Regulatory | Trick Bites Back!

One of our gripes with trading systems is that sometimes they just can’t properly book certain trade types.  Yes, there really are trading systems out there that can’t book Futures.  Yes, there really are systems out there that can’t book spread trades, options and an assortment of exchange products upon which traders have already pulled the trigger.
What do we do if our trading system can’t trade futures?  No problem, we just “trick” the system and book it as a swap. You know, the old “work around.”  Sometimes this turns out OK.  With a little push here and a rub there the P&L

Enjoying work arounds?

all turns out fine.  Fine that is, until someone needs to run a report specific to futures.

Like a Dodd Frank report?  Why yes!

To begin with, if you are in the know, then you know that not only is system tricking done…it’s done a lot.   Every trading company has some work around here or there.   So, remember those futures we couldn’t book as futures so we booked them as swaps?  Looks like Dodd Frank requires us to report our futures as …well …futures.  So now we are going to have to go through every one and figure out which swaps are actually futures and compile them into a report.

This got us thinking that clients will need all trades reported to the CFTC exactly as executed on the exchange.  But as we dug deeper we realized that there is not chance it would be so simple.

Turns out it looks like CFTC can’t book spread trades (as spread trades) either. So that trick we did on spread trades, booking them as swap legs.  Yep, the CFTC wants them that way too.  They don’t want the aggregated spread, just the underlying legs.  Those stellar ETRM systems that have gone the distance and actually book spreads as spreads?  You’re out of luck.  We have to decouple these into their respective swap legs.

Our only suggestion is that if you are holding out on how to do regulatory reporting, it’s a good time to get the ball rolling because there are going to be a lot of twists and turns in this plot.