Set your clock, it’s official, the long awaited efforts to harmonize and standardize OTC derivatives data elements in the US has gotten one step closer, but the work is not yet done. The CFTC has set January 29, 2024 as the required date for market participants to report to a Swap Data Repository using a Unique Product Identifier (UPI) for swaps in the credit, equity, foreign exchange, and interest rate asset classes to comply with the CFTC swap recordkeeping and reporting requirements. Notably the commodities asset class has been deferred to a later UPI phase with yet to be determined timing.
The requirement to use UPI for reporting has been part of the original Dodd-Frank regulations and supporting CFTC rules dating back a decade. Without an organization ready to operate UPI and authorized by the CFTC for that purpose, UPI has been in limbo and firms have reported via interim product systems established by the licensed Swap Data Repositories. Now with ANNA Derivatives Service Bureau (operator of ISIN, CFI and FISN identifier systems) tapped for the operator job - the CFTC can make UPI official. The use of UPIs are expected to aid the CFTC in managing system risk as well as increase transparency in OTC derivative markets.
Implementing UPI will be a big lift for a market that will, at least initially, only find limited required use of the identifier to support trade reporting and record-keeping. However, make no mistake, the CFTC views the implementation of UPI essential and has high expectations for execution. This suggests multiple rounds of incremental changes around CFTC reporting to achieve a fully implemented and mature state for UPI and other reporting changes. That growing list includes the deferred implementation of UPI for commodities markets, the anticipated post-initial block and cap size implementations and ISO 20022 XML as the mandated reporting format.
With an implementation date and scope set for UPIs (except for commodities), there will be no shortage of devils in the details to identify and solve for. To list a few, it is expected that the UPI implementation requirements will include upgrading all open swaps to include their UPI. Technical Specification changes will also be needed to adopt new fields and validations. Those changes will likely be in addition to changes needed to clean up issues identified in the current specifications. The UPI test environment from ANNA DSB is not expected to go live until mid-April thus leaving firms more limited time to implement system wide changes to incorporate UPIs and addressing unknowns, such as, what will be expected to be reported when the UPI service doesn’t have a UPI for your product? And will additional fields need to be reported to the SDR to represent what was traded?
KOR has been all over UPI for well over a year, implementing draft UPI in all asset classes as the product taxonomy system for trade reporting to its SDR. We’re honored to be a member of the UPI Committee where we’re able to feed back our real-world insights. Much more to come from us on UPI, though be sure we’re on it!
