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Oversight

of payment and securities settlement systems

Photo shows a telescope © Richard Newstead / Getty Images [+] The following pages contain further information about the Bundesbank's tasks relating to the oversight of payment and securities settlement systems.

Trade repositories

Introduction

Trade repositories (TRs) are a relatively new category of financial market infrastructure. They were explicitly added to the oversight tasks of central banks by the CPSS/IOSCO Principles for Financial Market Infrastructures (PFMIs) finalised in April 2012.

A TR is a database that ensures the centralised electronic capture of transaction data for derivatives transactions. A major reason for establishing TRs goes back to the lessons learned from OTC derivatives contracts during the last global financial crisis. The prevailing practice at the time of merely documenting the data of such transactions on a decentralised basis with the relevant counterparties made it much more difficult for market participants and supervisory authorities to identify risks in the respective markets. By collating and storing relevant information and, where necessary, making this available, TRs can close this transparency gap. A decision was therefore taken at the G20 summit in Pittsburgh in September 2009 that all OTC derivatives transactions need to be registered with a TR. This G20 provision has been implemented in the EU via EMIR (European Market Infrastructure Regulation).

The idea behind the introduction of TRs as a central database service is to ensure that the quality and availability of transaction and position data is as consistent as possible. The establishment of TRs therefore went hand in hand with various measures to standardise the relevant transaction information.

TRs are often operated by enterprises that already offer services in the field of securities settlement. TR operators include the Depository Trust and Clearing Corporation (DTCC) in the USA and Clearstream and Iberclear in Europe. In Europe these infrastructures are still in their infancy. TR operators are free to specialise in individual financial market products. From an oversight perspective, the main thing that TRs must do to be able to carry out their tasks properly is to adequately manage potential operational risks and maintain reliable back-up plans and contingency arrangements for potential disruptions. The aim here is to ensure, as far as possible, the continuous availability of the data they store. In addition, TR operators need to make sure that they do not lose the data entrusted to them (which include sensitive data) and that they protect these data from unauthorised access.

Implementation

There are currently no TRs in Germany, but the Bundesbank does take part in the oversight of foreign TRs as part of cooperative arrangements. These cooperative oversight regimes, which can include authorities from North America, Europe and Asia, are geared towards the requirements set out in Responsibility E of the PFMIs concerning cooperation between authorities.

An oversight committee for the world's first (and for a time the only) TR (Trade Information Warehouse, operated by Warehouse Trust Company LLC of DTCC, domiciled in the USA) was established in May 2011 under the auspices of the Federal Reserve Bank of New York. The Bundesbank and other European central banks and securities supervisors took part in the oversight. The globally operating Trade Information Warehouse, which registers transaction data for credit derivatives and for certain interest and equity derivatives was broken up into several stand-alone regional TRs in the USA, Asia and Europe (DTCC Derivatives Repository Ltd, UK; DDRL).

After the break-up of the Trade Information Warehouse, its oversight committee was disbanded and a new one was established for DDRL. After DDRL has been authorised pursuant to the EU's EMIR framework and once sole responsibility for the supervision and oversight of European TRs is transferred to the European Securities Market Authority (ESMA), its tasks will be carried out by other yet-to-be-established bodies.