UPI testing for OTC trades now available

The Derivatives Service Bureau (DSB) has announced that its User Acceptance Test (UAT) environment is now live. This is ahead of the EU’s April 2024 deadline for firms to include Unique Product Identifiers (UPIs) in their reporting of over-the-counter trades.

Simultaneously, the DSB’s self-service Client Onboarding Support Platform (COSP) – which allows firms to onboard the UPI service and manage their subscription to it online – was made available. 

The DSB, the global numbering agency responsible for allocating UPI codes to over-the-counter (OTC) derivatives and managing the UPI reference library, was appointed the sole provider of the service by the Financial Stability Board (FSB).

UPIs identify the specific product involved in an OTC trade using a standardised format. The aim of introducing them is to enable authorities to quickly and easily aggregate OTC trade data, allowing for a more efficient assessment of systemic risk. 

As indicated by the FSB’s involvement, UPI is a G20 initiative and the EU is just the first jurisdiction to require UPI reporting. The UK, US and Australia have each published their own mandates, with compliance deadlines to follow. 

That makes it all the more important that firms are prepared – something the launch of the UAT and COSP is designed to help with by offering a way to ensure that connectivity to the UPI service, data integration and workflows are all ready to go by next year’s deadline. 

The trigger for UPI

The G20’s decision to introduce a common identifier for OTC derivatives was triggered by the 2007–08 financial crisis, says Emma Kalliomaki, managing director of the Association of National Numbering Agencies and the DSB. 

The events of that period made it clear it was “impossible to be able to understand what was happening in the financial markets, especially in the OTC derivatives markets” and that it was considered that “the financial crisis arose out of issues in the OTC derivatives market where there was no transparency,” she says. 

While the G20 agreed on the need to reduce this opacity, the group’s nature means that it does not move quickly, explaining the 10-year delay between the agreement first being made in 2009 and the 2019 decision to hand the DSB the task of rolling out UPIs. 

But even when taking into account the complexity of aligning so many jurisdictions, Ms Kalliomaki says that it has taken longer than expected to reach this point.

The next steps

Firms now have access to the tools they need to understand the intricacies of implementing UPIs and integrating with the service. With these, they can begin testing to ensure their own systems are ready to handle a new data source. 

They should begin doing so as soon as possible, stresses Ms Kalliomaki, as leaving it too late could risk non-compliance, especially given the downstream workflows required in order to abide by the new rules, along with the need to ensure adherence across multiple jurisdictions. 

The DSB, meanwhile, can now begin to test if the UPI service is fit for purpose, having left itself time to iron out any kinks.

The overarching aim of the UPI system is to create global transparency in the OTC derivatives markets so that regulators can more easily spot any abuse and monitor systemic risk levels. 

However, Ms Kalliomaki points out, there are also advantages for firms in having access to a greater volume of standardised data, not least because it will make trades easier as firms will by definition be on the same page, reducing matching errors. 

That said, as with any regulatory implementation, it is unlikely that the UPI rollout will go entirely to plan – particularly given the huge number of stakeholders involved. The UAT and COSP are, however, designed to help all participants stick to the plan as much as possible.

As non-compliance comes with the heavy threat of fines, affected firms would do well to use the support on offer.