From 12 February  2014,  all Irish companies  will be required  to report  certain information  relating to their derivative  contracts, whether traded  over-the-counter  (OTC) or on an exchange, to a registered or recognised trade repository (TR).

Background

The reporting obligation forms part of the requirements  imposed by EU Regulation  on OTC  derivative transactions, central counterparties  and TRs (Regulation  648/2012)  (also known as the European  Market Infrastructure  Regulation  (EMIR)).  EMIR aims to implement within the European Union the G-20 leaders’ commitment to improve  the transparency of, and reduce the risks associated with, the derivatives  market.

The primary obligations imposed by EMIR relate to clearing, reporting  and risk mitigation of derivatives  trades.

The Reporting Obligation

Despite a request from  the European Securities  Markets Authority (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 wil l come into full effect on 12 February  2014.

The obligation to report  trades will apply in respect of: (i) any historic trades that were in existence on 16 August 2012 (even  if now terminated);  (ii) any new trades since that date; and (iii) any future trades. Unlike certain of  the other obligations  under EMIR, there is no exemption from reporting for intra-group  derivative  trades. Below  is a summary of the deadlines  for the reporting  obligations in relation to new and historic trades:

Click here to view the table.

The details to be reported  to the TR relate to both the parties themselves  and the contract, and are laid down in the secondary  legislation implementing EMIR. In all, there are up to 85 fields of data to be reported.

Reporting  must be to a TR registered in accordance with EMIR (or a non-EU TR recognised under EMIR). There  are currently six registered TRs. These are:

  • DTCC  Derivatives  Repository  Ltd.;
  • Krajowy Depozyt Papierów  Wartosciowych S.A. ;
  • Regis-TR  S.A.;
  • UnaVista Ltd.;
  • CME Trade  Repository Ltd.; and
  • ICE Trade Vault Europe Ltd.

ICE Trade Vault Europe Ltd. has been registered as a TR for commodities, credit, equities, interest rates derivatives  only, while the other TRs have  been registered for all asset classes. Currently  there are no Irish registered TRs; however,  reporting may be made to one of the above  non-Irish TRs.

There  reporting obligation applies to both parties, but can delegated to a third party or to the counterparty  to the contract. However,  while the while reporting  may be delegated,  the legal responsibility  for reporting  cannot. Where a company and its counterparty  submit separate reports  of the same trade, they should ensure that the common data are consistent in both reports.

The sanctions for breaches  of EMIR are to be implemented by way of national laws in each EU Member State, though they must include, at least, administrative  fines.  Legislation appointing the Central Bank of Ireland  as component  authority for Ireland and setting out the consequences  for breach of EMIR is expected to be enacted in the near future, though this has not yet happened.  The Central Bank has recently published an FAQ on EMIR which can be found  at: http://www.centralbank.ie/regulatio n/EMIR/Pages/FAQs.aspx .

Required Action

Any existing transaction documentation should be updated to take account of the obligations imposed by EMIR. The International  Swaps and Derivatives  Association (ISDA) published the ISDA 2013 Reporting Protocol (the Reporting Protocol) which is designed to allow multiple ISDA Master Agreements  to be simultaneously amended to facilitate reporting.  The Reporting Protocol provides  that each party consents to the disclosure of information  as required  by transaction reporting rules, including required  disclosures to a trade repository under EMIR.

In addition, Irish companies should agree with their counterparties  how to satisfy the reporting obligation and to determine whether reporting  can be delegated.  Many sell side counterparties  are offering  delegated reporting services  to their customers and have  developed  standard form reporting  agreements . ISDA has also published an EMIR Reporting Delegation  Agreement  (produced jointly with the Futures and Options Association) which could form the basis of documenting any delegation of reporting.  This is a standalone reporting agreement governed  by English law. Its terms contemplate that one party will submit data relating to certain derivative contracts to a TR agreed  by the parties on behalf of the other party.

In practical terms, unless the reporting  obligation can be outsourced or delegated,  this will require  Irish companies that enter into derivatives  to develop  contractual arrangements  with one or more TRs.

Finally, in order to report, a company will be required to obtain a pre-Legal  Entity Identifier (LEI) code which is a global reference  code that uniquely identifies  the relevant  legal entity. Irish companies can apply for  a pre-LEI code through  the Irish Stock Exchange at www.ISEdirect.ie.