Regulatory Reporting – EMIR

WHEN enters into force?

Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (“EMIR”) entered into force on 16 August 2012

WHO shall report?

The reporting obligation applies to all counterparties of a derivative contract, irrespective whether they are financial or non-financial and whether the derivative contract is OTC or not.

WHAT shall be reported?

Counterparties and CCPs must ensure that the details of any derivative contract they have concluded and of any modification or termination of the contract are reported to a trade repository.

HOW shall be reported?

  • Financial counterparties are responsible and liable, for reporting on behalf of both counterparties;
  • the counterparties and CCPs that are subject to the reporting obligation may delegate that reporting obligation.

WHEN enters into force?

  • Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (“EMIR”) entered into force on 16 August 2012;
  • Most of the obligations under EMIR needed to be further specified trough regulatory technical standards and they will take effect following the entry into force of the technical standards. These technical standards elaborated by ESMA and subsequently adopted by the European Commission entered into force on 15 March 2013;
  • As of 12 February 2014, after the ESMA approval of the first four trade repositories under EMIR, financial and non-financial counterparties must ensure that details of any derivative contract concluded, and any modification or termination of those contracts are reported to a trade repository.

WHO shall report?

EMIR includes requirements for reporting of derivative contracts and implementation of risk management standards. It establishes common rules for central counterparties and trade repositories.

EMIR has a vast scope and applies to:

  • Central Counterparties (CCPs) and their clearing members,
  • Financial counterparties,
  • Trade repositories (TRs),
  • Trading venues,
  • Non-financial counterparties (in some cases).

As seen from above the reporting obligation applies to all counterparties of a derivative contract, irrespective whether they are financial or non-financial and whether the derivative contract is OTC or not. However, a counterparty outside the EU does not have the obligation to report to a trade repository.

More specifically, the entities which have the obligation to report under article 9 are:

  • Investment Firms
  • Credit Institutions
  • Insurance Undertakings
  • Undertakings for Collective Investment in Transferable Securities (UCITS) (reporter is the Fund Manager)
  • Alternative Investment Fund (reporter is the Fund Manager)
  • Occupational Retirement Institutions
  • Central Counterparties
  • Central Securities Depositories
  • Third-country Entity
  • Other Undertakings (generally non-financial counterparty)

As an EU regulation the sound application of EMIR is monitored by European Securities and Markets Authority (ESMA) as well as all national competent authorities.

WHAT should be reported?

One of the cornerstone provisions of EMIR is Article 9. According to its text the counterparties and CCPs must ensure that the details of any derivative contract they have concluded and of any modification or termination of the contract are reported to a trade repository. The details must be reported no later than the working day following the conclusion, modification or termination of the contract.

In terms of transactions that should be reported, the focus is on:

  • Cleared and non-cleared exchange-traded derivative (ETD) and over-the-counter (OTC) traded contracts, with no exception on derivative products;
  • Lifecycle events (e.g. give-ups, partial termination etc.);
  • Reporting of exposure: daily reporting of valuations and collateral posted by FCs and NFCs above the clearing threshold

Data elements which need to be reported:

All derivatives positions must be reported to a TR authorised by ESMA by the end of T+1. The reported information includes:

  • Common dataGeneral common information related to contract type, contract information, transaction details, risk mitigation, clearing, modification to contract, as well as common data specific to each type of products (e.g. Interest rates, foreign exchange, commodities, credit derivatives, options, energy).
  • Counterparty data – information related to the counterparties of the contract as well as to the clearing member, broker entity, CCP, reporting entity, beneficiary etc.
  • Collateral data (reporting of identifiers) – Legal entity identifier (LEI) for legal person identification, UPI or CFI for product classification, ISIN for product identification and bilaterally agreed UTI for Trade IDs, until global UTI is available.

As from 1st of November 2017 revised RTS/ITS are in force. These new technical standards significantly changed the regulation,  mainly the reporting of derivative contracts.

The main changes are as follow:

  • The data fields reportable under EMIR have significantly increased, more precisely as regards the reporting of collateral and valuation. Additional information on credit derivatives and interest rate derivatives is also required.
  • Additional field “Level” has been introduced to indicate whether the reporting is done on a trade level or a position level.
  • The reportable data fields have significantly increased from 85 to 129 fields in total (including counterparty, common and collateral data). Depending on the type of contract, those data elements are mandatory, conditional or optional.
  • Certain fields have been erased or renamed to better reflect market practices.

HOW should be reported?

  • Financial counterparties are solely responsible, and legally liable, for reporting on behalf of both counterparties, the details of OTC derivative contracts concluded with a non-financial counterparty which does not meet certain conditions,
  • The non-financial counterparties, on the other hand, must provide the financial counterparty with the details of the OTC derivative contracts concluded between them, which the financial counterparty cannot be reasonably expected to possess. The non-financial counterparty is responsible for ensuring that those details are correct,
  • According to Article 9 para 1f the counterparties and CCPs that are subject to the reporting obligation may delegate that reporting obligation,
  • The details of the derivative contracts must be reported by the counterparties to a trade repository (TR) – a special regulated entity, registered by the European Securities and Markets Authorities (ESMA). The registration of ESMA has a pan-European effect i.e. the counterparties may report their transactions to any of the registered TRs, provided that they are established in the EU.

A list of the registered TRs is available here. The main purpose of the TRs is to make the necessary information available to the national and European supervisory authorities and thus to enable them to fulfil their respective responsibilities and mandates.

Glossary

CCP is a legal person that interposes itself between the counterparties to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer;

trade repository is a legal person that centrally collects and maintains the records of derivatives;

clearing is the process of establishing positions, including the calculation of net obligations, and ensuring that financial instruments, cash, or both, are available to secure the exposures arising from those positions;

OTC derivative or OTC derivative contract means a derivative contract the execution of which does not take place on a regulated market or on a third-country market considered to be equivalent to a regulated market;

financial counterparty is an investment firm, a credit institution, an insurance undertaking or reinsurance undertaking , a UCITS and, where relevant, its management company, an institution for occupational retirement provision (IORP), an alternative investment fund (AIF) or a central securities depository;

pension scheme arrangement is a institutions for occupational retirement provision, occupational retirement provision businesses of institutions, occupational retirement provision businesses of life insurance undertakings;

counterparty credit risk is the risk that the counterparty to a transaction defaults before the final settlement of the transaction’s cash flows;

interoperability arrangement is an arrangement between two or more CCPs that involves a cross-system execution of transactions;

clearing member is an undertaking which participates in a CCP and which is responsible for discharging the financial obligations arising from that participation;

client is an undertaking with a contractual relationship with a clearing member of a CCP which enables that undertaking to clear its transactions with that CCP;

group means the group of undertakings consisting of a parent undertaking and its subsidiaries;

 ancillary services undertaking means an undertaking the principal activity of which consists in owning or managing property, managing data-processing services, or a similar activity which is ancillary to the principal activity of one or more credit institution;

covered bond entity means the covered bond issuer or cover pool of a covered bond.