives reporting, and intends to adopt the ISO 20022 XML message format for OTC derivatives reporting to the trade repository. In doing so, MAS will consider the time that the industry will need to make system changes to support the use of the message format.
- Consultation Paper on Proposed Amendments to the Securities & Futures (Reporting of Derivatives Contracts) Regulations, and Annex A
- Annex B - CPMI-IOSCO Waterfall
- Annex C - UTI-generation flowchart strictly following CPMI-IOSCO Waterfall
- Annex D - Alternative UTI-generation Flowchart
- Annex E - Proposed revisions to the First Schedule to the SF(RDC)R
- Annex F - Proposed Guidelines to the First Schedule of SF(RDC)R
- Annex G - Proposed revised regulation 7 and proposed new regulation 10AA of the SF(RDC)R
Allen & Gledhill Regulatory & Compliance
To assist our clients with compliance matters, our consultancy arm, Allen & Gledhill Regulatory & Compliance, provides a range of services and solutions. Should you have any queries relating to compliance issues arising out of these developments, please contact: