On 7 November, as planned, the European Securities and Markets Authority (ESMA) approved the registrations of the first four trade repositories (TRs) under the European Market Infrastructure Regulation (EMIR). This means that trade reporting for OTC and exchange-traded derivatives is now due to start in February 2014.
- DTCC Derivatives Repository Ltd. (DDRL), based in the United Kingdom;
- Krajowy Depozyt Papierów Wartosciowych S.A. (KDPW), based in Poland;
- Regis-TR S.A., based in Luxembourg, and;
- UnaVista Ltd., based in the United Kingdom.
The registered TRs cover all derivative asset classes: commodities, credit, foreign exchange, equity, interest rates and others regardless of whether the contracts are traded on or off exchange.
Firms now have 96 days to implement this requirement, which has been causing concern across back offices everywhere. With over 50 fields that can be reported, the new obligation will require substantially more detailed information than firms are currently reporting. With 26 reporting fields dedicated to counterparty data, there is a significant challenge in sourcing, collecting and verifying this information.
Furthermore, a lack of uniform reporting standards across different regulations will create extra work for firms implementing for EMIR. For instance, firms must report their counterparty’s sector in a different format for almost every European regulation. Therefore, firms must ‘know their reports’ if they are to avoid costly exception management issues.
However, in late October firms did see some progress towards uniform reporting standards when ESMA published an update of its Questions and Answers (Q&A) clarifying the use of Legal Entity Identifiers (LEI) for the purpose of OTC trade reporting to trade repositories. The Q&A finally provides for cross-border mutual acceptance by stating that only pre-LEIs endorsed by the ROC are eligible to be used for EMIR reporting. However, with only 3 LOUs currently endorsed, many are concerned that market demand for LEIs will overwhelm the ability of the LOUs to register them in time for the reporting date.
Additionally, firms will need to manage this reporting regime in parallel to the existing MiFID transaction reporting requirements, while newly regulated entities (certain corporates and fund types) which currently have no reporting obligations must complete arrangements to delegate their reporting requirements or else build entirely new systems.
The race is now on to complete the implementation of one of the most technically complex regulatory requirements of EMIR before Q1 next year.