DTCC recently announced that it would no longer support FpML from May 2022 for its North America trade reporting and is moving to their proprietary Harmonized XML and Harmonized CSV format. This decision forces many firms to have to significantly adjust projects.
For a good part of two decades, FpML has been the “lingua franca” for OTC derivatives post trade, including trade processing and trade capture, and most recently regulatory trade reporting. It is used today by the largest financial institutions for post trade, clearing and reporting around the world, and certainly in the US.
Some firms may be wondering what the big deal is, but the format changing is not a simple undertaking. The entire OTC derivatives ecosystem has been built around FpML and market infrastructure providers rely on it for their trade reporting.
Even more problematic is that most clients relying on third-party providers for trade capture, risk, processing, execution, etc. will still continue to receive data in FpML for the foreseeable future as these upstream workflows require the richer data format and inter-operability that FpML provides.
How can you solve this challenge in such a short time?
Option 1:
Bite the bullet and move all reporting in North America to DTCC XML for the May 2022 deadline. This would be a massive undertaking that would require the remapping and translation of any systems that use FpML today. Would all vendors make the changes in unison to coincide with May 2022 implementation date? Even if this was the case, it would take tremendous resources and would significantly impact their 2021 roadmap.
Option 2:
Move to harmonized CSV. Again, this would require the re-mapping of all data from FpML to CSV. The critical issue here is that CSV is only processed in batches by DTCC. This would create further challenges in meeting the Real Time/As Soon as Technologically Practicable “ASATP” requirements. Utilizing CSV also presents challenges in being able to describe and report complex trades, such as options and multi-leg swaps.
Option 3:
Continue using FpML and leverage a third-party reporting provider to convert the FpML messages to the DTCC XML. By letting someone else do the mapping, firms will save hundreds of thousands of dollars on this project, but more importantly it would also help insulate them from the later migration to ISO 20022. Having that translation layer for reporting ensures that any changes to the Trade Repository (decommissioning of services, removing license, changing data formats, etc.) are not impacting any business and compliance timelines.