1. Report to a Trade Repository
Each counterparty to a concluded derivative transaction which is subject to EMIR requirements is obliged to report (notify) it to a so called Repository. Such a transaction should be reported by the end of the next business day after the transaction is concluded. Trade Repositories are entities that will be registered in accordance with EMIR regulations.
A derivative transaction may be reported individually by each of the parties to it or by one of the parties to that transaction on behalf of both counterparties or by a third party.
To meet the expectations of its Clients, the Bank will report, in its own name and in the name of its Clients, any derivative transactions concluded by a Client with the Bank. Such activity will be possible after signing the documentation regulating the conclusion of transactions between the Client and the Bank, provided that such documentation specifies such a reporting procedure. The “General Terms and Conditions of Cooperation with Clients with respect to Financial Market Transactions” include the authorisation for the Bank to report transactions to repositories on behalf of the Client.
A Client may also decide to independently report transactions to a repository. However the Client needs to notify the Bank of such decision and must agree with the Bank a procedure to agree the contents of reports to be delivered to repositories, as EMIR regulations have imposed a ban on duplicating certain data included in reports.
The Bank will inform the Clients, on its website or by a message in its electronic system on the trade repositories selected for the purpose of transaction reporting.
The above reporting obligation covers any derivative transactions concluded both outside a regulated market (OTC) and on a regulated market (e.g. derivative contracts concluded on stock exchanges).
Reporting will start:
- For interest rate and credit derivative contracts – 90 days after the first trade repository is registered for that asset class;
- For the other derivative contractors – on 1 January 2014 or 90 days after the first trade repository is registered for that asset class (if no repository is registered by 1 October);
- On 1 July 2015 – reporting directly to ESMA instead of a trade repository if no repository is registered for a given asset class.
As at today, no trade repository is registered. According to ESMA’s website, it is likely that the reporting obligation will come into effect on 1 January 2014.
The reporting obligation will apply to any transactions that will be effective (outstanding) as at 16 August 2012 and concluded on or after 16 August 2012, provided that EMIR envisages a possibility to report transactions concluded prior to 16 August 2012 or cleared prior to the reporting start date falling on a later day.
2. Selected obligations under EMIR, including obligations relating to risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty (CCP).
Timely conformation A concluded OTC derivative contract must be confirmed within the time limit set out in the EMIR regulation, which sets out that the time allowed for transaction confirmation will be gradually reduced and ultimately reach:
- For FC’s and NFC+’s by the end of the first business day following the date of execution of the OTC derivative contract;
- For NFC’s by the end of the second business day following the date of execution of the OTC derivative contract.
The applicable transaction confirmation dates are specified in Article 12 of Commission Delegated Regulation (EU) No 149/2013.
Reconciliation of derivative transaction portfolios
Counterparties who conclude derivative contracts are obliged to have in place procedures for periodic reconciliations of derivative contract portfolios. The frequency of portfolio reconciliation is set out in Article 13 Commission Delegated Regulation (EU) No 149/2013.
Counterparties that conclude OTC derivative contracts with each other should have in place procedures for resolution of disputes relating to the recognition or valuation of the contract or to the exchange of collateral, pursuant to Article 15 of Commission Delegated Regulation (EU) No 149/2013.
Counterparties with 500 or more derivative contracts outstanding should have in place procedures to analyse the possibility to conduct a portfolio compression exercise in order to reduce their credit risk in accordance with Article 14 of Commission Delegated Regulation (EU) No 149/2013.
Mark-to-market on a daily basis the value of outstanding contracts
Counterparties who are FC’s and NFC+’s are obliged to mark to market or mark to model (if mark-to-market is impossible) their derivative contracts on a daily basis.
Derivative contract records
Each counterparty to a derivative transaction is obliged to maintain the records of all the derivative contracts concluded by him, including any changes to them, for at least five years from a contract termination date. The Bank has modified “The General Terms and Conditions of Cooperation with Clients with respect to Financial Market Transactions” with regard to implementation of the requirements relating to portfolio reconciliation, dispute litigation and portfolio compression.
3. Central clearing
Some types of OTC derivative transactions will be subject to obligatory clearing by so called central counterparties (CCP). This obligation applies to transactions concluded between:
- Two FC’s
- An NFC+ and an FC
- Two NFC+’s
Transactions between an NFC and an FC are not subject to central clearing. The effective date for the central clearing obligation depends on the date of authorisation of the first CCP and ESMA’s decision to apply that obligation to a given type of derivative contracts. It is likely that the central clearing obligation will come into effect in the second half of 2014.