EMIRacle needed- 12th February Reporting Mandate

Trade reporting under EMIR begins today. The FCA’s optimistic survey notwithstanding- there may be trouble ahead. While the larger banks and financial institutions are (relatively) well-prepared, there is widespread concern by both regulators and market participants that the sudden gear change will be far from smooth.

The reporting obligation is mandated in Article 9(1) of EMIR, as a Regulation it is directly applicable to all EU member states. Registration of the first trade repositories on 7^th November 2013 triggered the 90-day countdown to today’s “Big Bang”. A brief recap of the “known unknowns” follows:

Who reports: Both Counterparties and CCP’s are subject to the reporting obligation. Counterparties are divided into “financial” and “non-financial” categories. As defined by Article 2(8) EMIR, “financial” counterparties effectively comprise any and all banking, investment, credit and insurance firms. Pursuant to Article 2(9) EMIR, “non-financial” counterparties comprise everyone else (except CCP’s).The reporting obligation applies irrespective of the clearing threshold defined in Article 10 EMIR.

What is reported: Counterparties and CCP’s must report ALL derivative contracts that have been traded, amended or terminated. The technical standards specify 85 fields, 69 of Common Data, 26 of Counterparty Data. Common data has to be matched with the contracting party and covers inter alia: product ID, product data, transaction and clearing data. Counterparty details cover: the Counterparty ID, trading capacity, mark to market and collateralisation details[1].

When does reporting begin:

12^th February 2013– all derivative contracts that were outstanding on 16^th August 2012

12^th February 2013 + 180 days– mark to market and collateralisation data on the above contracts

12^th February + 3 years– derivative contracts which were outstanding on 16^th August 2012 but have concluded before 12^th February 2013 and contracts that were traded on or after 16^th August 2012 but have concluded before 12^th February 2014.

How to report: Reporting may be delegated to a third-party, the CCP (if cleared) or the counterparty; however, in such cases the reporting obligation rests with the original party. Reports must be made to an ESMA –recognised trade repository (see table below for TR’s registered to date).

	IRS	EQUITY	CDS	FX	COMMODITIES
CME Trade   Repository Ltd	✓	✓	✓	✓	✓
DTCC   Derivatives Repository Ltd	✓	✓	✓	✓	✓
ICE Trade   Vault Europe Ltd	Exchange   traded derivatives only	Exchange   traded derivatives only	✓	X	✓
Krajowy   Depozyt Papierów Wartosciowych S.A.	✓	✓	✓	✓	✓
Regis-TR   S.A.	✓	✓	✓	✓	✓
UnaVista   Ltd	✓	✓	✓	✓	✓

Identification: All entities are to be identified by an LEI code, applications for which must be submitted to the national registrar LOU. Interim pre-LEI codes will convert unchanged to a permanent LEI. Products will be identified by a unique product identifier which is: unique, neutral, reliable, open-source, scalable, accessible, reasonably-priced and subject to a governance framework. In the (current) absence of which, derivative contracts will be identified using a combination of an assigned ISIN code or Alternative Investment Identifier (AII) code and corresponding ISO 10962 Classification of Financial Instrument (CFI) code. If none of the above is available, the contract will be identified by class and type according to the technical standards.

Problems: ESMA has given scant guidance on trade and product identification, leaving it to market participants to agree a system that abides by the above principles. It is estimated that across the EU only 8% of derivative users have applied for a preliminary LEI. There is no clear estimate of the number of LEI’s needed, “guesstimates” range from 100,000 to over a million. The EU\ESMA do not have the freedom of their Stateside counterparts- once the date is triggered, 90 days will elapse and they have no power to issue no-action letters to delay any ensuing chaos. Instead, national regulators have tacitly made it known that, to begin with, the reporting obligation will not be entirely enforced. Those firms that are at least trying their best to comply may enjoy an uncertain stay of execution. The reporting obligation embraces the whole of the European market, from minnows to whales; as such it was always going to be a journey into uncharted seas. This parlous situation has only been worsened by regulatory rigidity, lack of centralised guidance, and needless complexity. Perhaps miracles do happen, but a pain-free transition to full reporting under EMIR is unlikely to be one of them.

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