Under Dodd-Frank and EMIR, confirmations for all five derivatives asset classes became much more aggressive on September 1. Previously, some instruments took as long as T+30 to confirm (transaction day plus days to confirm). But the new T+1 and T+2 goals have met with mixed success.
According to TABB Group, the new standards are T+1 for Financial Counterparties (FCs) and Non-Financial Counterparties exceeding the Clearing Threshold (NFC+s), and to T+2 for Non-Financial Counterparties below the Clearing Thresholds (NFC-s). They are slightly different in the US and Europe because the US requirements differentiate between Issuance and Execution, while EMIR does not and only looks at complete Execution of a confirmation agreement, according to TABB.
But TABB notes that these goals are not being met: “Based on data available, the industry average for compliance rate in Europe for electronic and paper combined is in the below range:
FCs and NFC+s (confirmed by T+1): Credit: >95 percent; Rates: 90-95 percent; Equities: 45-50 percent; FX: >95 percent.
NFC-s (confirmed by T+2): Credit: 90-95 percent; Rates: 80-85 percent; Equities: 45-50 percent; FX: 90-95 percent.”
The bulk of the problem lies in the lack of standardized master agreements in several asset classes, in particular, equities and FX. Exotics that require post-trade negotiation also contribute to delays.