EMIR Trade Reporting After 2 Years And The Road Ahead

EMIR trade reporting – it’s not over yet! Risk Focus’ Alan McIntyre offers and update on the regulatory timetable for EMIR trade reporting and explores the new challenges firms face amidst a EMIR RTS rewrite. 

EMIR Trade Reporting went live on the 12^th of February 2014 and as such celebrated its second birthday last month.

Like many others I assumed that the big push to get over that final hurdle of ‘going live’ would be the hardest part and after that there would still be some work to do but surely the bulk of it would be accomplished.

However that wasn’t the case for many and if we look at the milestones timeline we see that there were quite a few challenges keeping the reporting firms, service providers, trade repositories and indeed the regulators very busy since February 2014.

Some of these dates were known in advance as they formed part of the published EMIR regulatory timeline. Others (such as the ESMA Level 1 and Level 2 validations) were less predictable and when they arose created a challenge that the banks, asset managers, trade repositories and various other solution providers simply had to rise to. Both ways it’s been quite a journey and a great deal of progress has been achieved but at considerable collective effort and cost.

However, the above dates don’t tell the whole story, as they do not reflect that fact that ESMA have taken up the provision afforded to them under the EMIR regulations to revise the trade reporting rules. As such ESMA’s Final Report on revising Article 9 of EMIR and the associated proposed RTS & ITS are currently working their way through the legislative processes of the European Commission and European Parliament.

So whilst the above dates show a timeline that has left little breathing room for all the reporting firms within their respective EMIR development and quality assurance programmes it’s also very evident that the job is far from done. Similarly if we look at the recent CFTC Request For Comment on Draft Technical specifications which cover descriptions, allowable values, rules for when certain fields are conditionally required and new fields being introduced (in other words echoes of the ESMA Level 1 & Level 2 validations along with new fields like the new EMIR RTS) it seems apparent that at a global level there is still a lot of ground to cover.

So what’s next?

Before we consider the new RTS or the EMIR RTS Rewrite as many are calling it, it’s worth considering that the ESMA Level 2 validations are not completely rolled out. Eight fields that either may or must be populated with an LEI are currently being evaluated via the ISO 17442 check digit calculation. However this was always intended by ESMA as a temporary solution until such a time as the GLEIF system was deemed to be fully operable. Upon GLEIF being fully up and running ESMA had stated that they would instruct the Trade Repositories to start evaluating the submitted LEI’s in terms of both being present on and the LEI Registration status on GLEIF. Whilst this is potentially of minimal impact to the reporting firms other than having to ensure their LEI populations are kept fully up to date it’s still indicative of the ongoing evolution of the EMIR rules.

For the EMIR RTS rewrite ESMA’s final report on “Review of the Regulatory and Implementing Technical Standards on reporting under Article 9 of EMIR”, or ESMA/2015/1645 was published on the 13^th of November and submitted to the European Commission around the same time. The European Commission and European Parliament have 3 months each to approve or reject all or parts of the proposed ITS & RTS. If they reject the proposals then it will be returned to ESMA to be revised. If they approve it then it will be adopted into law under the EMIR regulations. So assuming it’s approved then we could see the new rules coming into force in Q2 of 2016 with reporting the new formats starting in early 2017. Good news for those who were wondering how to fill January 2017 now that MIFID II has been delayed until January 2018!!

The rationale for the proposed new RTS is explained by ESMA in terms of a number of factors including:

• Limited practical experience of derivatives reporting when the original rules were defined.
• Incorporating the guidance from the various ESMA EMIR Q&A’s into regulations.
• Drawing on lessons learned from where the reporting to date has fallen short.
• Further aligning certain fields and definitions with those under MiFIDII/MiFIR.

In addition and similarly to the CFTC Request For Comment there is a nod to the harmonization work being undertaken by CPMI-IOSCO and also an acknowledged risk by ESMA that even the re-written RTS rules may need to be further revised “to accommodate for the final guidelines published by the CPMI-IOSCO”. Not a trivial concern for many that having delivered the milestones to date that even the EMIR RTS rewrite may well not be the end of the road in terms of EMIR reporting deliverables over the next few years.

The proposed RTS contains a handful of the current EMIR fields being deprecated along with around 50 new fields being introduced. The new fields being introduced relate mainly to: 

• Collateral reporting becoming much more granular.
• Interest rates fields for Frequency, Time and Multiplier
• The addition of new Credit derivatives fields like Seniority, Series and Tranche.
• New concepts such as Level, Report Tracking Number and Complex trade component ID.

In addition many fields have also been either repurposed or have had the allowable values revised or further defined. Some of these revision are welcome and even arguably long overdue. Price Notation has for example been defined as U = Units, P = Percentage or Y = Yield. In the original EMIR RTS this field was defined as an example (“E.g. ISO 4217 Currency Code, 3 alphabetical digits, percentage.”) which led to a great deal of confusion, not least within the Inter TR reconciliation for EMIR.

But regardless of how practical or otherwise these changes are they are they all spell out the same thing. Yet more project, development, effort and attention required on EMIR Reporting for the firms reporting solutions. And for many firms with MiFID2/MiFIR and other deliverables such as SEC SBSR and potential CFTC changes to factor in then these changes cannot be tackled in isolation.

Risk Focus is working on adding the new EMIR RTS format and validations to our Validate.Trade solution. Similarly we are adding MiFIR and SEC-SBSR validations to Validate.Trade in order to continue to support our clients development, QA and compliance efforts. We believe that as the EMIR milestones past and present prove, the job is far from done here. And getting started at an early enough date will be a key factor in meeting the ongoing challenges that continue to arise in this constantly evolving space.