Over-The-Counter Derivatives AND Exchange Traded Derivatives

ALERT
Roger Coenen MSc. CFA 09 January 2014 Version 1.0

EMIR: Transaction Reporting per 12 February 2014

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Transaction reporting under EMIR

With transaction reporting only 34 days away the clock ticks louder and louder for parties trading derivatives. Remember: transaction reporting under EMIR concerns the reporting of Over-The-Counter (OTC) derivatives AND Exchange-Traded (ET) derivatives. Further main characteristics: Reporting start date: 12th February 2014 Entities under scope: Financial Counterparties, Non-Financial Counterparties (above and below the clearing threshold) and Central Counterparties (CCPs) Reporting what? all OTC and ET derivative contracts entered into as of 12 February 2014, and also all changes and terminations of contracts as of that date Reporting to? A registered Trade Repository (TR), authorized by ESMA (see Table 2) Backloading of trades See detailed explanation below in the separate paragraph Other aspects: No obligation to report to the same TR as your counterparty to the trade Obligation to have upfront consent on which Counterparty reports Reporting can be performed by a third party or by the CCP There can be no duplication of reporting However, each counterparty remains responsible for reporting in a timely (T+1) and accurately manner (so even in case of outsourcing the reporting obligation!)

Backloading
On reporting start date the following applies: Those derivative contracts which were outstanding on 16 August 2012 and are still outstanding on the reporting start date shall be reported to a trade repository within 90 days of the reporting start date for a particular derivative class (so, ultimately 12 May 2014); Those derivative contracts which: (a) were entered into before 16 August 2012 and are still outstanding on 16 August 2012: or (b) were entered into on or after 16 August 2012, and that are not outstanding on or after the reporting start date shall be reported to a trade repository within 3 years of the reporting start date for a particular derivative class (so, ultimately 12 February 2017).

Alert
Be aware: no delay in reporting has been foreseen for trades that were entered into after 16 August 2012 and which are still outstanding on reporting start date, 12 February 2014! These trades have to be reported immediately as per 12 February 2014! Almost the whole industry missed this, even an active regulator like the Financial Conduct Authority in the U.K. It was generally interpreted that for these trades the 90 days delay also was applicable. This is not the case however! Also, non-compliance is not an option. The penalty regime for The Netherlands is severe See table 1 for an overview.
Table 1: Overview of penalty regime for EMIR in The Netherlands
Article 4 9 9 Part 1, 3 1, 3 2 Description Clearing obligation Reporting obligation Record keeping Risk mitigation: - timely confirmation - portfolio reconciliation Risk mitigation: - daily valuation - collateral exchange Category 3 2 1 Base penalty 2.000.000,00 500.000,00 10.000,00 Minimum 1.000.000,00 250.000,00 n.a. Maximum 4.000.000,00 1.000.000,00 n.a.

11

1, 4

2.000.000,00

1.000.000,00

4.000.000,00

11

2, 3

500.000,00

250.000,00

1.000.000,00

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Table 2: List of registered trade repositories

Roger Coenen MSc. CFA Senior Consultant Compliance, Risk Management & Investments Mylette r.coenen@mylette.nl

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