By Tim Van Wijmeersch, Senior Consultant,
Juan Luis Rousselot Sanz, Middle Officer
& Joana Elisa Maldonado, Regulatory Compliance Assistant
The European Market Infrastructure Regulation (EMIR, Regulation (EU) No 648/2012) has been regulating the European OTC derivatives markets since 2012. Five years later, in May 2017, the European Commission has issued a major review of the regulation. While the EMIR review is now being debated in the Parliament and the Council, revised reporting standards will already apply as from November 2017. This article provides an overview of the changes for reporting as well as the additional fundamental changes to come with the adoption of the EMIR review.
On 21 January 2017, the European Union published new reporting standards on Article 9 of EMIR, which apply as from 1 November 2017. The revised regulatory technical standards (RTS) on the minimum details of the data to be reported to trade repositories introduce changes to the content requirements for trade reports under EMIR. In addition, the implementing technical standards (ITS) on the format and frequency of trade reports to trade repositories alter the conditions and the format of EMIR trade reports. The focus of the revision lies on improving the quality of data, which is reported to trade repositories and the European Securities and Markets Authority (ESMA). In particular, the standards now include requirements and other information, which were previously provided through non-binding Q&A documents from ESMA. Market participants are hence already partly familiar with the new rules, but the transfer from the Q&A to standards makes them legally binding.
The RTS (Commission Delegated Regulation (EU) 2017/104) specify rules on complex trades, cleared trades, collateral value, valuation of contracts and notional.
The ITS (Commission Implementing Regulation (EU) 2017/105) regulate the reporting format and introduce new rules on the use of the Legal Entity Identifier (LEI), the generation of UTIs and the determination of the buyer and seller of a contract. The amendments also impact the reporting of collateralisations, credit default swaps and interest rate derivatives. Moreover, the update brings major changes on the reporting of transactions/positions messages (through the introduction of the so-called ‘trade levels’) and the addition of more accurate action types. The number of fields for reporting increases from 85 to 129 and several existing fields are redefined compared to the ones currently used in the templates.
Furthermore, the reporting period for historic trades – the so-called backloading – is extended to five years, i.e. to 12 February 2019. However, as explained below, the recent EMIR review (EMIR II) proposal suggests to remove the backloading obligation completely.
Following these new level 2 reporting standards, ESMA has released a revised version of the Q&A document to clarify the transition to the new rules. For example, entities will not be obliged to update all the outstanding trades in November 2017, but are required to submit the reports related to the old outstanding trades only when a trade is modified. Furthermore, the validation rules will be amended to account for the changes introduced in the revised standards.
On 4 May 2017, the Commission proposed a revision of EMIR. Following an assessment in the Regulatory Fitness and Performance programme (REFIT), the Commission concluded that EMIR performs well in regulating the OTC derivatives market by promoting transparency and standardisation. The proposed amendments are targeted adjustments to increase proportionality and efficiency of the law for a more growth-friendly regulatory environment. They concern the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty and the requirements for trade repositories:
If the proposal is adopted without amendments, the regulatory burden for corporates will thus decrease significantly. The EMIR review proposal will now be tabled in the European Parliament and the Council. Modifications of the proposal are hence still possible before the final adoption by the legislators in the coming months.
Together with the EMIR proposal, the Commission has published a communication to the Parliament and the Council on its intentions to present additional legislative proposals in the coming months concerning important challenges emerging in derivatives clearing. In particular, the Commission seeks to address issues related to the CMU and EMIR concerning Brexit, such as for example supervision of CCPs.
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