Two Months to Comply With European Reporting Rules for Derivatives – What Buy-Side Entities Need To Know
What does the reporting obligation require?
EMIR requires counterparties and CCPs to ensure that the details of any Contract concluded, modified or terminated are reported to a TR that is registered with or recognized by the European Securities and Markets Authority (“ESMA”).
What types of Contracts will be subject to the reporting obligation?
The types of Contracts identified in the Markets in Financial Instruments Directive 2004/31/EC are subject to EMIR. These Contracts include credit, equity, interest rate, foreign exchange, commodity and other swaps and derivatives. Unlike the reporting obligations under Dodd-Frank, the EMIR reporting obligation applies to both OTC Contracts and exchange-traded Contracts (“ETCs”).
Does the reporting obligation apply to non-EU counterparties?
- when a non-EU counterparty enters into a Contract with an EU counterparty, e.g., a Cayman fund with a UK bank, the EU counterparty will need to identify the non-EU counterparty in the report it makes to a TR in discharge of the reporting obligation.
- where a non-EU fund is managed by an entity authorized or registered under the Alternative Investment Fund Managers Directive 2001/61/EU, the non-EU fund will be subject to the reporting obligation.
- if a non-EU counterparty accepts a delegation of some or all of the duties under the reporting obligation of an EU counterparty, e.g., when a US manager performing management functions for a UCITS fund agrees to assume responsibility for the fund’s reporting obligations, the non-EU counterparty will need to comply with EMIR reporting rules. The EU counterparty making the delegation will remain legally responsible for the reporting obligation.
When is the reporting obligation due to take effect?
- For OTC Contracts, the obligation is due to take effect on February 12, 2014 (the “OTC Reporting Date”). The details of each Contract entered into after that date will need to be reported no later than one working day after the conclusion, modification or termination of that Contract.
- For ETCs, the obligation is currently due to take effect on February 12, 2014, although it may be delayed to January 1, 2015.1
OTC Contracts entered into on or after August 16, 2012, and which are outstanding on the OTC Reporting Date, will have to be reported by May 13, 2014. OTC Contracts entered into on or after August 16, 2012, and which are no longer outstanding on the OTC Reporting Date, will need to be reported to a TR by February 11, 2017.
A counterparty may delegate some or all of its reporting obligation duties to someone else, including the other counterparty, the CCP or another third party. Unlike the approach under the Dodd-Frank reporting obligations, both counterparties (if organized in the EU) are responsible for making a report to a TR. For this reason, a counterparty that makes a delegation will still be legally responsible for the reporting obligation and will be expected to agree to the contents of any report with the entity that makes the report on its behalf.
What will have to be reported to a TR?
The reporting fields in the Reporting Template require an LEI for the reporting counterparty and the other counterparty. In its EMIR Q&A, ESMA has indicated that a “Pre-LEI” issued by a Pre-Local Operating Unit of the GLEI System (“LOU”) is required. US entities should note that the list of permissible Pre-LEIs includes the CFTC Interim Compliant Identifier (CICI). Therefore, CICIs can be used for EMIR reporting purposes.
To which TRs must reports be made?
What will happen to the information which is reported to a TR?
A TR will be required to publish regularly and in an easily accessible way the aggregate positions by class of Contracts reported to it. The TR will also have to make the information reported to it available to ESMA, other EU regulatory authorities, EU Member State regulators, and any third country regulator with whom ESMA has entered into a cooperation agreement.
What steps should Buy-Side Entities be taking with respect to the reporting obligation?
- Determine whether you are subject to an EMIR reporting obligation (either directly or through delegation from a fund/client organized in the EU), or if your transaction information will be reported by your counterparty.
- If information regarding any transactions entered into by your funds or clients is required to be reported under EMIR, your funds/clients need to obtain a pre-LEI issued by an LOU (if they do not already have a CICI or another pre-LEI).
- If you are subject to an EMIR reporting obligation, identify and register with a TR.
- The text of EMIR can be found here.
- The text of the Reporting Template can be found here.
- A list of LOUs and recognized pre-LEIs can be found here.