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New electronic tool will simplify FX transaction reporting under Dodd-Frank

A new electronic tool launched this week by a company that specializes in technology solutions for global capital markets will allow banks and other companies transacting FX on a daily basis to easily comply with key trade reporting provisions under incoming US financial regulations.

Broadridge Financial Solutions announced Tuesday that it has developed a tool called PROactive Matching that can sift through FX non-deliverable forward, FX swaps and FX options transactions and pull out the so-called Universal Swap Identifier (USI). The software is important because financial organizations such as banks, hedge funds, brokerages and other FX dealers like corporations need to file a unique USI number for every currencies futures trade they transact into FX trade repositories mandated under the US Dodd-Frank Wall Street Reform and Consumer Protection Act.

The US Commodity Futures Trading Commission hopes to use these trade repositories to monitor flows of OTC derivatives across a variety of markets.

But there are also specific repositories that will be used to track FX swaps and other types of currency forwards under Dodd-Frank.

FX counterparties are required to begin filing USI numbers to the Dodd-Frank trade repository in October.

And while the majority of the regulatory onus for reporting the USI numbers to Dodd-Frank’s electronic filing cabinet will rest with the so-called reporting party in any currency trade, non-reporting parties are also required to file USI numbers into the trade repository, says Broadridge Financial Solutions product manager Robert Harris.

“The USI numbers are all totally unique globally and are complex, and they uniquely identify every single [FX] trade on a global basis,” says Harris. “For our solution, everything is done through SWIFT messages for FX, and because these transactions happen quickly there is a plan for SWIFT to begin introducing a special tag next year to store this USI reference number.”

Harris said that, until SWIFT is able to begin storing USI numbers in its reporting of transactions to the Dodd-Frank trade repositories, Broadridge’s PROactive matching software is one of only a few electronic solutions available to organizations transacting FX and trying to pull USI numbers out from every trade.

“Our solution provides the USI numbers in near real-time so the counterparties can meet the deadlines for reporting the trades,” says Harris.

Because of the high frequency of FX trading, USI numbers are generated for reporting purposes under Dodd-Frank on an almost “minute-by-minute” basis, says Harris.

“Where the reporting parties [for the FX trades into the repository] have an issue is with access to the USI number for the non-reporting party’s side of the trade. The only way [the reporting party] can get the information is inside this rather generic reference field,” says Harris. “Our tool extracts it for them in a timely fashion.”

The reporting party maintains responsibility for filing the number with the Dodd-Frank trade repository once it is extracted from the FX trade’s electronic information, says Harris.

Harris added that SWIFT is set to release its annual maintenance updates in November, and many of Broadridge’s clients have requested that the PROactive tool be added to their suite of regulatory reporting compliance software at the same time as when the SWIFT changes are implemented.

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