This year has been about implementing change for the Derivatives Service Bureau (DSB). The DSB’s purpose is to facilitate the allocation and maintenance of International Securities Identification Numbers (ISINs) for OTC Derivatives. Following extensive ongoing consultations with industry, including two this summer, the DSB is committed to ensuring even broader industry participation and engagement.
The new membership of the DSB Product Committee this year, representing a further broadening of industry collaboration, has been meeting to continue to drive DSB product-related activities. The DSB is excited to be taking forward both sets of consultation results this summer, including support for industry in mapping certain reporting obligations, and providing users with enhanced efficiency when it comes to either the creation or use of instruments for internal monitoring and regulatory reporting purposes.
The second 2019 consultation, which has just taken place, sought responses on a series of questions regarding the DSB’s service and functionality from both direct and indirect users of the DSB, and as a result, the DSB will be taking forward half the proposals. The industry requested that the DSB undertake further analysis, for example, on leveraging the ISIN-LEI service to provide LEI and examine whether the DSB should also provide other supplemental data to further improve efficiencies for users.
Another industry request for more analysis, resulting from the DSB’s 2nd consultation, was for the DSB to look at the CFI code coverage it provides today and determine whether and how a service might be provided for the set of OTC derivatives that are subject to EMIR reporting. In line with the DSB’s critical market infrastructure role, the consultation also highlighted industry appetite for the adoption of international best practice on cyber-security governance. The DSB is, therefore, creating the role of a Chief Information Security Officer (CISO) in the short-term, who will be tasked with strengthening the DSB’s cyber-security processes.
Helping Stakeholders Stay Compliant and Consistent
As regulatory reforms continue unabated, the Product Committee continues to assist users in compliance with regulation, especially with regards to reporting obligations and support for new attributes and calculation methodologies.
ESMA’s guidance on data reporting of interest-rate derivatives has brought to light that the template related to interest rate swap contract (tenor) is required to change. Additionally, the method in which the tenor calculation needs to occur (Field 41) needs to be altered by the DSB to allow users to be able to input an additional variable, more if which can be read in a recent DSB article. The Product Committee is committed to assisting industry’s use of the revised DSB product templates and the associated tenor calculator in order to support reporting consistency.
Further, the Committee stays abreast of regulatory requirement evolution, such as refinements of the MiFID II regime or expanded reporting requirements under EMIR. The Product Committee also works to review the impact of new standards and enhancement of existing standards to ensure that DSB product templates continue to evolve to reflect these changes.
Industry participants at the Product Committee also work to ensure that DSB product templates continue to support the new risk-free rates being introduced as part of the broader IBOR reform efforts. Most recently, the PC approved the introduction of the EUR-EuroSTR-COMPOUND rate as part of the ECB’s introduction of €STR.
New product roll-outs continue to form part of the DSB’s activities with the introduction of six new templates thus far in 2019 (Cross-Asset and Portfolio Swap templates), as well as the upcoming release of new templates for Rates Inflation Basis Year-on-Year and Inflation Fixed Float Zero Coupon Swaps.
A focus on users’ needs
Providing increased efficiency for users is also top of the priority list for the Product Committee, such as the Introduction of changes to templates and calculations fields including:
- Integration of Additional Third Party Indices: Industry will be able to create ISINs for instruments based on a wider set of third party indices, allowing users to more easily identify the specific underlying indices and reference rates that are required for ISINs and CFI codes
- Data Review: A review of the way in which industry is creating ISINs and whether guidance can be provided to assist with greater consistency. For example, the way in which commodity index templates should be selected and the way in which Basis product templates should be used
The Product Committee is not only determined to continue to maintain and uphold data quality through its ongoing data review, and introduction of services such as the open source Tenor Calculator, but to also focus on supporting the industry regarding the use of reference data in the OTC derivatives space as the market evolves. The DSB will continue to work, under the auspices of the wider representative constituency of the Product Committee this year, in supporting the industry in this ongoing period of financial regulatory reform and implementation.