Preparing for EMIR Refit?
Click here to find out how to gain more from your EMIR Refit program.

TabbFORUM: Navigating the Gray Areas – How Consensus-Based Utilities Help Tier 1 Banks Shed Light on Hazy Regulations

As Featured in TabbFORUM

By Stuart Billingham, Head of Consortia 


When it comes to regulation, institutions are beginning to see the benefits of implementing systematic rules in a way that provides transparency and clarity of interpretation through industry consensus-driven understanding, writes Stuart Billingham, Head of Consortia at Droit.


It is practically impossible that rules, as written, can account for every experience, especially in the exceptionally complex world of financial services. Since 2008, financial institutions have had to adhere to a growing number of intricate global regulations to make markets safer. Yet in the absence of clear rules for all circumstances, financial institutions are left grappling with compliance obligations in the face of significant fines. These institutions find themselves either reliant on in-house interpretations or black box vendor implementations, often without knowing if these rules have been updated or tested in a realistic market context.


Interpreting Position Reporting rules

To mitigate the legal risk of gray areas and interpretive differences, institutions are beginning to see the benefits of implementing systematic rules in a way that provides transparency and clarity of interpretation through industry consensus-driven understanding.


One example where this is effectively demonstrated is in the realm of Shareholder Disclosure or Position Reporting. Global Position Reporting Rules require market participants to report securities holdings to regulatory bodies. They are the set of public disclosure obligations that every investor in the market must comply with when purchasing large holdings in global equity issuers. Regulators see this type of reporting as an imperative because it ensures that no individual or institution is able to manipulate the market.


Up until now, a lack of clarity and consensus around position reporting regulations have resulted in inconsistencies and challenges in interpreting and complying with the vast number of global short, long, and takeover panel reporting obligations. The seriousness with which regulators view transgressions in these areas can be seen by the significant number of regulatory fines across the industry over the last 10-15 years.


The consensus model

To solve these challenges, Endoxa, a consortium of five leading banks with Droit as the technology provider, collaborated to form the newly established Position Reporting Utility – the first of its kind. Endoxa aims to improve the quality of position disclosures through the use of a consensus model for regulatory interpretation implemented using Droit’s Adept platform. The consensus model involves the evaluation and review of complex shareholder disclosure obligations across key regulatory jurisdictions. Consensus views on interpretative aspects of the disclosure rules, provided by a consortium of Tier 1 banks, are combined with legal interpretation and standardized legal analysis to develop codified decision logic. Using a common structure for rule logic that is both human and machine-readable improves the quality of these disclosures, and mitigates errors of interpretation and implementation.


In addition, the Position Reporting solution has the ability to automate the decision-making process and deliver a traceable audit record of every position evaluated for both sell-side and buy-side institutions. To verify decisions, the solution generates pathways linked to the original source text. This transparency into the logic provides enhanced clarity, increased operational efficiencies, and a repeatable, defendable process. Platform users also have the ability to raise queries regarding nuances in the logic implementation.


Wisdom of the crowd

This innovative approach enables consortium members to collectively build an executable decision model that accurately reflects regulatory intent. The collective understanding of experienced market participants creates the opportunity to elevate industry best practice. Mutual understanding clearly creates space for mutual cost savings through timely and efficient reporting compliance.


Position reporting is the first focus, with ambitions to target other complex regulatory challenges in the industry. The executive committee is reviewing position reporting regulation in key jurisdictions now, and financial institutions on both the sell-side and buy-side will have the opportunity to license the consensus-driven logic. This effort is the first of its kind, but will no doubt move the industry forward towards safer markets through stronger compliance.

About Droit


Droit is a technology firm at the forefront of computational law and regulation within finance and other domains. Founded in 2012, Droit counts many of the largest financial institutions as its clients. Its award-winning, patented platform Adept provides an implementation of regulatory rules reflecting industry consensus. The Adept platform processes tens of millions of inquiries a day, deciding in real-time which interactions are legally permissible across the globe. Adept is used by institutions to evaluate, with sub-millisecond latency, the full regulatory implications of any given interaction within their transactional infrastructure.


For more information visit To obtain more information about Droit’s products, please contact

Media Contact:
Streets Consulting
Sarah Durrani
Tel: +44 20 8187 8324