Although reporting under EMIR will bring a whole host of new regulatory and operational challenges to those counterparties active in the derivatives space, a recent ESMA publication contains some positive news for firms. It has already been well documented that from 12 February 2014, EMIR requires all EU counterparties1 to submit a derivative contract to report their trade to a Trade Repository. Unlike Dodd-Frank, the scope of EMIR reporting is much wider and covers both Exchange Traded Derivatives (“ETD”) and Over the Counter (“OTC”) derivatives.
ESMA has recently updated its Q&A to include a specific section on ETD scenarios which aim to clarify which parties need to report their ETD contracts and what information needs to be included.
The Directive has been written very much around OTC derivatives and the industry has expressed major concerns on the lack of guidance around fundamental ETD concepts, particularly around who reports, post trade novation between executing brokers, clearing members and central counterparties (“CCPs”) and trade vs. position level reporting.
Despite ESMA’s proposal to postpone ETD trade reporting until January 2015, the Commission rejected ESMA’s proposal and 12 February 2014 will be the big bang reporting go live date for all derivatives.
The latest Q&A may be interpreted as ESMA’s efforts to provide some clarity following the Commission’s rejection to postpone ETD trade reporting.
Impact for firms (key outcomes)
The key outcomes which have now been clarified include:
In instances where the trade is given up by the executing broker to the clearing member on trade date and the economic terms remain the same, there is no obligation for the executing broker to report unless the executing broker fulfils additional multiple roles such as the clearing member. The trade should be reported by the clearing member in its post give up n1state. This guidance is given in the form of two scenarios with various outcomes depending on your role; we highly recommend that you review this to understand the scenario in its entirety.
Each pair of reports (or single report if only one side is subject to EMIR trade reporting obligations) should have a Unique Trade Identifier (“UTI”). The UTI should be at trade level between counterparties and does not need to extend throughout the full chain of counterparties. The UTI is expected to come from the trading or clearing confirmations, and counterparties are expected to transmit the UTI to their opposing counterparty in order for the UTI to match. The industry is currently working towards creating a common protocol for the issuance and receipt of UTIs.
This is the sixth update since March 2013 and it is anticipated that further updates will be issued.
Please click here to view the updated EMIR implementation.
1.EU Counterparties include Authorized AIFMs (that is those in the EU, above the AIFMD size threshold or those who are below the AIFMD size threshold but choose to opt in); includes Registered AIFMs (the term used in Article 3(3)(a) of AIFMD, for those EU AIFMs below the AIFMD size threshold); but does not include non-EU AIFMs marketing their AIFs in the EU under Article 42 of AIFMD (as the concept of registration in this case is a national practical one, and the word is not used in AIFMD).