After various discussions and disagreements between the European Securities and Markets Authority (ESMA) and the European Commission, reporting under EMIR for all asset classes (such as derivatives on commodities, credit, foreign exchange, equities, interest-rates and others) will start on theaforementioned date, and there will be no postponement in respect of reporting of exchange-traded derivatives, as requested by ESMA.
With effect from February 12 all counterparties to derivatives transactions (regardless of whether they are categorised for EMIR purposes as financial counterparties or non-financial counterparties above or below the relevant clearing threshold) will be required to report details of all over-the-counter and exchange traded derivative transactions they enter into, to registered trade repositories.
Which transactions are reportable and when?
The classification of transactions can be sub-divided into three main categories:
- From February 12, 2014 – all new derivatives transactions entered into on or after February 12 (the report must be delivered to a trade repository by the end of the business day following the date of execution); and all derivatives transactions which were entered into on or after August 16, 2012, and which remain outstanding on February 12, 2014, (the report must be submitted to a trade repository by the end of February 13, 2014).
- By May 13, 2014 – all transactions that were outstanding on August 16, 2012, and which remained outstanding on February 12, 2014; and
- By February 12, 2017 – all transactions that were outstanding on August 16, 2012, but which were terminated prior to February 12, 2014, must be reported.
Once a transaction is subject to the reporting requirement, it will also become necessary to report other key ‘life-cycle’ events relating to that transaction, including modifications to any of the reported terms, cancellation and termination.
Can the reporting obligation be delegated?
In terms of EMIR it is possible to delegate the reporting obligation, although any principal counterparty subject to the reporting obligation retains responsibility, and so will still be liable if the delegate fails to report or misreports.
The delegate may be the other counterparty to the transaction (such as a swap counterparty or an investment bank) or a third party, such as a Central Counterparty Clearing (CCP) or trading platform or a specialist provider of reporting services.
In this respect it is worth mentioning that the Malta Stock Exchange is entering into an agreement with one of the recognised trade repositories listed below in order to provide the services of a reporting third party.
Those operators that are unable to, or would rather not, set up direct links with a trade repository, should – if they have not done so already – speak to their counterparty or other third party now to ensure that the reporting obligations are met when they go live.
To whom must reports be submitted?
The only trade repositories that have been registered with ESMA so far are:
- DTCC Derivatives Repository Ltd (DDRL) in the UK;
- Krajowy Depozyt Papierów Wartosciowych S.A. (KDPW) in Poland;
- Regis-TR S.A. in Luxembourg;
- UnaVista Ltd, in the UK;
- ICE Trade Vault Europe Ltd. (ICE TVEL) in the UK; and
- CME Trade Repository Ltd (CME TR) in the UK.
Legal Entity Identifier Number
In order to report derivative transactions, each entity requires a legal entity identifier number (LEI) which is a unique number attributed to the specific counterparty.
What must be included in a report?
The details that must be reported are set out in the Annex to Commission Delegated Regulation (EU) No 148/2013 containing the relevant regulatory technical standards.
It is time for all operators to act and get ready for February 12.
They must make sure they have obtained an LEI and that they or their counterpart will be reporting the operators’ trades to an authorised trade repository.
This article was first published in the the Sunday Times of Malta on 2 February 2014.