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EMIR Trade Reporting Requirements Come Into Effect 12 February 2014

by Prajakt Samant and Simone Goligorsky

Following the European Securities and Markets Authority’s (ESMA’s) approval and registration of the first four trade repositories (TRs) in November 2013, counterparties to all types of over-the-counter (OTC) and exchange-traded derivatives contracts will be required, from 12 February 2014, to report certain details of their trades to a registered or recognised TR.

All counterparties, even those exempt from the clearing obligation, should take note that they will not be exempt from the reporting obligation. To facilitate the process, counterparties will, however, be permitted to delegate trade reporting requirements to third parties or their respective counterparties.

Background

The reporting obligation forms part of the requirements imposed by the EU Regulation on OTC derivative transactions, central counterparties (CCPs) and TRs (Regulation 648/2012), also known as the European Market Infrastructure Regulation or EMIR. EMIR aims to establish within the European Union the G-20 leaders’ commitment to improve transparency in derivatives markets, mitigate systemic risk and prevent market abuse.

The primary obligations imposed by EMIR relate to clearing, reporting and risk mitigation of derivatives trades. Such obligations are imposed on both financial counterparties (FCs) and non-financial counterparties (NFCs), to varying degrees.

Whilst the scope of these obligations is aimed at EU entities, non-EU entities should not ignore EMIR’s territorial application, as they may still be caught by its requirements. In particular, a non-EU entity may be required to comply with obligations under EMIR where either its trading counterparty is established in the European Union, or the derivatives transaction has a direct, substantial and foreseeable effect within the European Union.

The Reporting Obligation

Despite a request from ESMA that the reporting obligation in respect of exchange traded derivatives be delayed by one year, in order to give market participants sufficient time to put in place the necessary systems and procedures, the reporting obligation will come into full effect on 12 February 2014.

Under Article 9 of EMIR, all counterparties to all derivatives contracts and CCPs are required to report particular details of any derivatives contract they have concluded, modified or terminated (including lifecycle events such as give-ups and partial terminations), to a TR. ESMA guidance suggests that, in respect of terminations, a report is only required to be made where termination takes place on a date different to that originally provided for in the relevant contract.

Whilst the clearing and risk mitigation obligations are restricted to OTC derivatives contracts, the reporting obligation applies to all derivatives contracts, irrespective of whether they are traded on-exchange or OTC. In addition, although the clearing obligation only applies to FCs and non-financial counterparties that exceed the relevant clearing threshold (NFC+s), the reporting obligation also applies to non-financial counterparties below the clearing threshold (NFC-s). The clearing threshold, as prescribed in the technical standards to EMIR, differs depending on type of derivative contract. The clearing thresholds are as follows:

  • Credit derivatives: €1bn in gross notional value
  • Equity derivatives: €1bn in gross notional value
  • Interest-rate, currency and commodity derivatives: €3bn in gross notional [...]

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European Commission Adopts EMIR Technical Standards

by Simone Goligorsky

On December 19, 2012, the European Commission (EC) adopted the technical standards (TS) for the regulation on over-the-counter (OTC) derivatives, central counterparties (CCPs) and trade repositories, commonly known as the European Markets Infrastructure Regulation (EMIR). 

The level 1 text of EMIR came into force on August 16, 2012, and will now be supplemented by the newly adopted TS.  The TS were initially proposed by the European Supervisory Authorities in September 2012, and the texts of the TS have now been adopted by the EC without amendment. 

However, in a press release from the EC, it is stated that one TS, submitted by the European Securities and Markets Authority (ESMA), has not been endorsed.  This particular TS relates to colleges of CCPs.  There are concerns over the legality of this provision, therefore ESMA has been asked to redraft this provision.  The redrafting is not expected to delay the coming into force of the obligations prescribed by the other TS.  No date has been set for the publication of the redrafted provision. 

The TS cover matters, including, inter alia: (i) the clearing of trades by financial, and in certain circumstances, non-financial counterparties, by central counterparties; (ii) the reporting of all trades that come within the scope of EMIR; and (iii) putting in place risk mitigation techniques for OTC derivatives contracts that are not cleared by CCPs.  

By adopting the TS now, the EC has met the deadline set at the G20 summit in Pittsburgh in 2009.  At the summit, it was agreed that global regulators would put in place legislation necessitating the mandatory clearing and reporting of transactions, in order to reform the derivatives market, which was, at the time, subject to very little regulation.  EMIR, and its US equivalent, the Dodd-Frank Wall Street Reform and Consumer Protection Act, are intended to improve the transparency of the derivatives trading markets.   

The TS are divided into two categories: regulatory TS and implementing TS.  The former are subject to review by the European Parliament and Council, who will have a month from December 19, to review the provisions.  The review period may be extended by a month, if necessary.  The implementing TS are not subject to review by the European Parliament and Council.  However, the implementing TS will not enter into force before the regulatory TS comes into force, since the two sets of standards complement each other, and are not stand-alone obligations.  The TS will enter into force on the twentieth day following their publication in the Official Journal of the European Union.   

Compliance with the provisions of EMIR by market participants may require, amongst others, the implementation of new IT systems, registration with a CCP and trade repository, and, for non-financial counterparties, an analysis of the trades that they undertake (as non-financial counterparties whose trading activities are below the thresholds prescribed in the TS will not be required to clear those trades).  As these activities may take some time, market participants are encouraged to actively engage [...]

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