Making Sense of Unique Transaction Identifiers (UTIs)

The concept of a Unique Transaction Identifier (UTI) is a simple one.  The ability to uniquely identify each individual transaction, using a format of code which removes the wide disparities between trading firms own internal trade references.

US Dodd-Frank Reporting

In the commodities space, we were first introduced to this concept under the US Dodd-Frank regulations – and it worked pretty well.  In this instance, the ID was termed as a Unique Swap Identifier (USI) which had some rules for field construction.  The first 10 characters are meant to represent the NameSpace of the firm – e.g. a Legal Entity Identifier (LEI) with the remainder of the ID made up of a unique transaction reference.

Crucially the US implementation worked as Dodd Frank was single-sided reporting.  This meant that one of the two trading principals would assume responsibility for reporting and would generate the USI.  There were very clear lines of responsibility – and the USI would be reported correctly and then provided to the counterparty, often as part of the confirmation stage.

European EMIR Reporting

In 2014, when EMIR trade reporting launched for EEA domicled counterparties, the concept of a Unique Transaction Identifier UTI) was again adopted by ESMA, however this caused massive operational problems for the market, as EMIR is dual-sided reporting on a trade date +1 (T+1) reporting timeframe.  This effectively meant that counterparties needed to bilaterally agree the UTI for each of their deals within 24 hours – in order for both sides to report their transactions correctly and on time.

Up until this point, there had never been an industry wide convention, or indeed a need, to share trade identifiers outside of the regular confirmations process.

A number of possible methods for assigning responsibility for UTI generation exist, but the issue still remains how to gather the UTI from the counterparty and update internal systems in time to meet the reporting deadlines.

Many issues were caused by firms using dummy UTIs or proxies, and then having to rereport later once the correct codes were agreed.

A lack of uniformity in the European markets, coupled with no steer from the regulators has meant that this issue has continued to fester.

Similarly, the validation on UTI from ESMA was much looser than the US rules, with firms only needing to ensure that the ID was no longer than 52 characters – however that string was made up.

European REMIT Reporting

Then in 2015, REMIT was introduced in Europe, again using the UTI as an identifier, but adding a new optional method of generating a code – based on a concatenation of commercial term fields, hashed in an algorithm to result in a unique string.

Being a dual-sided reporting regime, REMIT participants also faced the same problems with sharing UTIs as experienced one year earlier with EMIR.

European IDs for US Reports?

To complicate matters further, trades which are reportable in both the US under Dodd Frank and in Europe under EMIR have a clash in USI/UTI validity.  Remember that the US regime requires the first part of the USI to be a namespace (LEI), whereas ESMA just require the value to be within 52 characters – however they are made up.

This means that in order for this to work for both jurisdictions, the US reporting party under Dodd-Frank must generate the USI and provide the same code to be used by their counterparty under EMIR – even if they have no obligation to report under EMIR themselves.

It’s unnecessarily complicated.

Future Developments

Fortunately there is work afoot with the International Organization of Securities Commissions (IOSCO), who are working with the industry to draw up a set of harmonised rules for the Unique Transaction Identifier.  While these may not fully alleviate the issue of UTI sharing in dual-sided reporting regimes – watch this space.  A solution here would prove extremely valuable to the industry – and would remove an onerrous and error prone step in an already complex process.

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