By Sherry Kurisinkal
For the thousands of delegates heading to Boca Raton for the Futures Industry Association’s annual conference in early March, it won’t only be the event’s 50th anniversary that will be a cause for celebration. FIA’s data show record trading activity for exchange traded derivatives (ETDs), in 2024 in a sixth consecutive year of significant growth for the industry.
While conversations at the conference will mostly revolve about how to sustain this phenomenal growth phase, we are already detecting a slight uneasiness about the industry’s success. In fact, clients and other market participants are telling us that they are starting to see greater scrutiny on regulatory reporting of ETD trades than ever before. The spotlight is falling on the accuracy and completeness of reporting to the clearing agencies and exchanges, which act on behalf of the regulators.
What we take away from this is that greater responsibility accompanies the industry’s success in growing ETD trading volumes. Market participants cannot afford to be satisfied with a “good enough” approach in this domain and they need to raise the bar in terms of transparency. In such a context, can a reporting entity still be satisfied from a quality assurance perspective when they only examine sample reports? Shouldn’t every trade reported be examined systematically?
Reporting entities have an obligation to tighten their control processes, to demonstrate to their internal and external stakeholders, that the data submitted are complete and accurate. This underlines the importance of having audit trails to explain and show to the regulators what and why certain data were reported as well as explanations on what was left out.
Here, we think, the ETD industry can learn a lot from the considerable strides taken by the OTC derivatives industry since 2008 as a result of the regulatory response to the Great Financial Crisis. One key area lies in how the OTC derivatives industry harnessed technology to do the bulk of the heavy lifting. This required a wholesale modernization of systems, which are far more sophisticated and advanced for the OTC industry than what many ETD market participants currently use today.
Indeed, automation has a significant role to play in processing the vast quantities of data needed for every transaction to compile the reports. This has unlocked a standardization in processes, which in turn has brought operational efficiencies and significantly reduced operational risk compared with manual, sample quality assurance checks.
With this in mind, Droit has developed an ETD reporting QA platform that provides a single control point for the quality assurance required by clients, using rule sets that they define themselves. For one corporate user, our QA solution is projected to deliver a 30% reduction in cost savings and enable staff to focus on value accretive activities, such as business intelligence and client support.
Now that is also another cause for celebration! Please get in touch to arrange a meeting to discuss this or other requirements at Boca.