In this alert, we highlight some changes in trade reporting requirements under EMIR. EMIR is the European Market Infrastructure Regulation (Regulation 648/2012) which entered into force on 16 August 2012. It requires the reporting of derivative contracts to registered trade repositories by counterparties.
For US corporates, it impacts, for example, on OTC derivative transactions undertaken by EU subsidiaries on their own behalf or intragroup.
EMIR is directly applicable across all EU member states. Under EU law, broader framework legislation, such as EMIR, will be implemented via Implementing Technical Standards (ITS) and Regulatory Technical Standards (RTS) - "secondary legislation" or "implementing measures" which set out in detail how the framework regulation will be applied.
ITS and RTS are drafted and adopted by the Commission, with specific timescales set for the implementation of each provision (usually several months or years after the framework legislation has entered into force in order to allow companies and national regulators to action and clarify the relevant requirements).
From 1 November 2017, Delegated Regulation 2017/104 and Implementing Regulation 2017/105 will impose changes on the data fields to be reported in accordance with the ITS and RTS under article 9(5) of EMIR.
Delegated Regulation 2017/104 and Implementing Regulation 2017/105 referenced above detail amendments to therespective ITS and RTS under EMIR. The amendments apply from 1 November 2017.
Major amendments to the ITS
- Interim Entity Identifiers are no longer valid. Legal Entity Identifiers are now the only means permitted for the purpose of identifying legal entities
- Article 3 of Implementing Regulation 1247/2012 has been updated in order to ensure a consistent approach is adopted with respect to identifying counterparties in swaps, options, swaptions, commodity derivatives, forward rate agreements, forwards and futures
- The type of collateralisation of derivative contracts must be identified by the reporting counterparty. Specific rules have been set out in order to ensure a consistent approach with respect to reporting of collateralisation
- New derivative contracts which do not fall within an existing classification are to be reported as "Other"
- The period for reporting trades terminated before the commencement date for reporting has been extended from 3 to 5 years
- Criteria for the generation of Unique Trade Identifiers have been created in order to mitigate the risk that counterparties report the same transaction twice; and The ITS now provide additional clarification with respect to the descriptions of existing fields, format and frequency of trade reports in order to ensure the full harmonisation of trade data reported
Major amendments to the RTS
- Given a central counterparty (CCP) also acts as a party to a derivative contract, in the event an existing contract is subsequently cleared by a CCP, the contract should be reported as terminated and the new contract resulting from the clearing should be reported
- Where a combination of derivative contracts is used, the transactions should be reported as separate legs with a clear linkage between the legs. Counterparties should coordinate with each other to ensure that the number of reports submitted for all legs is consistent on each side
- Valuations of derivative contracts must be reported according to a common methodology including posted and received initial and variation margins. Where a counterparty does not collateralise on a transaction level basis, it should report to TRs the collateral that has been posted and received on a portfolio basis, including a code to allow the TR to identify the portfolio relating to the reported contract
- For contracts cleared by a CCP, the counterparty should report the valuation provided by the CCP. For those contracts not cleared by a CCP, the counterparty should report the valuation calculated in accordance with IFRS 13, and
- Modifications to data registered in a TR shall be kept in a dated and time stamped log identifying the person who requested the modification, the reasons for such a modification and a clear description of the changes