Reporting obligation under EMIR

 


 

 

The reporting requirement represents the most sweeping EMIR (Regulation 648/2012) innovation as all counterparties to all derivatives contracts (OTC and exchange-traded) need to comply and there are virtually no exceptions, all exchange and OTC derivative trades, intragroup trades, trades with non-financial counterparties must be reported alike.

 

In this context there is no surprise, derivatives reporting under EMIR is a massive process with an average weekly submissions over 300 million (assessments of the European Securities and Markets Authority (ESMA) in the Communication of 29 May 2015).

 

The EU trade repositories collected in total nearly 44 billion derivatives reports in 2016 (Steven Maijoor, Chair of the European Securities and Markets Authority, PRIME Finance 6th Annual Conference, Keynote speech The Hague, 23 January 2017, ESMA71-844457584-329).

 

However, it should be borne in mind that OTC derivatives reporting is a global initiative and different jurisdictions in different ways define the scope of OTC derivatives transactions that are reportable and the respective modalities.

 

Overall, approximately 26 trade repositories in 16 jurisdictions are either operational or have announced that they will be (Technical Guidance, Harmonisation of the Unique Transaction Identifier, Committee on Payments and Market Infrastructures, Board of the International Organization of Securities Commissions, February 2017, p. 2, 3).

 

Thus a transaction that is reportable in one jurisdiction may not be reportable in another jurisdiction or may have to be reported in a different way, for example:

 

−  the definition of “OTC” varies between jurisdictions, 



−  some jurisdictions require that both counterparties to a transaction report the transaction (“double-sided reporting”) while other jurisdictions require only one of the counterparties to report the transaction (“single-sided reporting”), 



−  some jurisdictions permit the reporting of position data using the same format and to the same trade repositories as for the reporting of OTC derivatives transactions.


 

To facilitate compliance the relevant EU requirements and context have been described in greater detail in the table below.

 

 

 

 

 


EMIR reporting as a regulatory innovation

 

Before EMIR there was only limited practical experience in the EU with the derivatives' reporting.

 

The MiFID Directive provided the EU Member States with the possibility to implement a reporting obligation also for derivatives, where the underlying is traded or admitted to trading but this was only implemented in some Member States.

 

Because of the restriction on the underlying, this obligation mostly covered standardised equity derivatives and generally did not include many other derivatives (see Final Report Review of the Regulatory and Implementing Technical Standards on reporting under Article 9 of EMIR of 13 November 2015 (ESMA/2015/1645), p. 3).

 

EMIR marks an entirely new experience with the derivatives' reporting, for two simple facts at least:

 

- trade reports under EMIR encompass not only equity derivatives, but all asset classes including derivatives on foreign exchanges, interest rates, commodities, indices and any other financial instruments, both OTC and on-exchange traded;


- EMIR trade reporting includes not only data on the transaction itself, but also information on clearing, on-going valuation and collateralisation.

 

 

The subject of EMIR reporting

 

 

 

 


16 August 2012

 

Reporting under EMIR covers concluded derivatives contracts which:

(a) were entered into before 16 August 2012 and remain outstanding on that date;

(b) are entered into on or after 16 August 2012.

 

as well as any modifications or terminations thereof.

 

The reporting start date is 12 February 2014, however, parties should be cognizant of the obligation to 'backload' data onto a trade repository from the above dates (see below for details).

 

In the context of backloading it is noteworthy, in the EMIR Review Report no. 4 of 13 August 2015 - ESMA input as part of the Commission consultation on the EMIR Review (2015/1254) ESMA recommended waiving the obligation to report contracts which were terminated before the reporting start date (i.e. 12 February 2014).

 

Proposed amendment to Article 9(1)(second paragraph) of EMIR was as follows:

The reporting obligation shall apply to derivative contracts which:

(a) were entered into before 12 February 2014 and remain outstanding on that date, or

(b) were entered into on or after 12 February 2014.

 

This initiative is followed by the European Commission's Proposal of May 2017 for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories, COM(2017)208).

 

Among legislative modifications envisioned in the said document is the removal of backloading requirement, hence the reporting on historic transactions would no longer be required.

 

Recital 11 of the said draft Regulation foresees that:

"Reporting historic transactions has proven to be difficult due to the lack of certain reporting details which were not required to be reported before the entry into force of Regulation (EU) No 648/2012 but which are required now. This has resulted in a high reporting failure rate and poor quality of reported data, while the burden of reporting those transactions is significant. There is therefore a high likelihood that those historic data will remain unused. Moreover, by the time the deadline for reporting historic transactions becomes effective, a number of those transactions will have already expired and, with them, the corresponding exposures and risks. To remedy that situation, the requirement to report historic transactions should be removed."

 

The legislative proposal impact assessment observes that the requirement to report historic trades was intended to give regulators a complete overview of the derivative markets since the entry into force of EMIR by providing them with relevant historic reference data and thus enable regulators to obtain a picture of potential ongoing risks and exposures, this has however not happened because this requirement is virtually impossible to fulfil.

 

Very high failure rates were caused by the lack of certain reporting elements which were not required at the respective time or by the lack of a requirement to use the Legal Entity Identifier (LEI) prior to the start of the reporting obligation

 

The start date for reporting collateral and valuations (applicable to financial counterparties (FCs) and non-financial counterparties above the clearing threshold (NFCs+)) is 11 August 2014.

 

Reporting obligation under EMIR is not restricted to derivatives concluded OTC only but applies to all derivatives (exchange-traded and intra-group including).

 

As was said above, the prominent feature of EMIR trade reporting is it includes not only data on the transaction itself, but also information on clearing, on-going valuation and collateralisation.

 

'Derivative contract' or 'derivative' under EMIR means a financial instrument as set out in points (4) to (10) of Section C of Annex I to Directive 2004/39/EC (MiFID), as implemented by Article 38 and 39 of Regulation (EC) No 1287/2006.

 

Hence, any change to the scope of the definitions of derivatives in MiFID has a direct effect on the scope of EMIR, in particular the derivatives' reporting obligation.

 

This involves serious regulatory risk, as any misinterpretation whether a particular contract represents a derivative (and, consequently, financial instrument) may follow with non-compliance versus EMIR reporting requirements.

 

What is particularly noteworthy from practical point of view, physically settled forwards traded on an MTF are considered OTC derivatives (included in Section C6 of Annex I to the MiFID Directive - see:

 

Consultation paper Guidelines on the application of C6 and C7 of Annex I of MiFID of 29 September 2014 (ESMA/2014/1189)), and 

 

Guidelines on the application of C6 and C7 of Annex 1 of MiFID of 20 October 2015 (ESMA/2015/1341);

 

hence, subject to EMIR reporting.

 

Further clarifications on the notion of 'derivative'  as well as the 'OTC' under EMIR definitions see here.

 

 

Entities under the reporting obligation

 

 

 

 

 

 

 

 

EMIR-reporting-agents

 

Reporting requirement under EMIR is imposed on both counterparties to the contract - to ensure data quality.

 

Article 9(1) of EMIR requires all counterparties and CCPs to ensure that the details of any derivative contract that they have concluded, as well as any modification or termination of such a contract, are reported to trade repositories.

 

It is noteworthy that the reporting obligation in the EU applies equally to financial counterparties and all non-financial counterparties in the meaning of EMIR - irrespective of whether the non-financials are above or below the clearing threshold.

 

In the EU both sides to the transaction have the obligation to report the contract in a system known as 'double-sided reporting' (as opposed to 'single-sided reporting', where only one party to the transaction reports).

 

This feature of the European Union OTC derivatives' reporting scheme, although resembles several other jurisdictions globally, (e.g. Australia, Brazil, Hong Kong, Japan and Mexico), differentiates from the analogous system applied in the United States (where only one side of a transaction has to report - see Global tagging system proposed for derivatives trades).

 

The transition from a two-sided to one-sided system was deliberated in the EU.

 

The European Commission's Staff considered, however, the following pros and cons of the double-sided and single-sided reporting.

 

The European Commission's Staff refers, firstly, to the fact that, when both counterparties to a trade are required to report data on their transaction, all elements of the reported data should match.

 

Where the data do not match, this is a clear indication that there is a problem either with the reporting or, in the worst case scenario, with the underlying transaction.

 

The trade repository can then request the two sides to verify their data with a view to reconciling the trade.

 

In a single-sided reporting system, this automatic check does not exist, and the trade repository has to trust that the reporting counterparty has submitted correct data.

 

As such, double-sided reporting generally results in higher rather than lower quality of data in trade repositories, which, in turn, means that the data is more useful.

 

Also, double-sided reporting simplifies the enforcement of the reporting obligation.

 

With this system, there is no doubt that both counterparties to the trade need to report the transaction, and there is no excuse for not doing so.

 

In a single-sided reporting system, sometimes quite complex rules are necessary for defining which counterparty is responsible for reporting the trade.

 

There are known instances where trades have gone unreported as both sides to the trade claimed that they believed the obligation to report was on the other counterparty.

 

With double-sided reporting, such situations will not occur by definition.

 

ESMA generally shares the view that double-sided reporting ensures better data quality and recommends in its contribution that this reporting system be maintained, although it suggests that the approach taken in the Securities Financing Transactions Regulation ('SFTR'), to exempt from reporting small and medium-sized non-financial counterparties, could be considered.

 

The European Commission's Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories, COM(2017)208 of May 2017 envisions the modification that transactions between a financial counterparty and a small non-financial counterparty would be reported by the financial counterparty on behalf of both counterparties.

 

Recital 14 of the said European Commission's draft Regulation reads:

 

"To reduce the burden of reporting for small non-financial counterparties, the financial counterparty should be responsible, and legally liable, for reporting on behalf of both itself and the non-financial counterparty that is not subject to the clearing obligation with regard to OTC derivative contracts entered into by that non-financial counterparty as well as for ensuring the accuracy of the details reported."

 

While a counterparty or a CCP may delegate the reporting to another actor, this does not exonerate it from the obligation to report the transaction.

 

It is, moreover, noteworthy, under EMIR counterparties are required to ensure that data reported is agreed between both parties to a trade.

 

This obligation stems from the requirement of Article 9(1) of EMIR, which require counterparties and CCPs to ensure that the details of their derivative contracts are reported without duplication.

 

In case of derivative contracts composed of a combination of derivative contracts which need to be reported in more than one report, counterparties must also agree on the number of reports to be submitted to report such a contract (Recital 1 and 4 and Article 1 of the Commission Delegated Regulation (EU) of 19.10.2016 amending Commission Delegated Regulation (EU) No 148/2013 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories with regard to regulatory technical standards on the minimum details of the data to be reported to trade repositories).

 

The specific category of counterparties under the EMIR reporting obligation are CCPs.

 

Counterparties to the contract or a CCP may also delegate reporting, however it must be ensured that the duplication is avoided.

 

ESMA in its Questions and Answers on EMIR explained that the requirement to report without duplication means that "each counterparty should ensure that there is only one report (excluding any subsequent modifications) produced by them (or on their behalf) for each trade that they carry out.

 

Their counterparty may also be obliged to produce a report and this also does not count as duplication.

 

Where two counterparties submit separate reports of the same trade, they should ensure that the common data are consistent across both reports."

 

FCA in its presentation expressed a view that brokers and dealers do not have a reporting obligation under EMIR when they act purely in an agency capacity, however, there is still some uncertainty over how to report transactions where a broker, dealer or clearing member clears or facilitates a transaction for a client on a principal basis.

 

The ESMA stance in that regard is that in the particular case of an investment firm that is not a counterparty to a derivative contract and it is only acting on the account of and on behalf of a client, by executing the order in the trading venue or by receiving and transmitting the order, such firm will not be deemed to be a counterparty to the contract and will not be expected to submit a report under EMIR.

 

Where an entity is fulfilling more than one of these roles (for example, where the investment firm is also the clearing member) then it does not have to report separately for each role and should submit one report identifying all the applicable roles in the relevant fields.

 

However, ESMA's Final Report, Draft technical standards on data to be made publicly available by TRs under Article 81 of EMIR, 10 July 2017, ESMA70-151-370 observes (p. 14) the current reporting logic under EMIR does not allow to accurately distinguishing in all cases between the trades where the clearing member is clearing for its clients from those where it is clearing trades concluded on its own account.

 

 

Trade repositories (TRs)

 

The derivatives contracts are to be reported to a trade repository registered with ESMA or recognised by ESMA.

 

In principle, where a trade repository is not available to record the details of a derivative contract (which is not the case currently), such details should be reported to ESMA.

 

ESMA approved on 7 November 2013 the registrations of the first four trade repositories under EMIR:

- DTCC Derivatives Repository Ltd. (DDRL), based in the United Kingdom;

- Krajowy Depozyt Papierów Wartosciowych S.A. (KDPW), based in Poland;

- Regis-TR S.A., based in Luxembourg; and

- UnaVista Ltd, based in the United Kingdom.

 

The registrations took effect on 14 November 2013.

This means that the requirement to report derivatives transactions to trade repositories under EMIR came into force on 12 February 2014, i.e. 90 calendar days after the official registration date.

 

Moreover, on 28 November 2013 ESMA approved the registrations of two further trade repositories for the European Union:

- ICE Trade Vault Europe Ltd. (ICE TVEL), based in the United Kingdom; and
- CME Trade Repository Ltd. (CME TR), based in the United Kingdom.

In the relevant communication ESMA confirmed that all the above trade repositories registered in the EU can be used for trade reporting.

 

The registered trade repositories covered all derivative asset classes (with the exception of ICE Trade Vault Europe Ltd., which covered commodities, credit, equities, interest rates) irrespective of whether the contracts are traded on or off exchange.

 

Moreover, on 31 May 2017 (ESMA71-99-470) ESMA registered as the trade repository under the EMIR, with effect from 7 June 2017, the Bloomberg Trade Repository Limited based in the United Kingdom.

 

It is possible to meet the reporting obligation by reporting to any ESMA-recognised trade repository. 

 

The ESMA's actual list of approved trade repositories is available under the link.

 

The possibility for CCPs' applying for registration as a trade repository is legally excluded.

 

Trade repository is allowed to perform ancillary services, Article 78(5) of EMIR, however, requires these services to be operationally separate.


EMIR does not restrict the provision of trade repository activities to legally separate entities.

 

Entities authorised to provide other regulated activities cannot be prevented from applying for registration as a trade repository unless they are prevented from doing this by other sectoral legislation.

 

In these cases, similarly to the cases of ancillary activities, the regulated activities performed by the trade repository should be operationally separated from the trade repository activity.

 

Potential practical problem when it comes to trade repositories services may be whether they are fully authorised to add additional, diverging fields to the reporting standards as laid down in the EMIR secondary legislation. Existing practice indicates trade repositories are making use of such a freedom, however, in such a way creating one of the potential causes for trade reports mismatches.

 

Inevitably, fully mandatory reporting standard, where any modifications or deviations made by trade repositories would not be allowed, if set by ESMA, would contribute to establishing transparent derivatives' reporting infrastructure. It would also ease the reporting burden on the part of market participants, where some reporting mismatches are not caused by market participants' negligence, but are a simple consequence of using different trade repository services. The prescriptive specification of "matching fields" of the trade report would also facilitate full convergence.

 

  

 

Timelines for reporting

 

 

 

 

 

 

 

 

 

 

1-working-day

 

 
Reporting must be effected no later than the working day following the conclusion, modification or termination of the contract (Article 9 of EMIR).

All information should be reported at the end of the day in the state that it is in at that point. Intraday reporting is not mandatory (ESMA clarification in the EMIR Q&As document).

 

As regards the timeframe for reporting exchange-traded derivatives transactions (ETDs) cleared by the CCP, regulatory guidance issued by ESMA confirmed that where clearing takes place on the same day of execution, the report should be submitted once to a trade repository up to 1 working day after the execution, as provided under Article 9 EMIR.

 

ESMA has made a reservation that in rare cases where clearing takes place after the day of execution and after reporting is made, novation should be reported as an amendment to the original report up to 1 day after the clearing took place.

 

Where no contracts are concluded, modified or terminated no reports are expected apart from updates to valuations or collateral as required.

 

It means if a counterparty does not enter into any new derivative transaction during several days, there is no obligation to report the already concluded transactions every day to the TR.

 

European financial authorities have clearly acknowledged: "[a]s the obligation to report shall be complied with at T+1 (T being the date of conclusion/modification/termination of the contract), there is no other need to send daily reports if there are no conclusion, modifications to the contract or termination."

 

One should not, however, omit the fact that transactions executed during the same day that are netted or terminated for other reasons, are nevertheless required to be reported to TRs as any other trades.

 

When it comes to a "business day" definition (which may be significant when the counterparties to the same transaction follow different calendars), for EMIR reporting purposes the time convention is defined in the Implementing Technical Standards as UTC (Coordinated Universal Time).

 

As regards the calendar the approach for Exchange-Traded Derivatives (ETDs) is the schedule of the relevant market and for OTC the calendar agreed by the counterparties under their contract.

 

Should there be no common agreement of calendar by the counterparties to an OTC contract, the TARGET calendar should be used, including by the EU counterparty reporting a contract with a non-EU counterparty.

 

 

Recordkeeping

 

Counterparties must keep a record of any derivative contract they have concluded and any modification for at least five years following the termination of the contract.

 

 

Disclosure clause

 

EMIR general rule is a counterparty or a CCP that reports the details of a derivative contract to a trade repository or to ESMA, or an entity that reports such details on behalf of a counterparty or a CCP must not be considered in breach of any restriction on disclosure of information imposed by that contract or by any legislative, regulatory or administrative provision.

No liability resulting from that disclosure lies with the reporting entity or its directors or employees.

 

In practice, industry standards, such as:

 

- the ISDA 2013 Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol published by the International Swaps and Derivatives Association, Inc. (the "ISDA Protocol"), and 

EFET's form of EMIR Risk Mitigation Techniques Agreement (the ERMTA),

implement this rule into master agreements, however, even in the absence of such contractual provision, by virtue of the law itself the disclosure made pursuant to EMIR reporting requirements mustn't be considered a contract violation.

 

Among the possible practical situations is the one where a counterparty is established in a third country whose legal framework prevents the disclosure of its identity by the European counterparty subject to the EMIR reporting obligation. The issue may consequently arise, how the counterparty field of the EMIR reporting format should be filled by the European counterparty.

 

EMIR is rigorous in this matter. Article 9(5) EMIR provides that at least the identities of the parties to the derivative contracts should be reported to trade repositories. The European financial authorities underline this requirement cannot be waived. Therefore, a European counterparty dealing with counterparties that cannot be identified because of legal, regulatory or contractual impediments, would not be deemed compliant with Article 9(5) of EMIR.

 

 

Sources of law on EMIR reporting

 

 

                  Regulation book

 

The main source of the European Union law on the respective scope is the EMIR itself: Regulation No 648/2012 of the European Parliament and Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories.

 

Moreover, Article 9 of EMIR provided a mandate for ESMA to draft regulatory and implementing technical standards (RTS and ITS) on a consistent application of the reporting obligation for counterparties and CCPs.

 

In 2012 and 2013 ESMA fulfilled its mandate and submitted those drafts to the European Commission, which became the Regulation No 148/2013 (RTS) and Regulation No 1247/2012 (ITS):

  

- Commission Delegated Regulation (EU) No 148/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC deriva­tives, central counterparties and trade repositories with regard to regulatory technical standards on the minimum details of the data to be reported to trade repositories - RTS,

 

- Commission Implementing Regulation No 1247/2012 of 19 December 2012 laying down implementing technical standards with regard to the format and frequency of trade reports to trade repositories - ITS.

 

ESMA delivered its Final Report on EMIR reporting secondary legislation on 27 September 2012 (ESMA document 2012/600), i.e. three months after the publication of EMIR. The standards were endorsed, published and entered into force: RTS on 15 March 2013, and ITS on 10 January 2013 (but also with effect from 15 March 2013).

 

RTS consists of a list of reportable fields providing a definition of what the content should include. The RTS also explains how to report in the situation when one counterparty reports also on behalf of the other counterparty to the trade, the reporting of trades cleared by a CCP and the conditions and start date for reporting valuations and information on collateral.

 

In addition, the ITS consists of a list of reportable fields prescribing formats and standards for the content of the fields. The ITS also defines the frequency of valuation updates and various modifications which can be made to the report, as well as waterfall approach of possible methods for identifying counterparties and the product traded. Furthermore, it describes the timeframe by which all trades should be reported included historic trades which are required to be backloaded. 

 

The amendments to the EMIR reporting standards were highlighted by the ESMA Consultation Document, Review of the technical standards on reporting under Article 9 of EMIR of 10 November 2014 (ESMA/2014/1352).

  

The above Consultation Document was followed by:

 

Final Report Review of the Regulatory and Implementing Technical Standards on reporting under Article 9 of EMIR of 13 November 2015 (ESMA/2015/1645),

 

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories, COM(2017)208, May 2017.

 

In October 2016 the two above Regulations have been amended - see:

 

Commission Implementing Regulation (EU) 2017/105 of 19 October 2016 amending Implementing Regulation (EU) No 1247/2012 laying down implementing technical standards with regard to the format and frequency of trade reports to trade repositories according to Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories;

 

Commission Delegated Regulation (EU) 2017/104 of 19 October 2016 amending Delegated Regulation (EU) No 148/2013 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories with regard to regulatory technical standards on the minimum details of the data to be reported to trade repositories.

 

Both standards will apply from 1 November 2017, except for Article 1(5) of the ITS (delaying the backloading requirement), which applies from 10 February 2017.

 

However:

 

- the reporting entities are not obliged to update all the outstanding trades upon the application date of the revised technical standards, and

 

- they are required to submit the reports related to the old outstanding trades only when a reportable event takes place (e.g. when the trade is modified).

 

Reform of the EMIR reporting scheme of November 2017 is a major one - almost 80% of the fields are new, or changed - there are 51 new fields, 22 amended fields and seven deletions.

 

For details on the transition to the new EMIR technical standard on reporting see below the excerpt - TR Question 44 [last update 2 February 2017].

 

Further legislative modifications with respect to EMIR derivatives reporting requirements are envisioned as part of the broader process of the EMIR review - see:

 

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories, COM(2017)208, May 2017,

 

Commission Staff Working Document Impact Assessment, Accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories {COM(2017) 208 final} {SWD(2017) 149 final}, 4.5.2017 SWD(2017) 148 final.

 

ESMA's Questions and Answers on EMIR (Q&As) represent non-legislative and periodically-updated piece of knowledge about required format of EMIR reporting. 

 

Q&As deal with the most urgent issues, clarifiy some interpretations of required data fields, and are issued to ensure the consistent application of EMIR and its RTS and ITS (see EMIR Q&As version of 10 July 2017).

 

 

Access to aggregate public data on EMIR  derivatives reporting 

 

Websites with aggregate public data on EMIR derivatives reporting are the following:


DTCC Derivatives Repository Ltd. (DDRL) http://www.dtcc.com/repository-otc-data/emir-public-reports.aspx


ICE Trade Vault Europe Ltd. (ICE TVEL) https://www.icetradevault.com/


CME Trade Repository Ltd. (CME TR) http://www.cmegroup.com/trading/global-repository-services/cme-european-trade-repository.html


Regis-TR S.A. http://www.regis-tr.com


UnaVista Limited http://www.lseg.com/markets-products-and-services/post-trade-services/unavista/unavista-solutions/emir-trade-repository/trade-repository-public-data


Krajowy Depozyt Papierów Wartosciowych S.A. (KDPW) 

 

 

EMIR reporting analytics

 

 

analytics

 

Data on 29 May 2015 indicate since February 2014, when derivatives reporting began in Europe, the European TRs have received more than 16 billion submissions, with average weekly submissions over 300 million (ESMA assessments - communication of 29 May 2015).

 

In April 2015 alone, more than 200 million new trades were added:

• 55% were exchange-traded derivatives (ETD) trades;
• 31% OTC; and
• 14% listed derivatives traded off exchange.

 

The largest portion of OTC trades was made up of foreign exchange derivatives (56%); whilst ETD trades were mainly split into Commodities (33%), Equities (27%) and Interest rates (19%) trades.

 

ESMA Annual Report 2014 of 15 June 2015 (2015/934) estimates the number of entities, which have direct reporting agreements with trade repositories as nearly 5,000.

 

 

 

 

Intragroup transactions

 

Intragroup transactions are defined in Article 3 of EMIR as OTC derivative contracts entered into with another counterparty which is part of the same group.

 

Intragroup derivative transactions are usually carried out to hedge against certain market risks or aggregate such risks at the level of the group.

 

With the exception of certain risk-mitigation techniques, from which intragroup transactions are exempt under certain conditions, all other EMIR requirements currently apply to intragroup trades in the same way as they do to all other transactions.

 

in particular, it should be noted that there is no exemption for intragroup trades from the EMIR reporting obligation. They should be reported as any other trades.

 

Under the EMIR reporting format, the applicable field "Intragroup" for reporting such information initially was Field 32, and after amendments made by:

 

- Commission Delegated Regulation (EU) of 19.10.2016 amending Commission Delegated Regulation (EU) No 148/2013 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories with regard to regulatory technical standards on the minimum details of the data to be reported to trade repositories, and 

 

- Commission Implementing Regulation (EU) of 19.10.2016 amending Implementing Regulation (EU) No 1247/2012 laying down implementing technical standards with regard to the format and frequency of trade reports to trade repositories according to Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories;

 

the Field 38 in the Table 2 (Common data).

 

This field is intended to be populated with information on "whether the contract was entered into as an intragroup transaction, defined in Article 3 of Regulation (EU) No 648/2012."

 

The said field in the case of intragroup transactions should be filled with the value "Y" = "Yes", and, in the opposite situation, with the value "N" = "No".

 

According to the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories (COM(2017)208) of May 2017, intragroup transactions are envisioned to be excluded from EMIR reporting, if one of the counterparties is a non-financial counterparty.

 

Recital 12 of the said Proposal reads:

 

"Intragroup transactions involving non-financial counterparties represent a relatively small fraction of all OTC derivative transactions and are used primarily for internal hedging within groups. Those transactions therefore do not significantly contribute to systemic risk and interconnectedness, yet the obligation to report those transactions imposes important costs and burdens on non-financial counterparties. Intragroup transactions where at least one of the counterparties is a non-financial counterparty should therefore be exempted from the reporting obligation."

 

The European Commission's Staff impact assessment accompanying the said legislative draft expands this argumentation by indicating that - due to netting of internal contracts within the corporate groups - current inclusion of intragroup transactions in the EMIR reporting requirement results in as much as a threefold increase in the number of transactions which need to be reported - while not contributing to the overall risk profile of the group.

 

The legislators also refer to examples from other jurisdictions like the CFTC in the United States) which have excluded non-financial counterparties and small financials from the requirement to report their intragroup transactions.

 

Other important considerations are high bureaucratic burden due to the significant volumes of such trades but also to the fact that every entity in the group needs to be assigned a LEI.

 

 

 

Other remarks

 

Non-financial counterparties below the clearing threshold are not required to report collateral, mark to market, or mark to model valuations (RTS Article 3(4)).

 

For contracts cleared by a CCP, mark to market valuations must only be provided by the CCP (RTS Article 3(5)).

 

It is useful to note that among elements to be reported is also the indication as regards the trading capacity i.e. parameter which identifies whether the reporting counterparty has concluded the contract as principal on own account (on own behalf or behalf of a client) or as agent for the account of and on behalf of a client.

 

Maturity of the contract has been specifically addressed by the regulatory guidance.

Answering to the question:

"Does a counterparty need to report as a termination the fact that a contract has matured on the agreed day or could it assume that was implied by the initial report (which would include the maturity) and that termination would only need to be reported if the contract was terminated before maturity?"

 

ESMA said:

"Under Article 9 of EMIR there is a duty to report the termination. However, where termination takes place in accordance with the original terms of the contract, it can be assumed that such a termination was originally reported, provided that the TR adequately identifies this termination date. Therefore, only terminations that take place at a different date should be reported."

 

Indeed, if the opposite approach on maturity was adopted, it would really increase the number of reports in an unjustified manner, and their value would be questionable.

 

 

 

 

 

 

Timelines for reporting


The requirement to report derivatives transactions to trade repositories under EMIR came into force on 12 February 2014 (90 days after recognition of a relevant trade repository by ESMA).


Reporting of exposures is required, for FC and NFC+ only, 180 days after the reporting start date, i.e. as from 11 August 2014.

 

Backloading existing trades:


• If outstanding at time of reporting date;
- 90 days to report to TR


• If not outstanding, but were outstanding between 16 August 2012 and reporting date;
- 3 years to report to TR (note that Commission Implementing Regulation of 19.10.2016 extended this term to 5 years)

 

Transactions within the same legal entity

 


Transactions within the same legal entity (e.g. between two desks or between two branches with the same LEI) need not to be reported because they do not involve two counterparties.

 

 

Non-European subsidiaries of a group for which the parent undertaking is established in the European Union

 


The reporting obligation to trade repositories applies to counterparties established in the European Union.

 

Therefore, non-European subsidiaries of European entities are not subject to the reporting obligation.

 

In the case of contracts between a EU counterparty and a non-EU counterparty, the EU counterparty will need to identify the non-EU counterparty in its report.

 

Note, ESMA made a specific remark with respect to reporting deadlines for the EU-relocated businesses (Q&A document referred to above).

 

 

Reporting compliance strategy

 

 

When it comes to EMIR reporting compliance strategy the fundamental choice for market participants is whether to report derivatives themselves or to delegate reporting to their counterparty or another service provider.

 

Where firms choose the option to report themselves, they face, in turn, the dillema which trade repository to use.

 

There are the following possibilities regarding practical configurations as regards reporting:

1) one counterparty delegates on the other counterparty;

2) one counterparty delegates on a third party;

3) both counterparties delegate on a single third party;

4) both counterparties delegate on two different third parties.

 

A third party may perform the function of reporting for the counterparties to the trade only through a previous agreement (on behalf of one or both counterparties), nevertheless the obligation to report lies always on the counterparties to a trade.

 

When reporting is delegated it is advisable for firms to safeguard free access to data included in their EMIR reports, in order to check that their reports are being correctly submitted to the trade repository. Trade repositories often offer such a type of membership (enabling only access to trade reports already entered by other counterparties), which involves significantly reduced membership fees.

 

When it comes to contractual tools for the EMIR reporting delegation, see, for instance, ISDA/FOA EMIR Reporting Delegation Agreement.

 

 

Brokers' role

 

 

It is important to take into account that investment firms that provide investment services (like execution of orders or receipt and transmission of orders) do not have any obligation to report under EMIR unless they become a counterparty of a transaction by acting as principal; nothing prevents counterparties to a derivative to use an investment firm (as a broker) as a third party for TR reporting, but this is a general possibility in all cases. 

 

When counterparty is dealing bilaterally with another counterparty through a broker, which acts as agent (introducing broker) the said broker is not signing or entering into any derivative contract with any of the counterparties and, consequently, is not considered as a counterparty under EMIR, thus also not being under the duty to report.

Moreover, in the particular case when the investment firm is not involved in the process of receiving and/or posting any collateral for the client because of direct arrangements between the client and the clearing member, the investment firm is not expected to submit any report on the value of the collateral, or on any subsequent modification as well as termination of the concluded derivative contract.

 

So, when reporting the conclusion of a derivative contract in the trading venue the two trading scenarios should be distinguished: one in which the investment firm is itself a counterparty to the trade (in the sense meant by EMIR) and the other in which it is not, but just acted on the account of and on behalf of the client to execute the trade.

 

In the case of an investment firm that is not a counterparty to a derivative contract and it is only acting on the account of and on behalf of a client, by executing the order in the trading venue or by receiving and transmitting the order, such firm will not be deemed to be a counterparty to the contract and will not be expected to submit a report under EMIR.

 

In turn, where an entity is fulfilling more than one of these roles (for example, where the investment firm is also the clearing member) then it does not have to report separately for each role and should submit one report identifying all the applicable roles in the relevant fields.

 

Technical rules for reporting trades with the broker participation are as follows:

- if a counterparty is itself the beneficiary to a trade it should be reported in both the "counterparty" and "beneficiary" fields;

- if a counterparty is itself the Clearing Member (CM) to a trade, it should it be reported in both the "counterparty" and "CM" fields;

-if a CM is itself the broker to a trade, it should be reported in both the "CM" and "broker" fields;

- if a broker is itself the counterparty (legal principal) to a trade, it should it be reported in both the "broker" and "counterparty" fields (ESMA Q&A, TR Question 9).

 

 

CCPs in derivatives' reporting under EMIR

 

 

The CCP's role in the reporting process has been explained by ESMA in the following way: 

Article 9 provides that counterparties and CCPs should ensure reporting, not only CCPs. Counterparties and CCPs should ensure that there is no duplication of the reporting details by way of agreeing on the most efficient reporting method, to avoid duplication.

 

 

Commission Delegated Regulation of 19.10.2016 amending Commission Delegated Regulation (EU) No 148/2013 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories with regard to regulatory technical standards on the minimum details of the data to be reported to trade

 

Recital 2

 

It is important to also acknowledge that a central counterparty (CCP) acts as a party to a derivative contract. Accordingly, where an existing contract is subsequently cleared by a CCP, it should be reported as terminated and the new contract resulting from clearing should be reported

 

Article 2 of the Commission Delegated Regulation No 148/2013 as amended by the Commission Delegated Regulation of 19.10.2016 

 

Article 2

Cleared trades

 

1. Where a derivative contract whose details have already been reported pursuant to Article 9 of Regulation (EU) No 648/2012 is subsequently cleared by a CCP, that contract shall be reported as terminated by specifying in field 93 in Table 2 of the Annex the action type "Early Termination", and new contracts resulting from clearing shall be reported.

 

2. Where a contract is both concluded on a trading venue and cleared on the same day, only the contracts resulting from clearing shall be reported. 

 

In the scenario where the CCP and counterparties use different TRs, it is possible that the CCP reports that the contract has been cleared in a TR different from the TR in which the contract has been originally reported by the counterparties.

CCPs and counterparties should then do so with consistent data, including the same trade ID and the same valuation information to be provided by the CCP to the counterparties.

 

When it comes to the CCP's ID the practical issue arose with respect to derivative contract cleared by an entity which is not a CCP within the meaning of EMIR (e.g. a clearing house). The ambiguity was whether the clearing house be identified in the field "CCP ID".

ESMA referred to this point in its Q&As on EMIR and its answer was in the negative. Pursuant to the EU financial regulator the field "CCP ID" should only be populated with the identifier of a CCP, i.e. a central counterparty which meets the definition of Article 2(1) of EMIR.

 

In the same interpretation issued on 26 July 2016 ESMA also explained that if the transaction is executed in an anonymised market and cleared by a clearing house the counterparty executing the transaction should request the trading venue or the clearing house that matches the counterparties to disclose before the reporting deadline the identity of the other counterparty.

 

Under Article 9 of EMIR, both the counterparties and the CCP have an obligation to ensure that the report is made without duplication, but neither the CCP nor the counterparties have the right to impose on the other party a particular reporting mechanism.

However, when offering a reporting service the CCP can choose the TR to be used and leave the choice to the counterparty on whether to accept or not the service for its trade to be reported by the CCP on its behalf.

The requirement to report without duplication means that each counterparty should ensure that there is only one report (excluding any subsequent modifications) produced by them (or on their behalf) for each trade that they carry out. Their counterparty may also be obliged to produce a report and this also does not count as duplication.

Where two counterparties submit separate reports of the same trade, they should ensure that the common data are consistent across both reports.

 

Article 2 of the Commission Delegated Regulation (EU) No 148/2013 of 19 December 2012 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC deriva­tives, central counterparties and trade repositories with regard to regulatory technical standards on the minimum details of the data to be reported to trade repositories (OJ L 52, 23.02.2013, p. 1) initially stipulated that where an existing contract is subsequently cleared by a CCP, clearing should be reported as a modification of the existing contract.

 

This rule has been changed in the subsequent amendment - see the box.

 

Usually derivative transactions concluded on exchanges (ETDs) are cleared shortly after their conclusion, hence under the amended RTS on reporting it is provided that ETDs are reported only in their cleared form (Article 2(2) of the Commission Delegated Regulation No 148/2013 as amended by the Commission Delegated Regulation of 19.10.2016: “where a contract is both concluded on a trading venue and cleared on the same day, only the contracts resulting from clearing shall be reported”).

 

The Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories (COM(2017)208) of 4 May 2017 envisions an important modification as regards the CCPs' role in the derivatives reporting since ETDs are to be reported only by the CCP on behalf of both counterparties. 

 

 

Population of the field on the clearing obligation

 

 

The applicable field for reporting data on the clearing obligation initially was Field 28, and later, under amendments made by the aforementioned Commission Delegated Regulation of 19.10.2016 and Commission Implementing Regulation of 19.10.2016, Field 34 in the Table 2 (Common data).

 

This field is intended to be populated with information on "whether the reported contract belongs to a class of OTC derivatives that has been declared subject to the clearing obligation and both counterparties to the contract are subject to the clearing obligation under Regulation (EU) No 648/2012, as of the time of execution of the contract".

 

Hence, this field is required to be be populated with "Y" only if a specific contract is subject to the clearing obligation, meaning that:

 

(i) the contract pertains to one of the classes declared as subject to the clearing obligation and

 

(ii) the contract is concluded between the counterparties that are subject to the clearing obligation as of the time of execution of the contract.

 

Contracts that are entered into during the frontloading period and will have, at the date of application of the clearing obligation for that contract, a remaining maturity higher than the minimum remaining maturity specified in accordance with Article 5(2)(c) of EMIR should be flagged with "Y" in the Clearing Obligation field.

 

These contracts are subject to the clearing obligation from the moment the contract is entered into, even if the counterparties will effectively be required to clear them only at the date when the clearing obligation takes effect.

 

Until the beginning of the frontloading period for Category 1 counterparties there will be no contracts pertaining to the given classes of OTC derivatives that are subject to the clearing obligation, therefore it is considered that counterparties should report "X".

 

Upon the beginning of the front-loading period for Category 1 counterparties, all the counterparties shall report either "Y" or "N" for the contracts pertaining to the given classes.

 

The example below (included in the TR Question 42 ESMA's EMIR Q&As) illustrates how the field 28 Table 2 should be populated by the Category 1 and Category 2 counterparties for the contracts pertaining to the classes in the scope of Regulation (EU) 2015/2205 i.e. IRS derivatives.

 

Reporting-emir-clearing-obligation 

 

Collateral and valuations' reporting

 

Reporting rules for the collateral and valuations (mark-to-market or mark-to-model) are specific when compared to general EMIR arrangements.

There was a delay of 180 days after the reporting standard start date (12 February 2014), hence it effectively began on 11 August 2014 (see ITS Article 5(5) in connection with RTS Article 3).

The second distinctive feature is it only applies to financial counterparties and non-financial counterparties above the clearing threshold (NFCs+), while non-financial counterparties below the clearing threshold are not required to report collateral, mark to market, or mark to model valuations (RTS Article 3(4)).

 

 

Unique Trade Identifier (UTI)

 

 

Each reported derivative contract is required by Commission Delegated Regulation (EU) No 148/2013 to have a Unique Trade Identifier (UTI).

 

EMIR imposes the general obligation according to which counterparties need to agree the report's contents before submitting it to TRs.

 

According to this rule the existing technical standards prescribe that the Unique Trade Identifier must be agreed with the other counterparty (see Table 2, field 8 of the RTS).

 

In light of the low pairing rates of the TR reconciliation process, ESMA considers that an additional prescriptive rule should be included to account for the cases where counterparties fail to agree on the responsibility to generate a UTI.

 

That said, it was proposed (ESMA Consultation Document, Review of the technical standards on reporting under Article 9 of EMIR of 10 November 2014 (ESMA/2014/1352)) to introduce Article 6 in the Draft Implementing Technical Standards prescribing which reporting entity is responsible for the creation and transmission of the UTI in the absence of agreement between counterparties.

 

This was upheld in the ESMA's Final Report of 13 November 2015 and, finally, implemented in the aforementioned Commission Regulations of 19.10.2016 and 19.10.2016.

 

See here for further details on rules governing the use of the Unique Trade Identifier under EMIR.

 

 

Legal Entity Identifiers (LEIs)

 

 

Legal Entity Identifiers (LEIs) are required for EMIR reporting (see Article 3 of Commission Implementing Regulation (EU) No 1247/2012). 

 

 

Article 3 of the Implementing Regulation No 1247/2012 as amended by the Commission Implementing Regulation of 19.10.2016

 

Article 3
Identification of counterparties and other entities

 

1. A report shall use a legal entity identifier to identify:

(a) a beneficiary which is a legal entity;

(b) a broking entity;

(c) a CCP;

(d) a clearing member;

(e) a counterparty which is a legal entity;

(f) a submitting entity.

 

For customers being individuals who do not have a BIC or LEI ESMA initially adopted the view to be acceptable to use for EMIR reporting a client code, e.g. account number or member id, while for customers other than individuals LEI (and not BICs) was mandatory to identify counterparties.

 

However, it appears this stance has changed with the publication of the ESMA Consultation Document, Review of the technical standards on reporting under Article 9 of EMIR of 10 November 2014 (ESMA/2014/1352, where the European financial authority said:

"[t]o avoid any misuse of Interim Entity Identifier, BIC or Client codes, ESMA assessed the necessity of allowing all of those code types in all relevant fields. According to the assessment, in certain instances, a private individual could not be identified in a particular field and therefore it is proposed to delete the possibility of using a client code in that field. As LEIs, fulfilling the ROC principles and the ISO 17442 standard are already in place, there is no need to provide the possibility of using less robust identifiers like BICs or Interim Entity Identifiers any longer and therefore these are proposed to be deleted as well."

 

LEI for EMIR reporting purposes needs to be issued by, and duly renewed and maintained according to the terms of, any of the endorsed LOUs (Local Operating Units) of the Global Legal Entity Identifier System (see How to obtain an LEI).

 

One should be mindful of the fact, at its first phase, LEI does not cover branches or desks which are not legal entities, hence the same legal entity under the EMIR reporting scheme would only have one LEI (it is an issue for early review due to a need for separate identification under some cross-border resolution schemes - see Recommendation 10 of the FSB Report on a Global Legal Entity Identifier for Financial Markets).

 

Moreover, on 1 October 2015 ESMA explained in greater detail the issue of the LEI updates due to mergers and acquisitions (Q&As TR Question 40). The relevant question was:

"How are TRs expected to treat situations where the counterparty identified in a derivative transaction reported to them a change in LEI due to a merger or acquisition or where the identifier of the counterparty has to be updated from BIC (or other code) to LEI? How are counterparties expected to notify the change to their relevant TR?"

 

ESMA commented that the entity with the new LEI (i.e. merged or acquiring entity or entity which updates its identification to LEI – further "new entity") or the entity to which it delegated the reporting should notify the TR(s) to which it reported its derivative trades about the change and request update of the identifier in the outstanding trades as per letter (a) below.

 

If the change of the identifier results from a merger or acquisition, the merged or acquiring entity is also expected to duly update the LEI record of the acquired/merged entity no later than the next LEI renewal date according to the terms of the endorsed LOU/accredited LOU who issued the old LEI.

 

The TR shall identify all the outstanding trades, where the entity is identified with the old identifier in any of the following fields: counterparty ID, ID of the other counterparty, broker ID, reporting entity ID, clearing member ID, Beneficiary Id, Underlying and CCP ID, and replace the old identifier with the new LEI.

 

This is done through the following controlled process:

 

a) The new entity or the entity to which it delegated the reporting, submits written documentation to the TR(s) to which it reported its derivative trades and requests the change of the identifier due to a corporate event or due to the LEI code being assigned to the entity. In the documentation, the following information should be clearly presented:
(i) the LEI(s) of the entities participating in the merger and/or acquisition or the old identifier of the entity which updates its identification to LEI, (ii) the LEI of the new entity and
(iii) the date on which the change takes place. In case of a mer-ger or acquisition, the documentation should include evidence or proof that the corporate event has taken or will take place and be duly signed.

 

b) The TR broadcasts this information to all the other TRs through a specific file, where the
(i) old identifier(s),
(ii) the new identifier and
(iii) the date as of which the change should be done, are in-cluded. To the extent possible, the file should be broadcasted in advance so that the change is not done retrospectively, but as of the date specified in (iii).

 

c) Each of the counterparties to the trades, where any of the merged entities is identified, is informed of the modification by the TR to which they report.

 

d) TR(s) shall notify also the regulators who have access to the data relating to the trades that have been updated.

 

e) The change is kept in the reporting log by each of the TRs.

 

f) Subsequent reports with the old LEI should be rejected by the TRs.

 

Read more on LEI numbers...

  

 

Exchange-traded derivatives (ETDs) reporting

 

 

The EMIR reporting obligation covers all derivative contracts (it doesn't matter OTC or exchange-traded (ETD)).

The said rule is expressed literally by Article 9 of EMIR, which stipulates that financial and non-financial counterparties must ensure that the details of the said derivative contracts they have concluded and of any modification or termination are reported to a registered or recognised trade repository.

 

Derivative contracts admitted to trading on regulated markets represent the vast majority of ETDs, however, they don't exhaust the entire ETD's scope. ETDs are not defined under European legislation.

 

EMIR defines OTC derivatives as contracts the execution of which does not take place on a regulated market or on a third country regulated market.

 

ESMA's Q&As on EMIR Implementation OTC Q.1 (d) clarifies the following:

 

"Derivatives transactions, such as block trades, which are executed outside the trading platform of the regulated market, but are subject to the rules of the regulated market and are executed in compliance with those rules, including the immediate processing by the regulated market after execution and the clearing by a CCP, should not be regarded as OTC derivatives transactions. Therefore, these transactions should not be considered for the purpose of the clearing obligation and the calculation of the clearing threshold by NFC that only relates to OTC derivatives.


Derivatives transactions that do not meet the conditions listed in the first paragraph of this sub-answer (d) should be considered OTC. For example, derivatives contracts that are not executed on a regulated market and are not governed by the rules of an exchange at the point of execution should be considered OTC even if after execution they are exchanged for contracts traded in a regulated market. However, the replacement contract itself may be considered exchange traded if it meets the relevant conditions."

 

ESMA regards ETDs as "derivative contracts which are subject to the rules of a trading venue and are executed in compliance with those rules, including the processing by the trading venue after execution and the clearing by a CCP".

 

According to the aforementioned European Commission's Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories (COM(2017)208) of May 2017 derivative transactions concluded on exchanges should be reported only by the CCP on behalf of both counterparties.

 

Hence, the ETDs' reporting requirement for all counterparties other than CCPs is envisioned to be eliminated.

 

Recital 13 of the said European Commission draft Proposal of May 2017 reads:

 

"The requirement to report exchange-traded derivative contracts (‘ETDs’) imposes a significant burden on counterparties because of the high volume of ETDs that are concluded on a daily basis. Moreover, since Regulation (EU) No 600/2014 of the European Parliament and of the Council requires every ETD to be cleared by a CCP, CCPs already hold the vast majority of the details of those contracts. To reduce the burden of reporting ETDs, the responsibility, including any legal liability, for reporting ETDs on behalf of both counterparties should fall on the CCP as well as for ensuring the accuracy of the details reported."

 

European Commission's Staff impact assessment accompanying the said legislative draft (p. 36) further elaborates on the reasons why the reporting requirement for ETDs has not been entirely eliminated.

 

Legislators, generally, are aware of the facts that:

 

- the G20 never called for the reporting of ETDs,


- many other jurisdictions do not require the reporting of ETDs,


- ETDs' reporting is in many aspects redundant to the reporting under MiFIR.

 

Nevertheless, it is pointed out by the Commission's Staff that the data received by trading venues under MiFIR is not the same as that required to be reported under EMIR.

 

Furthermore, there are direct linkages with other pieces of legislation (e.g. MiFIR exemptions provided transactions are reported under EMIR).

 

In light of the above, the definitive exemption for ETDs from the EMIR reporting obligation is not recommend at this stage, and the scope of the amendments is restricted to some modifications only.

 

However, FIA Response of 18 July 2017 to the European Commission EMIR Review Proposal – Part 1 (REFIT Proposals) recommends the European Commission clarifies also the following issues:

 

-  whether the clearing member-to-client trade will still be reportable,


-  if it is still reportable, whether the CCP have to report both the CCP-to-clearing member trade and the clearing member-to-client trade,


-  what, if any, are the ongoing obligations of the clearing member and/or client to check the accuracy of the data that has been reported on their behalf by the CCP,


-  whether the reporting requirements apply to trades cleared through a third-country CCP.

 

Nevertheless, the changes the European Commission's proposals of May 2017 can be assessed as quite accommodating.

 

 


 

 

 

EMIR vs. MiFID/MiFIR and REMIT reporting

 

 

EMIR (Article 9) and MiFID (Article 25 of Directive 2004/39/EC of 21 April 2004 of the European Parliament and of the Council on Markets in Financial Instruments) require that transactions on derivatives admitted to trading to a regulated market are subject to both reporting under MiFID (direct reporting to competent authorities) and under EMIR (reporting to trade repositories for the purpose of making the data available to the relevant authorities in accordance with their regulatory needs).

 

Following the start of EMIR reporting to trade repositories on 12 February 2014, firms are reminded that their MiFID transaction reporting obligations remain unchanged and they are expected to continue transaction reporting as per current arrangements. Reporting to trade repositories under EMIR does not replace any transaction reporting obligation under MiFID and firms should continue to submit their transaction reports under MiFID.

 

The more convenient regulatory framework brings MiFIR, which established the rule that trade-matching or reporting systems, including trade repositories registered or recognised in accordance with EMIR, may be approved by the competent authority as an ARM in order to transmit transaction reports to the competent authority.

In cases where transactions have been reported in accordance with EMIR to a trade repository, which is approved as an ARM, and where these reports contain the details required by MiFID 2 and are transmitted to the competent authority by the trade repository within the time limit set in MiFID 2, the obligation to report data laid down on the investment firm by MiFID 2 is considered to have been complied with.

Trade repository with an ARM functionality is for instance UnaVista Limited (entity operates as a European Approved Reporting Mechanism (ARM) under the MiFID regime for all asset classes and markets and by becoming a trade repository also for all asset classes across all venues, customers will only need to connect once to meet both their EMIR and MiFID reporting requirements). Such a solution really eases the regulatory reporting burden, so it can be expected will soon become more common.

 

The MiFID I, MiFIR and REMIT reporting frameworks concentrate on the prevention of market abuse, while the reporting regimes under EMIR centre on the monitoring of systemic risk in specific markets.

 

The MiFID I and MiFIR reporting schemes apply to EU regulated investment firms and banks, while unregulated end-users are not subject to reporting requirements at issue.

 

As opposite, apart form some exceptions, EMIR and REMIT apply to any person who trades the relevant products, and their regulated status is negligible (see: The new EU transaction reporting regimes, Comparing MiFIR, MiFID1, EMIR, REMIT and SFTR, February 2015).

 

The EU regulatory authorities try "to align requirements with EMIR where possible but this is only possible to a limited extent since the purposes of EMIR and transaction reporting are quite different and reporting for EMIR takes place at the position level rather than the transaction level" (ESMA's Final Report Draft RegulatoRy and Implementing Technical Standards MiFID II/MiFIR, 28 September 2015 (ESMA/2015/1464), p. 364).

 

 

Collateral portfolio code

 

 

As regards Collateral portfolio code ESMA has clarified, it is up to the counterparty making the report to determine what unique value to put in this field, however, it should only be populated if the Collateral portfolio field has the value 'Y' ("Yes").

 

It is, for example, permissible to use a value in this field that is supplied by the CCP, but this is not required and other values could be used.

 

Collateral portfolio was initially reported in the Field 23 and Collateral portfolio code in the field 24 of the Table 1, but, under amendments made by the aforementioned Commission Delegated Regulation of 19.10.2016 and Commission Implementing Regulation of 19.10.2016, the applicable fields are 22 and 23 (respectively).

 

Under the amended framework Collateral portfolio Field (22) indicates "Whether the collateralisation was performed on a portfolio basis. Portfolio means the collateral calculated on the basis of net positions resulting from a set of contracts, rather than per trade."

 

The permissible values in the said field are "Y" = "Yes", and "N" = "No".

 

In turn, the description of the Collateral portfolio code in the field 23 of the Table 1 is "If collateral is reported on a portfolio basis, the portfolio should be identified by a unique code determined by the reporting counterparty" (up to 52 alphanumerical characters).

 

 

Empty fields

 

 

Answering to the question: "[a]re all fields specified in the Annex of the Commission Delegated Regulation (EU) No 148/2013 mandatory? Can some fields be left blank?" ESMA adopted the following stance (TR Answer 20):

 

In general, all fields specified in the RTS are mandatory. Nevertheless, two different instances need to be acknowledged, namely:

 

1. The field is not relevant for a specific type of contract/trade, for example:

- settlement date field where the underlying is an index,

- commodity underlying field in case of equity derivatives,

- Domicile of the Counterparty in case of coverage by LEI.

 

2. The field is relevant for a given type of contract/trade, however:

a. there is a legitimate reason why the actual value of this field is not being provided at the time the report is being submitted, or

b. none of the possible values provided for in the Annex of the Commission Implementing Regulation (EU) 1247/2012 for a given field apply to the specific trade (e.g. in the case of report submitted by the CCP, field No 7 in the Table 1 Counterparty Data).

 

In order to enable the TRs distinguishing between the two instances above and allow them to comply with requirements of Article 19 of the Commission Delegated Regulation (EU) 150/2013 (in particular to verify the compliance of the reporting counterparty or submitting entity with the reporting requirements), a different approach should be envisaged when it comes to population of the not relevant and relevant fields.

In the first case, since the field is not relevant for a given trade, it should be left blank.

In the second case, the mandatory relevant field should not be left blank and should include the Not Available (NA) value instead.

 

To manage the above issues reporting validation tables have been implemented - see below.

 

 

Mark-to-market value reporting

 

 

 

Article 3 of the Commission Delegated Regulation No 148/2013 as amended by the Commission Delegated Regulation of 19.10.2016 

Article 3 


Reporting of exposures

 

1. The data on collateral required in accordance with Table 1 of the Annex shall include all posted and received collateral in accordance with fields 21 to 35 in Table 1 of the Annex.

 

2. Where a counterparty does not collateralise on a transaction level basis, counterparties shall report to a trade repository collateral posted and received on a portfolio basis in accordance with fields 21 to 35 in Table 1 of the Annex.

 

3. Where the collateral related to a contract is reported on a portfolio basis, the reporting counterparty shall report to the trade repository a code identifying the portfolio related to the reported contract in accordance with field 23 in Table 1 of the Annex.

 

4. Non-financial counterparties other than those referred to in Article 10 of Regulation (EU) No 648/2012 shall not be required to report collateral, mark-to-market, or mark-to-model valuations of the contracts set out in Table 1 of the Annex to this Regulation.

 

5. For contracts cleared by a CCP, the counterparty shall report the valuation of the contract provided by the CCP in accordance with fields 17 to 20 in Table 1 of the Annex.

 

6. For contracts not cleared by a CCP, the counterparty shall report, in accordance with fields 17 to 20 in Table 1 of the Annex to this Regulation, the valuation of the contract performed in accordance with the methodology defined in International Financial Reporting Standard 13 Fair Value Measurement as adopted by the Union and referred to in the Annex to Commission Regulation (EC) No 1126/2008.

 

The aforementioned ESMA Consultation Paper of 10 November 2014 proposed to clarify how the mark to market value (Table 1 field 17) should be calculated and reported. It was proposed to recognise market practice in how different types of derivative contracts are valued and to allow for more than one way of calculating the mark to market value depending on the type of derivative contract:

 

1. For futures and options the mark to market valuation should be calculated using the size of the contract and the current market price (or model price, when appropriate). This is generally expected to be a positive number.

 

2. For CFDs, Forwards, Forward Rate Agreements, Swaps and other derivative types the value reported should represent the replacement cost of the contract, taking into account the delivery of the underlying. For a majority of these products, the initial value would be typically close to zero, when conducted at market rates. Subsequent values would then be positive if the value of the trade had moved in favour of the reporting counterparty since execution and negative if it had moved against the reporting counterparty. Under this approach, the value reported by the first counterparty should be approximately equal to the value reported by the second counterparty multiplied by minus one, with any differences being attributable to differences in the specific valuation methodology.

 

3. For cleared trades, this calculation should be based on the CCP's settlement price.

 

4. An alternative would be to adopt the replacement cost approach for all derivative contracts, although ESMA understands that this may pose challenges for some of them.

 

5. In performing the above calculations, no account should be taken of any cash flows that may have been posted/received in the form of variation margin or, generally, occurred as part of a mark to market process, operated by a CCP or bilaterally.

 

See in the box Article 3 of the RTS as amended by the Commission Delegated Regulation of 19.10.2016.

 

Description of the relevant Field 17 in the Table 1 (Value of the contract) in the Annex to the said Commission Delegated Regulation is:

"Mark to market valuation of the contract, or mark to model valuation where applicable under Article 11(2) of Regulation (EU) No 648/2012. The CCP's valuation to be used for a cleared trade."

 

 

Notional amount reporting

 

 

Notional amount field requires particular attention.

 

In the EMIR reporting format it initialy existed as Field 14 Table 2 (Common data), described as: "Notional amount" and intended for the reporting of the "original value of the contract".

 

Under amendments made by the aforementioned Commission Delegated Regulation of 19.10.2016 and Commission Implementing Regulation of 19.10.2016, this is the Field 20 (in the same Table) named, briefly, "Notional", and to be populated with "the reference amount from which contractual payments are determined. In case of partial terminations, amortisations and in case of contracts where the notional, due to the characteristics of the contract, varies over time, it shall reflect the remaining notional after the change took place."

 

 

Article 3a of the Commission Delegated Regulation No 148/2013 added by the Commission Delegated Regulation of 19.10.2016 

 

  

Article 3a
Notional amount

 

1. The notional amount of a derivative contract referred to in field 20 in Table 2 of the Annex shall be specified as follows:

 

(a) in the case of swaps, futures and forwards traded in monetary units, the reference amount from which contractual payments are determined in derivatives markets;

 

(b) in the case of options, calculated using the strike price;

 

(c) in the case of financial contracts for difference and derivative contracts relating to commodities designated in units such as barrels or tons, the resulting amount of the quantity at the relevant price set in the contract;

 

(d) in the case of derivative contracts where the notional amount is calculated using the price of the underlying asset and such price is only available at the time of settlement, the end of day price of the underlying asset at the date of conclusion of the contract.

 

2. The initial report of a derivative contract whose notional amount varies over time shall specify the notional amount as applicable at the date of conclusion of the derivative contract.

 

As regards notional amount reporting there were multiple, practical ambiguities, dealt with by ESMA on an ongoing basis with the use of the Q&As documents. Many of these clarifications became incorporated into the aforementioned Commission Delegated Regulation of 19.10.2016 and Commission Implementing Regulation of 19.10.2016.

 

With respect to instruments like options, contracts for difference (CFD) and commodity derivatives which are designated in units such as barrels or tons ESMA has clarified that nominal or notional amounts are the reference amount from which contractual payments are determined in derivatives markets. It can also be defined as the value of a derivative's underlying assets at the applicable price at the transaction's start (in the case of options, this is not the premium).

 

Another ambiguity arose when determining a notional amount with respect to contracts where prices will only be available by the time of settlement.

In such a case the notional amount should be evaluated using the price of the underlying asset at the time the calculation of the positions in OTC derivatives to be compared to the clearing thresholds is made.

With respect to contracts with a notional amount that varies in time OTC the notional amount to be considered is the one valid at the time the calculation of the positions in OTC derivatives to be compared to the clearing thresholds is made.

 

An ambiguity also arose as to the EMIR reporting procedure for some derivative contracts, like Contracts For Difference (CFDs), lacking specified maturity date and, at the moment of their conclusion, specified termination date.

 

It was observed, counterparties may at any moment decide to close the contract, with immediate effect. They can also close it partially as counterparties may terminate only a part of the volume on one day and the other part or parts of the contract on any other day.

 

ESMA requires each opening of such new contract to be reported by the counterparties to the trade repository as a new entry. Once the contract is closed, the counterparty should send a termination report to the initial entry, completing the field "Termination date". If the contract is closed partially, counterparties must send a modification report to the initial entry, reducing only its "Notional amount" (remaining volume is equal to the not yet terminated volume).

 

If there is another partial close, yet another modification report is sent – until the contract is finally closed in whole. Then, the counterparties need to send a termination report marked as "cancelled", completing the field "Termination date". In these cases, the opening price of the contract is reported only in the first report (new) and it is not updated in the following modification reports.

  

The observation was made that trades are regularly terminated or novated in part or increased or decreased.
Therefore, the current notional might be substantially different from the original one as its value will reflect updates to the trade resulting from lifecycle events, e.g. partial terminations.

In this context an ambiguity arouse, which type of values is the notional amount field intended to capture.

Referring to this issue ESMA recalled when an opening of a new contract occurs, the notional amount field represents the "original value of the contract".

Furthermore, when the nominal value is increased or decreased as result of lifecycle events, counterparties should send a modification report to the initial entry, modifying the quantity and/or the "Notional amount" accordingly to reflect the remaining volume. If the quantity changes then the "Notional amount" should be updated accordingly.

 

When it comes to the OTC derivatives novations (understood in the way that for the exiting party, the existing transaction terminates, whilst for the entering party, a new transaction arises) the EMIR reporting procedure is as follows:
- for the original report relating to the existing transaction, counterparties should send a termination report marked as "cancelled" completing the field "Termination date", and
- the remaining counterparty and the new counterparty should then send a new report relating to the new transaction.

 

Moreover, in the Consultation Paper of 10 November 2014 ESMA also proposed clarifying derivatives' notional in the following way:

- In the case of swaps, futures and forwards traded in monetary units, original notional shall be defined as the reference amount from which contractual payments are determined in derivatives markets;

- In the case of options, contracts for difference and commodity derivatives designated in units such as barrels or tons, original notional shall be defined as the resulting amount of the derivative's underlying assets at the applicable price at the date of conclusion of the contract;

- In the case of contracts where the notional is calculated using the price of the underlying asset and the price will only be available at the time of settlement, the original notional shall be defined by using the end of day settlement price of the underlying asset at the date of conclusion of the contract;

- In the case of contracts where the notional, due to the characteristics of the contract, varies over time, the original notional shall be the one valid on the date of conclusion of the contract.

 

As was said above, these propositions have been transferred into binding regulations in 2016.

 

 

Collateralisation reporting

 

 

The above ESMA's Consultation Paper of 10 November 2014 suggested the following reporting specification with regard to the collateralisation of derivatives contracts:

 

(a) uncollateralised (U) – when the reporting counterparty to such derivative contract is not posting any collateral (neither initial margin nor variation margin) at any time;

 

 

Article 3b of the Commission Delegated Regulation No 148/2013 added by the Commission Delegated Regulation of 19.10.2016 

  

Article 3b 
Collateralisation


1. The type of collateralisation of the derivative contract referred to in Field 21 of Table 1 of the Annex shall be identified by the reporting counterparty in accordance with paragraphs 2 to 5.

 

2. Where no collateral agreement exists between the counterparties or where the collateral agreement between the counterparties stipulates that the reporting counterparty does not post neither initial margin nor variation margin with respect to the derivative contract, the type of collateralisation of the derivative contract shall be identified as uncollateralised;

 

3. Where the collateral agreement between the counterparties stipulates that the reporting counterparty only posts regularly variation margins with respect to the derivative contract, the type of collateralisation of the derivative contract shall be identified as partially collateralised;

 

4. Where the collateral agreement between the counterparties stipulates that the reporting counterparty posts the initial margin and regularly posts variation margins and that the other counterparty either posts only variation margins or does not post any margins with respect to the derivative contract, the type of collateralisation of the derivative contract shall be identified as one-way collateralised;

 

5. Where the collateral agreement between the counterparties stipulates that both counterparties post initial margin and regularly post variation margins with respect to the derivative contract, the type of collateralisation of the derivative contract shall be identified as fully collateralised.

 

(b) partially collateralised (PC) – when the agreement between the counterparties states that either one or both counterparties will regularly post variation margin and either they do not exchange initial margin at all or only the reporting counterparty receives initial margin;

 

(c) one-way collateralised (OC) – when the agreement between the counterparties states that only the reporting counterparty to such derivative contract agrees to post initial margin, regularly post variation margin or both with respect to the derivative contract;

 

(d) fully collateralised (FC) – when the agreement between the counterparties states that initial margin must be posted and variation margin must regularly be posted by both counterparties.

 

In the aforementioned ESMA's Final Report of 13 November 2015, given the margin requirement implementation, for which counterparties will have in any way to make distinction between initial and variation margin for OTC derivatives, the proposed approach of disaggregating initial and variation margin was maintained.

 

Moreover, given the different valuable information brought by the distinction between collateral received and posted, the approach described in the Consultation Paper was also maintained.

 

In the said Final Report of 13 November 2015, based on the feedbacks, and to better fit with industry practices, ESMA decided to introduce additional fields to capture excess collateral posted or received. 

 

The above ESMA's recommendations has been incorporated into the aforementioned Commission Delegated Regulation of 19.10.2016 and Commission Implementing Regulation of 19.10.2016 (Article 3b and Table 1 Field 21).

 

Pursuant to these regulations the population of this field should "indicate whether a collateral agreement between the counterparties exists" and relevant formats are exactly the same as the ESMA proposed.

 

 

Validation Tables

  

 

TRs should apply validation rules to ensure that reporting is performed according to the EMIR regime, including the specifications of the Technical Standards.

 

Accordingly, reporting counterparties or submitting entities should comply with the reporting requirements specified in the ESMA's EMIR reporting validation table

 

The first level validation refers to determining which fields are mandatory in all circumstances and under what conditions fields can be left blank or include the Not Available (NA) value.

 

The second level validation refers to the verification that the values reported in the fields comply in terms of content and format with the rules set out in the technical standards.

 

Where applicable, the logical dependencies between the fields are taken into account to determine the correct population of the fields. The second level validations are complemented with instructions on the fields which should be populated depending on the action type.

 

The first level validation was implemented since 1 December 2014. 

 

ESMA finalised its work on the definition of Level 2 validations and published the Level 2 validation rules in April 2015.

 

Validation rules were subsequently updated in July and November 2015.

 

In order to allow sufficient lead time to implement the second level validation, ESMA expected the TRs to be able to implement the second level validation by end October 2015.

  

The second level validation applies to all the reports, irrespective of the action type, relating to the trades reported with Action type "New" upon this validation coming into force.

 

Updates to the reports of the transactions reported before the start date of the second level validations were not be subject to this validation.

 

In order to be compliant with the requirements of Article 19 of the Commission Delegated Regulation (EU) 150/2013, TRs are required to reject the reports which are not submitted in line with the reporting requirements specified in the Validation Tables.

 

On 4 July 2016 the updated version of the ESMA's EMIR reporting validation table has been published.  

 

Updated validation rules for reports submitted under the revised RTS applicable from 1 November 2017 are available here.

 

Validation process contributed to significant improvement of TRs' data quality.

 

Prior to the introduction of Level 2 validation requirement (verification of the correctness of the data) through technical standards at the end of October 2015, the level of non-compliant reporting messages was, on average, above 10%.

 

After the introduction of this requirement, and after an initial spike or the level of erroneous messages (which suggests that the error levels in the previous period may have been underestimated), the level of incompliant messages dropped to 6% (Commission Staff Working Document Impact Assessment, Accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories {COM(2017) 208 final} {SWD(2017) 149 final}, 4.5.2017 SWD(2017) 148 final, p. 39).

 

 

UPI taxonomy

 

 

Asset classes

 

(Field 2 in the Table 2 (Common data) in the wording stipulated in the Annex to the Implementing Regulation No 1247/2012 as amended by the Commission Implementing Regulation of 19.10.2016) 

 

CO = Commodity and emission allowances


CR = Credit


CU = Currency

 

EQ = Equity


IR = Interest Rate

 

 

According to Article 4(3) of the Commission Implementing Regulation (EU) No 1247/2012 in cases where a unique product identifier (UPI) does not exist and a derivative contract cannot be identified by using the combination of ISIN or AII with the corresponding CFI code, the type of derivative contract should be identified through the Interim taxonomy (see boxes).

 

The general provision of Article 4(3)(c) of ITS 1247/2012 sets the following rule: for cases where a derivative does not fall into a specific derivative class or type, counterparties need to agree on the derivative class and type the derivative contract most closely resembles.

 

Considering the above guiding principle, the above-mentioned ESMA Consultation Document of 10 November 2014 (p. 7) proposed to remove, by the ITS amendment, the "other" category from the derivative type and derivative class.

 

Contract types

 

(Field 1 in the Table 2 (Common data) in the wording stipulated in the Annex to the Implementing Regulation No 1247/2012 as amended by the Commission Implementing Regulation of 19.10.2016)

 

CD = Financial contracts for difference

 

FR = Forward rate agreements


FU = Futures


FW = Forwards


OP = Option

 

SB = Spreadbet

 

SW = Swap


ST = Swaption

 

OT = Other 

 

 

The aforementioned Final Report of 13 November 2015 observes, however, most respondents prefer to keep the "other" category for both asset class and derivatives type until a global UPI is endorsed.

 

The respondents to the consultation have raised many reasons to maintain the category "other", such as:
i. The derivatives market is still developing and new types of contracts would at each time require an amendment of ITS or guidelines.
ii. To allow for reporting of derivatives with more than one underlying, for example currency swaps, Himalaya options, auto-callable swaps, accumulators, enhanced deposits, TRS, basket trades.
iii. There will be inconsistencies when aggregating new and old data.

 

Considering the feedback received, the ESMA's view expressed in the above Final Report was to keep the category "other" for the derivatives type.

 

However, ESMA considers that any derivative will fall under one or more of the five asset classes specified in the technical standards. In case of the derivatives comprising more than one asset class, there is already a provision in the regulatory technical standards which states that where there is an uncertainty over which asset class the contract falls into, counterparties should report using the asset class to which the contract most closely resembles. Thus, in the aforementioned Final Report presented the stance that it appropriate to remove the category "other" from the asset class.

 

Another issue is that in the absence of UPI taxonomy endorsed in Europe, no other taxonomy, classification or code should be used to populate these fields (i.e. Fields No 2 and 3 in the Table 2 Common data).

 

If the Trade Repository offers a proprietary classification or taxonomy it could be used to populate other additional fields provided for by the given Trade Repository but it should not be used for population Fields No 2 and 3 referred to above.

 

 

Article 4 of the Implementing Regulation No 1247/2012 as amended by the Commission Implementing Regulation of 19.10.2016

 

Article 4
Specification, identification, and classification of derivatives

 

1. A report shall specify a derivative on the basis of contract type and asset class in accordance with paragraphs 2 and 3.

 

2. The derivative shall be specified in Field 1 of Table 2 of the Annex as one of the following contract types:
(a) financial contract for difference;
(b) forward rate agreement;
(c) forward;
(d) future;
(e) option;
(f) spreadbet;
(g) swap;
(h) swaption;
(i) other.

 

3. The derivative shall be specified in Field 2 of Table 2 of the Annex as one of the following asset classes:
(a) commodities and emission allowances;
(b) credit;
(c) currency;
(d) equity;
(e) interest rate.

 

4. Where derivatives do not fall within one of the asset classes specified in paragraph 3, the counterparties shall specify in the report the asset class most closely resembling the derivative. Both counterparties shall specify the same asset class.

 

5. The derivative shall be identified in Field 6 of Table 2 of the Annex using the following, where available: 
(a) an ISO 6166 International Securities Identification Number (ISIN) code or an Alternative Instrument Identifier code (AII), as applicable, until the date of application of the delegated act adopted by the Commission pursuant to Article 27(3) of Regulation (EU) No 600/2014 of the European Parliament and of the Council5. 
(b) an ISIN from the date of application of the delegated act adopted by the Commission pursuant to Article 27(3) of Regulation (EU) No 600/2014. 
Where an AII code is used, the complete AII code shall be used.

 

6. The complete AII code referred to in paragraph 5 shall be the result of the concatenation of the following six elements:
(a) ISO 10383 Market Identifier Code (MIC) of the trading venue where the derivative is traded, specified using 4 alphanumeric characters;
(b) Code, which is assigned by the trading venue, uniquely associated with a particular underlying instrument and settlement type and other characteristics of the contract, specified using up to 12 alphanumeric characters;
(c) single character identifying whether the instrument is an option or a future, specified as "O" where it is an option and as "F" where it is a future;
(d) single character identifying whether the option is a put or a call, specified as "P" where it is a put option and as "C" where it is a call option; where the instrument has been identified as a future in accordance with point (c), it shall be specified as "F";
(e) exercise date or maturity date of a derivative contract specified in ISO 8601 YYYY-MM-DD standard;
(f) the strike price of an option, specified using up to 19 digits including up to five decimals without any leading or trailing zeros. A decimal point shall be used as the decimal separator. Negative values are not allowed. Where the instrument is a future, the strike price shall be populated with zero.

 

7. The derivative shall be classified in Field 4 of Table 2 of the Annex using an ISO 10692 Classification of Financial Instrument (CFI) code for products identified through an ISO 6166 ISIN code or an AII code.

 

8. Derivatives for which an ISO 6166 ISIN code or an AII code are not available shall be classified by means of a designated code. That code shall be:
(a) unique;
(b) neutral;
(c) reliable;
(d) open source;
(e) scalable;
(f) accessible;
(g) available at a reasonable cost basis;
(h) subject to an appropriate governance framework.

 

9. Until the code referred to in paragraph 8 is endorsed by ESMA, derivatives for which an ISO 6166 ISIN code or an AII code are not available shall be classified using an ISO 10692 CFI code.

 

 

 

Position level reporting

 

 

ESMA made the point that it is possible to use position level reporting as a supplement to trade level reporting provided that all of the following conditions are met:

 

1. The legal arrangement is such that the risk is at position level, the trade reports all relate to products that are fungible with each other and the individual trades have been replaced by the position. This could be the case, for example, between a clearing member and a CCP.

 

2. The original trades, i.e. at transaction level, have been correctly reported. It is not permissible to report only positions. All contracts concluded on or after 12 February 2014 must be reported at the transaction level in all cases, starting 12 February 2014.

 

3. Other events that affect the common fields in the report of the position are separately reported.

 

4. The original trade reports (point 2 above) and reports relating to other events (point 3 above), where applicable, have reached a suitable "end of life state". This should be achieved by marking the original trades/event reports as compressed (i.e. putting the value 'Z' into the Action type (Table 2 Field 58) via a modification) and then reporting the resulting net position (either as a new position or as an update to an existing position) marked as being the result of a compression (i.e. with the value 'Y' in the Compression field (Table 2 Field 11)).

 

5. The report of the position is made correctly filling in all the applicable fields in Tables 1 and 2.

 


6. The applicable Trade Repository is capable of receiving reports at position level as described above and is also capable of providing both trade and position level data to authorities in a consistent way as defined by ESMA.

 

The significance of the position level reporting lies in that if the above conditions are met, then subsequent updates, including valuation updates, collateral updates and other modifications and lifecycle events can be applied to the report of the position (as modifications etc., and keeping the same value of the Trade ID on the position) and not to the reports of the original trades/events. 

 

Specific regulatory comments were made on issues of notional in position level reporting.

 

ESMA reminded, where a report is made at a position level, all applicable fields should be populated.

 

This means that all the data elements that are required in trade reports are mandatory as well in position reporting, with the exception of those that are relevant only at trade level.

 

Hence, the field "Notional" must always be populated also in reports made at position level.

 

It was also explained how to populate the field "Notional" in position level reports with respect to options and futures.

 

Pursuant to ESMA, notional should be calculated as follows:

 

For options: Notional = Quantity x Price Multiplier X Strike Price

 

For futures: Notional = Quantity x Price Multiplier x Settlement Price

 

The reporting of modifications to the Notional for positions should take place only if an event relevant for the position has taken place, e.g. a new trade relevant for the position has been concluded and re- ported.

 

It should be noted that if any field used to calculate a Notional is populated with "999999999999999,99999" (standing for "not available" in numeric fields), such value should not be used for the relevant calculations (ESMA's Q&As on EMIR, TR Question 41).

 

The aforementioned Commission Delegated Regulation of 19.10.2016 and Commission Implementing Regulation of 19.10.2016, added the Field 94 into the EMIR reporting format (Table 2 (Common data)).

 

According to the said regulations this field should indicate "whether the report is done at trade or position level. Position level report can be used only as a supplement to trade level reporting to report post-trade events and only if the individual trades in fungible products have been replaced by the position."

 

The values to be filled in with this field are: T = Trade and P = Position.

 

 

ECC approach for backloading

 

 

  

ECC Collateral Reporting

 

Collateralisation between ECC and the Clearing Member is performed on a portfolio basis.

 

The standard collateral pool of a Clearing Member is associated with several accounts of the Clearing Member (proprietary and agency accounts as well as Non-Clearing-Members' accounts in the general omnibus). Collateral between ECC and the Clearing Member is pledged one-way.

 

The collateralisation between ECC and the Clearing Member and its Non-Clearing Member is not known to ECC. ECC assumes that the collateral of an individually segregated Non-Clearing Member and an individually segregated omnibus equals the amount of the segregated collateral. Collateral for general omnibus clients is reported as share of the value of the Clearing Member's standard collateral pool calculated according to the share of the client's individual margin requirement, so called 'by value segregation'.

 

Under general segregation the portfolio will be identified by the Clearing Member ID. Yet, for all individually segregated Non-Clearing Members and individually segregated omnibuses the portfolio will be identified the Non-Clearing Member ID.


For individually segregated NCMs and segregated omnibus clients the value of collateral will be reported. Yet, for general omnibus clients the client's share of the Clearing Member's standard pool (by value segregation) is reported.

 

Exchange traded derivatives, which were entered into before 16th August 2012 and were still outstanding on 12th February 2014 had to be backloaded within 90 days of the reporting start date.

 

Furthermore, exchange traded derivatives, which were entered into before 16th August 2012 and outstanding on that date as well as entered into on or after 16th August 2012 and that were not outstanding on or after the reporting start date must be reported to a trade repository within 3 years (note that Commission Implementing Regulation of 19.10.2016 extended this term to 5 years).

Lifecycle events for those transactions don't have to be reported.

 

Pursuant to ECC (European Commodity Clearing AG) circular, ECC reports all positions that were open on 16th August 2012 (ECC has chosen Regis-TR as its trade repository).

 

It should be noted, for derivative contracts where ECC holds all reportable information, it offers a full delegation service without further need for interaction with the customer. Yet, for transactions where ECC does not hold all reportable information, it only offers a partial delegation service.
In this context the instance is the collateralisation between ECC and the Clearing Member and its Non-Clearing Member, which is not known to ECC.

 

Another situation where, according to the ECC rules, trades have to be reported by the respective counterparties themselves are any previous bilateral trades that are replaced by the registered trade (including cancellation).

 

This is due to the fact that contracts registered for clearing are unaffected by any previous arrangements between the parties, including the question whether a trade has been previously concluded or whether said conclusion has been subject to clearing. Possibly existing OTC derivatives prior to novation are therefore not included in ECC's reporting offering.

 

 

Financial counterparties or CCPs no longer authorised, change their corporate purpose or liquidated within the backloading period

 

 

Besides, in Q&As ESMA has presented its stance on the procedure in the case where financial counterparties and CCPs that should report their contracts within 90 days or 3 years are no longer authorised, they change their corporate purpose or even are liquidated within the backloading period (note that Commission Implementing Regulation of 19.10.2016 replaced the term 3 years with 5 years).

 

Pursuant to ESMA, under the above circumstances any undertaking assuming the obligations of a liquidated or insolvent undertaking (e.g. merger by incorporation or similar) should ensure EMIR reporting of the contracts it entered into via that transfer.

 

The identifier (LEI) to be used should be the one of the undertaking assuming the obligations of a liquidated or insolvent undertaking.

 

If no undertaking is assuming the obligations of the liquidated or insolvent undertaking, the relevant derivative contracts would be reported as terminated contracts only by the counterparty of the liquidated undertaking (if subject to EMIR).

 

"... we are working on the review of reporting to Trade Repositories building on the experience of the start of TR reporting in February 2014. We expect to submit draft technical standards to the European Commission after this summer. The revised ESMA standards should become applicable in the second half of 2016."

  

Verena Ross, Executive Director, European Securities and Markets Authority, Keynote speech at IDX 2015, London, 09 June 2015 ESMA/2015/921 

 

 

In this case the counterparty of the liquidated undertaking will use a BIC or client code, if the liquidated undertaking did not have an LEI.

 

 

EMIR reporting review process

 

 

Note that the EMIR reporting review process is underway - see for more detail:

 

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories, COM(2017)208, May 2017,

 

Commission Staff Working Document Impact Assessment, Accompanying the document Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories {COM(2017) 208 final} {SWD(2017) 149 final}, 4.5.2017 SWD(2017) 148 final.

 

 

 

 

 

New

  

EMIR reform propositions

reporting requirements

May 2017

 

 

according to the Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories, COM(2017)208, IP/17/1150, 4 May 2017

 

   

numbering blue   Derivative transactions concluded on exchanges (ETDs) reported only by the CCP on behalf of both counterparties, elimination of the ETDs' reporting requirement for all counterparties other than CCPs

 

 

numbering blue   Intragroup transactions excluded from reporting, if one of the counterparties is a non-financial counterparty

 

 

numbering blue   Transactions between a financial counterparty and a small non-financial counterparty reported by the financial counterparty on behalf of both counterparties

 

 

numbering blue   Removal of backloading requirements, reporting on historic transactions no longer required

 

 

numbering blue.  Trade repositories explicitly required to implement procedures to verify the completeness and the accuracy of the data reported to them

 

 

numbering blue   Trade repositories required to establish procedures for reconciling (i.e. cross-checking and comparing) data with other trade repositories in cases where the other counterparty reported their side of the transaction to a different trade repository

 

 

numbering blue   Trade repositories required to allow counterparties which delegated reporting to another entity to view the data which was reported on their behalf

 

 

numbering blue   Trade repositories required to create procedures ensuring the orderly transfer of data to another trade repository following requests from customers wishing to change the trade repository to which they report their transactions

 

 

numbering blue   The scope of the technical standards on reporting which ESMA can develop expanded to allow further harmonisation of reporting rules and specification of the details of the new requirements for trade repositories

 

 

 

  

 

 

 

 

 

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Last Updated on Friday, 04 August 2017 11:18
 

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