Baringa Partner’s Collette O’Gorman asks where do market participants go from here with the deadline for OTC trade reporting rapidly approaching. Read on to learn about the solutions that might assist firms in getting through the Big Bang that is EMIR trade reporting.
EMIR (European Markets Infrastructure Regulation) places an obligation on companies to report details of their OTC and Exchange-Traded Derivatives (ETDs) to central trade repositories. Firms impacted by this regulation are currently implementing mechanisms to enable them to be ready for reporting. However, uncertainty, until recently, in the reporting go live date itself has presented challenges to these already complex projects, both in terms of being able to meet the date and the possible solutions employed.
Whilst countries around the world are only seeking trade repository reporting of OTC transaction, EMIR is unusual in requiring the reporting of both OTC and ETD transactions. However, it was only after the publication in December 2012 of the trade reporting Implementing Technical Standard (ITS), that the European Securities Markets Authority(ESMA) realised that the circumstances of the execution and clearing of ETDs, along with the interaction with the existing trade reporting obligations under MiFID, were not adequately recognized in the ITS.
In August 2013 ESMA requested that the European Commission (EC) grant a one year postponement of the start date of ETD reporting. With many market participants deep in the challenge of implementing OTC reporting and unclear on how to report ETD trades there was great hope the postponement would be granted.
On 7th November 2013 the EC responded that they would not grant a delay, thereby giving the message that time is more important than data quality. On the same day ESMA approved the first EMIR trade repositories, thereby setting the EMIR reporting go-live as 12th February 2014.
So where does this leave us?
A Big Bang go-live on trade reporting:
– all participants ? market participants, clearing members, clearing houses
– all trades ? OTC, ETD and OTC cleared
– all asset classes ? credit, rates, FX, equities and commodities
So what are a market participants’ options for ETD reporting with the deadline only nine
weeks away?
One solution is to integrate reporting of ETDs into an existing OTC reporting programme. If all the source data is available and the trade repository’s ETD solution is a fit within an existing OTC programme then this could be a suitable solution. But this may not work for all.
EMIR allows reporting by third parties on-behalf-of the market participant. Indeed, clearing members and Central Counterparties (CCPs) are planning to offer such reporting services for ETDs. This could provide a neat solution for many market participants, allowing them to focus on their OTC reporting programme.
However, this may not be plain sailing. Clearing members and CCPs are not obliged to provide reporting services for clearing clients. For example, some European clearing members and CCPs are not intending to offer such services. In other cases, market participants are using non-European clearing members or non-European clearing houses which have no reporting obligations under EMIR and may not be developing EMIR reporting capability.
Whilst EMIR allows third party reporting, the market participant is still accountable for timely and accurate reporting. Market participants need to consider carefully what verification of reporting is required, noting that clearing members and CCPs will be reporting to different Trade Repositories (TRs), so accessing reported data may require setting up multiple TR contract and interfaces.
Clearly the decision by the EC not to postpone ETD reporting and the setting of the go-live date means market participants rapidly need to establish their best strategy for ETD reporting compliance.
After all, the Big Bang is not far away.
