Europe’s financial regulator, the European Securities and Markets Authority (ESMA), will revise the current framework for reporting derivatives trades under the European Markets Infrastructure Regulation (EMIR), much to the surprise of the industry.
Europe’s trade reporting rules came into effect in February this year, after the technical standards were published late in 2013. It was widely assumed the requirements would be postponed, however at the eleventh hour, the European Commission refused to grant an extension, leaving firms scrambling to comply at the last minute.
Instead, the firms have had to rely on a series of Q&A’s on EMIR trade reporting that have been updated throughout the year.
Because of the short timeframe between the release of the technical standards and the enforcement date, there was not a sufficient consultation with the industry. ESMA is looking to remedy this with its latest consultation.
“As a result, the practical implementation of EMIR reporting and the experience gained so far has shown several shortcomings and limitations that need to be addressed so that the EMIR reports can better fulfil their objectives,” ESMA states.
The consultation addresses three categories within the current standards: clarifications of data fields, adaptions of existing fields to the reporting logic stated in the existing Q&As, and the introduction of new data fields to reflect market practice.
According to PJ Di Giammarino, CEO of regulatory think tank JWG Group, the release of this consultation has come much to the surprise of the industry.
“This is a very big surprise for the industry. There is an awful lot in here that turns Q&A advice into prescriptive rules,” he says. “In essence, the consultation proposes to re-write a number of key concepts while firms are busy preparing for MiFID II reporting. It creates more residual noise from EMIR that wasn’t foreseen in a busy 2015 implementation window.”
Since the implementation of the onerous requirement, the trade reporting process has been said to be heavily flawed, largely because reports from counterparties have had a very low matching rate.
ESMA has told Europe’s trade repositories that from December 1, they must reject all trade submissions where certain reportable fields have not been supplied. This could pose a big challenge for custodian banks and their delegated reporting business, as obtaining a complete set of data from their clients and their client’s managers will be a huge task.
ESMA Surprises Industry with Revision of Trade Reporting Rules
Europe’s financial regulator, the European Securities and Markets Authority (ESMA), will revise the current framework for reporting derivatives trades under the European Markets Infrastructure Regulation (EMIR), much to the surprise of the industry.