By Chea Srun | XQuant
After being postponed several times, the Korea Trade Repository (TR) has finally become effective from Apr 1st this year. TR’s objective is to improve the transparency and the risk management of the OTC derivatives products.
The Financial Supervisory Commission (FSC) has chosen the Korea Exchange (KRX) to be the sole organization managing the TR. With that respect, KRX signed a MOU with DTCC to work on the implementation of the platform in 2016.
Reporting an OTC transaction to the TR can be a very cumbersome process, as there can be up to several hundred of mandatory fields, each counterparty using a LEI (Legal Entity Identifier), each transaction having an UTI (Unique Transaction Identifier). For example, Swap Payer leg and Receiver leg are converted to Leg 1 and Leg 2 according to very specific rules.
The reporting obligation is adding a burden to Korean financial institutions and companies dealing with OTC products, when at the same time they are encouraged to reduce the working hours of the staff and adopt the RPA (Robotic Process Automation).
Financial institutions with a lot of resources may choose for self reporting, but smaller companies with less resources may prefer to use a third party service company to do the job. In Korea, NICE P&I, Korea Asset Pricing (KAP) and Korea Investors Service (KIS) are the major players providing the reporting service.
Starting with Interest Rate Swaps (IRS), Cross Currency Swaps (CRS), FX forwards (FXF) and Interest Rate Options, the reporting scope will gradually extend to all type of OTC transactions, in particular to the Equity Linked products such as ELS which are very popular among Korean investors.