ESMA and implementation of EMIR

November 13, 2012

On the train to Paris to visit ESMA on Monday I drafted my own short list of the areas within EMIR (regulation of derivatives) where it is self-evident that the real economy needs help in understanding with what companies should be compliant in their use of derivatives. But what I have just written ought to read ‘….should have been compliant since 16 August 2012’ (see previous blog, ‘Derivatives regulation: is the real economy ready for implementation?’).

My list included:
– monitoring and complying with the principles of the exemption and clearing threshold;
– collateral exchange requirements;
– confirmation procedures;
– portfolio reconciliation procedures; and
– trade reporting requirements.

….and all of the above to be assimilated in the context of various deadlines for the implementation process.

I found the attitude at ESMA constructive and realistic. The pressures on the team are self-evident but I wasn’t filled with despair at the prospect of implementation being derailed by the sheer volume and complexity of the task.

So we talked about practicalities – and I know that such conversations are being repeated with many other representative bodies. ESMA sensibly looks to national regulators to carry on national dialogues, as we know, but is keen to have good links with organisations such as the EACT that can take a European wide view.

There is a real opportunity and need for the EACT to help the treasurers in its member associations by ensuring that there is clear advice on how to comply with EMIR. We won’t attempt to duplicate the output of ESMA, concentrating instead on providing input to the drafting by ESMA when appropriate and communicating through our own channels to draw attention to the guidance that is available.

Now for some good and some less good news. First the good. Not the least because the trade repositories are not yet in place to handle reporting under EMIR, there is no immediate requirement to comply with what EMIR demands in terms of trade reporting. I encourage everyone to look at Annex VII, Article 5 of ESMA’s RTS (draft technical standards) – you can access the document here. There are various dates specified by which trade reporting will get underway, with 1 July 2015 defined as the starting point for ESMA to receive the reports in the absence of a trade repository (presumably ESMA will be doing its best to ensure that the repositories are indeed all in place before that date looms).

And the bad news? In the meeting with ESMA we asked the question as to how derivative contracts outstanding at the commencement of EMIR – i.e. 16 August 2012 – but not outstanding at the point trade reporting kicks in should be treated. The somewhat bizarre answer is that all such contracts should still be reported within the timeframes specified!

I’m in no doubt that regulators will defend such a requirement but – if you start from my deeply sceptical position over the underlying relevance of any of this to reducing global financial systemic risk – you have to wonder what on earth will happen to all such historic data.

Finally – and following up on a reference in my previous blog – the format for reporting trade information is specified in Annex VI.I, Article 1, of the RTS. Happy reading.

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