Trade repositories
European Union Electricity Market Glossary

 


 

 

Trade repository (TR) denotes a legal person that centrally collects and maintains the records of derivatives. The term is defined in the EMIR Regulation.

 

Trade repositories are central points for EMIR reporting infrastructure with their tasks mainly determined by the scope of EMIR derivatives reporting requirements - covering all derivatives and not OTC derivatives only.

 

Trade repositories play a pivotal role of providing derivatives data to competent authorities and are a central market infrastructure established to improve the transparency of derivatives markets.

 

At the moment there are seven trade repositories for the European Union registered by the Paris-based European Securities and Markets Authority (ESMA), which can be used for derivatives trade reporting:

 

- 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;

 

- UnaVista Ltd, based in the United Kingdom;

 

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

See here the ESMA's list of approved trade repositories.

 

There should be borne in mind, trade repositories concept, is however, global in nature, and, as of August 2015, there were 26 of them in 16 jurisdictions (besides, with no system for aggregating the data or even ensuring the data is comparable - see Global tagging system proposed for derivatives trades).

 

 

"Trade reporting to TRs began in February 2014. By the end of 2015 almost 27 billion reports had been received by TRs, with an average of around 330 million trade reports submitted per week. ESMA has observed increasing interest in the TR business [...]. In addition, ESMA notes that registered TRs are looking to expand their businesses into new areas, for example by offering other reporting services."

 

ESMA Annual Report 2015, 15 June 2016, ESMA/2016/960 (p. 55, 56)

  

Anyway, the derivatives contracts under EMIR 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, such details are reported to ESMA.

 
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.

 

Under EMIR, ESMA has direct responsibilities regarding the registration, supervision and recognition of trade repositories; this work is directed by a specific annual Trade Repository Supervision Work Programme.


Supervision of trade repositories by ESMA aims to ensure that they comply on an ongoing basis with all EMIR requirements, thereby enabling regulators to access data and details of derivative contracts in order for them to fulfil their respective mandates.


For the supervision of trade repositories, ESMA has the right to require information, to conduct general investigations and on-site inspections, and if needed, to take enforcement measures.

 

 

Trade repository as an ARM

 

 

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, MiFID transaction reporting obligations remain unchanged. 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.

 

MiFIR establishes 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.

 

ARM having EMIR trade repository functionality is for instance UnaVista Limited.

 

 

Eligibility to provide portfolio compression services 

 

 

Portfolio compression services may be provided by trade repositories irrespective of whether they are regulated under MiFID/MiFIR (see MiFIR Recital 8).

 

 

Trade repository vs. Registered Reporting Mechanisms (RRM)

 

 

In 2015 three trade repositories started offering reporting services related to wholesale energy market integrity and transparency under the REMIT Regulation (see further remarks on -> trade repositories' interrelations with Registered Reporting Mechanisms (RRMs) relevant for -> REMIT reporting).

 

 

Reporting channels

 

 

Market participants have the possibilities to report derivatives themselves or to delegate reporting to their counterparty or another service provider.

 

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.

 

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.

 

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.

 

 

TR registration framework under SFTR

 

 

Article 5(1) of the Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse and amending Regulation (EU) No 648/2012 (SFTR) requires the TRs to register with ESMA for the purposes of the fulfilment of the reporting obligation established in Article 4 SFTR.

 

They need to register under the conditions and the procedure set out in Article 5 SFTR.

 

All the general, operational reliability, safeguarding and recording requirements for registration of TRs under EMIR are envisioned to be taken into account also for the purposes of registering the TRs under SFTR.

 

Accordingly, all the requirements with respect to the derivative contracts reported under Article 9 EMIR should be understood as references to Article 4 SFTR.

 

For instance, the TRs must ensure the confidentiality, integrity and protection of data received under Article 4 SFTR in the same way as they ensure the confidentiality, integrity and protection of data received under Article 9 EMIR.

 

 

Trade repositories' market

 


 

Pursuant to the document "ESMA's supervision of credit rating agencies, trade repositories and monitoring of third country central counterparties, 2016 annual report and 2017 work programme", 3 February 2017, ESMA80-1467488426-27 (p. 20, 21, 26) market shares of the EU registered trade repositories seem relatively stable, they remained unchanged across 2015 and 2016.

 

The above ESMA's report of 3 February 2017 further observes that "compared to its peers, DTCC Derivatives Repository Limited continues to lead in terms of number of clients served and reports received" and that "other trade repositories further strengthened their client base through other services offered by the groups of companies they belong to".

 

Proximity of the trade repositories (e.g. same country and same group as the reporting entity) also seems to be considered by clients in their choice of TR.

 

By the end of 2016, the TRs reported on behalf of approximately 5,500 direct clients. This number includes third parties who report on behalf of other counterparties and entities. These counterparties and entities have only the right to view data that has been reported on their behalf.

 

In total, there are around 300,000 counterparties whose trades are reported to TRs.

 

 

 Trade repositories as a source of transparent market data

 

 

While it was not an original objective of EMIR to provide granular aggregate position data to the public, in the ESMA's opinion the trade repositories are in a privileged position to provide the most comprehensive derivatives data aggregation in the EUropean Union (details of the respective framework have been set out in the 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).

 

 

Enforcement

 

 

 

In 2016, ESMA adopted its first enforcement decision against a trade repository. In March 2016, the ESMA Board of Supervisors issued a public notice in respect of the infringements found to have been committed by DTCC Derivatives Repository Limited and imposed a fine of €64,000 for negligently failing to put in place systems capable of providing regulators with direct and immediate access to derivatives trading data (ESMA's report of 3 February 2017, p. 9).

 

Currently, 44 regulatory authorities including National Competent Authorities and central banks have access to at least one EU trade repository and are able to view and analyse the data in line with their mandates.

 

 

Perspectives for the trade repositories' legal framework

 

 

EFET and EURELECTRIC in the document Joint EFET-EURELECTRIC response of 1 February 2016 to ESMA consultation on draft technical standards on access to data and aggregation and comparison of TR data across TR under Article 81 of EMIR urge ESMA to consider the following:

 

1. Ensure TRs implement, as a matter of urgency, effective interoperability arrangements – no TRs have full and effective interoperability arrangements in place. Therefore, it is very difficult for market participants to ensure that transactions that have been reported have been matched with those reported by counterparts.

 

2. Ensure TRs establish minimum standards and time-frames for portability of client accounts – this will facilitate greater competition amongst TRs and hopefully will lead to better service standards;

 

3. Ensure minimum service standards are in place for TR clients to readily access transaction data for reporting validation purposes – this could include ensuring that TR data is more searchable and that TRs provide basic transaction classification information on reporting breaches (i.e. identify proactively any transactions not reported in the D+1 timeframe). This will facilitate timely rectification of reporting breaches by market participants;

 

4. TRs to publish (anonymised) transaction data to agreed standards and definitions to facilitate greater transparency and to support the implementation of MiFID II – Article 81(1) of EMIR requires TRs to make the aggregated positions of derivatives reported to them accessible to the public. No TR is currently providing such a service. Market participants need robust information on the size of commodity derivative markets for assessing themselves against the proposed commodity ancillary activity exemptions. TRs are ideally placed to provide this information in a transparent and robust way in line with agreed standard definitions; and

 

5. Ensure the confidentiality at any time of all transactional data reported to the TRs - Any unauthorised access to these data by non-competent persons may impact materially the commercial and competitive position of market participants. Also the operational security of the IT systems used for transmitting, receiving and storing these data must be ensured. EFET and EURELECTRIC welcome further information on how the TRs will guarantee the confidentiality and protection of these data.

 

Some recent changes in the political, competitive, regulatory and technological landscape that are likely to further influence the trade repositories industry are:


1. the expected guidance on portability, clarifying how clients can migrate from one TR to another, is expected to trigger more movement of TR clients,


2. TRs expand their commercial offerings for reporting services related to wholesale energy market under REMIT and SFTR.

 

Another opportunity for TRs is the provision of multi-jurisdictional reporting services, as new jurisdictions are starting to introduce legal frameworks similar to EMIR.

 

The aforementioned ESMA's report of 3 February 2017 refers in that regard to the Switzerland's example, where the Financial Markets Infrastructure Act was adopted in 2015 and came into force as of 1st of January 2016 (the transaction reporting obligation started 6 months after the registration or recognition of the first TR in Switzerland and may trigger EU registered TRs to expand their offerings to the Swiss market).

 

The European Commission 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 important modifications with respect to trade repositories' legal framework.

 

Recital 23 of the said draft Regulation reads:

 

"In terms of the services provided by trade repositories, Regulation (EU) No 648/2012 has established a competitive environment. Counterparties should therefore be able to choose the trade repository to which they wish to report and should be able to switch trade repositories if they so choose. To facilitate that switch and to ensure the continued availability of data without duplication, trade repositories should establish appropriate policies to ensure the orderly transfer of reported data to other trade repositories where requested by an undertaking subject to the reporting obligation."

 

 

 

New

  

EMIR reform propositions

impact on trade repositories

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, May 2017, IP/17/1150, 4 May 2017

 

   

 

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, 21 July 2017 14:21
 

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