Background

Since 2012, Regulation (EU) no.648/2012, as amended (EMIR), aims at providing greater transparency on the derivative markets, by imposing a series of obligations to the counterparties, the central counterparties and the trade repositories and in particular:

• A clearing obligation for certain liquid and standardised OTC derivatives through central counterparties (CCPs);
• Harmonised framework for CCPs in terms of organisation, capital requirements and rules of conducts;
• The use of risk mitigating techniques for uncleared derivatives by counterparties; and
• Transaction reporting to trade repositories (TRs) by all financial counterparties (FCs) and non-financial counterparties (NFCs) on T+1 (next business day following conclusion of derivative contract).

New rules

EMIR has been amended in 2019 by Regulation (EU) no. 2019/834 (EMIR Refit), to improve the transaction reporting on derivatives, address disproportionate compliance costs and strengthen reconciliation requirement, notably following the works of CPMI-IOSCO. These amendments have been completed by new RTS and ITS, which have been published by the EU commission on the 7 October 2022 in the European union official journal (Commission delegated regulation (EU) 2022/1855 and Commission implementing regulation (EU) 2022/1860). Furthermore, the European securities and market authority (ESMA) published on 14th of December 2022 its guidelines on reporting and validation rules (ESMA#74-362-2281).

The new reporting rules will apply from 29 April 2024.

Key changes to the existing reporting rules:

• Format: ISO-20022-XML (same format under MiFIR transaction reporting or SFTR reporting) instead of other formats such as CSV or FpML.
• Content: 203 fields to be completed (although certain field will be populated only for certain assets, events or contract types), versus 129 fields previously. These fields concern, among other, data on collateral, price, products specificities, assets (including crypto-assets), counterparties and notably event type. Although some data will be easily retrievable, others may raise difficulties and require cooperation between counterparties and the different market infrastructures (TRs, CCPs, trading venues).
• Unique Product Identifier: Unless already identified by an ISIN code on trading venues, all derivatives products will need to have a unique product identifier (UPI), defined by the ANNA DSB.
• Unique Trade Identifier: The Unique Trade Identifier (UTI) will need to be generated under the waterfall approach (see ESMA Guidelines, 4.11) and shared between the counterparties.
• Regular LEI renewal: Counterparties will need to have legal entities identifier and keep them up-to-date.
• Position level reporting: Counterparties will need to report at trade level and will only be permitted to report at position level where both counterparties agree to do so.
• Reporting issues: New obligation to notify promptly the regulators on certain reporting issue (flaws in reporting system, obstacles to report in due time, significant errors).
• Information sharing: Small NFCs (NFCs -) will need to provide FCs mandatory information in due time, through dedicated arrangements.
• Ease of reporting for NFCs - facing FCs: FCs will be the only party responsible for reporting where the counterparty is a NFC -, unless the NFC - wishes to report by itself.
• Intragroup exemption: No reporting obligation for intra-group transactions, where at least one of the counterparties is an NFC. Both counterparties must be part of the same group and their parent undertaking cannot be an FC.
• Amendment to the definition of FCs: Managers/management company of alternative investments funds (AIFs) and undertakings for collective investment in transferable securities (UCITS), are defined as FCs and responsible and liable for reporting on behalf of AIFs and UCITS.
• Removal of backloading requirement: Historical derivatives transactions (i.e. which existed before the entry into force of the EMIR reporting) do not need to be reported anymore.
• TRs requirements: TRs will have to establish and maintain policies and procedures on reconciliation, completeness and correctness of data reported and transfer of data to other TRs.

Consequences for counterparties:

• Communication, monitoring and exchanges of information and data between counterparties: Counterparties are expected to share and exchange more information and data throughout the life of the derivative contracts, especially where the counterparties are FCs and NFCs. Counterparties may use the MRRA template as developed by ISDA to achieve this.
• Data reconciliation: Reporting entities will need to ensure reconciliation of data (i.e. where two report of the same trade differs) and may need to have arrangement in place with trade repositories, counterparties or delegated reporting entities (which report on their behalf), to share information and data. Internally for FCs, this may require having policies and procedures in place to ensure greater control on data quality and information gathering.
• UPI and UTI obtention: Reporting entities may need to obtain UPI from the ANNA DSB and get a connection to it. Also, counterparties will need to determine who will be responsible for generating the UTI, under the waterfall approach, and obtain it from the generating entity.
• Counterparties monitoring: As the responsibilities for transaction reporting will depend on the status of the counterparties, which itself depends on clearing thresholds, counterparties will need to monitor the status of their counterparties.
• Greater regulator’s scrutiny: Regulators will be able to understand and monitor closely the derivatives markets and its participants thanks to the access to new data and improved transparency. Thus, counterparties may be exposed to greater regulator’s scrutiny.