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5
th
Proudly
celebrating
our 5th Anniversary
2010 - 2015
International Securities Services Roundtable
EMIR Regulation
Nicholas Chaudhry
Head of OTC Client Clearing
Commerzbank
Ph. D. Iwona Sroka
President & CEO
KDPW and KDPW_CCP
Vincent Dessard
Senior Regulatory Policy Advisor
EFAMA
Daniel Jude
Chief Operating Officer
CME Group
Silvano Stagni
John Kernan
Senior Vice President
Regis-TR
Group Head of Marketing and
Research
Hatstand
International Securities Services, February 2015
International Securities Services, February 2015
5
th
Proudly
celebrating
our 5th Anniversary
2010 - 2015
EMIR Regulation
Brian Bollen and representatives
of a cross-section of interested
parties gathered together
virtually to exchange thoughts
on a range of issues arising from
EMIR regulation.
Brian Bollen: What is the main impact of the
EMIR regulations on your area of work?
Daniel Jude, CME: CME Group comprising
of our Exchanges, Clearing Houses and
Repositories is impacted in many ways by
the EMIR regulation. In response to the EMIR
regulation CME Group has established a
European Exchange, Clearing House and an
ESMA registered European Trade Repository
(CME ETR).
Vincent Dessard, EFAMA: From an asset
manager’s perspective, there are three
major streams of impacts: The first was
the mandatory reporting of transaction;
the second relates to the cost/benefits
analysis of the central clearing; the third
is the management of liquidity to provide
eligible assets to Clearing Members and to
counterparties.
Iwona Sroka, KDPW: The KDPW Group,
which I represent, includes KDPW as the
Polish CSD, and KDPW_CCP as the central
counterparty clearing house,. With regards
to EMIR, The Polish Financial Supervision
Authority (KNF) authorised the KDPW_CCP
clearing house in April last year. It should
be noted that the Polish clearing house was
the third clearing house to be authorised in
all of the EU. While KDPW has developed the
trade repository service, registered the trade
repository with the European Securities and
Market Authority (ESMA), and was authorised
to assign legal entity identifiers (LEI). Owing
to the close cooperation between companies
in the group, KDPW_CCP offers free-ofcharge reporting to KDPW_TR; consequently,
the reporting of derivatives contracts by
KDPW_CCP on behalf of a clearing member
or its clients does not involve any additional
costs to clearing members other than fees
charged by KDPW (for reporting a trade to
the repository and for maintaining contract
details in the repository).
“
From an asset manager’s perspective, there are three major streams
of impacts: mandatory reporting, cost/benefits analysis and the
management of liquidity.
- Vincent Dessard, EFAMA
Silvano Stagni, Hatstand: As financial IT
consultants we have helped a lot of our
clients implement transaction reporting
requirements. We have also helped dispel
the confused perception that EMIR and
similar requirements of title VII of DoddFrank overlapped 100 percent.
”
This is to be achieved through the four
principal requirements of the regulatory
agenda, namely: (i) execution on electronic
trading venues; (ii) clearing through central
Nicholas Chaudhry, Commerzbank: The
fundamental reform of over-the-counter
(OTC) derivatives markets is having a
profound impact on how these instruments
are used. The core objectives of the reforms,
which include the Dodd-Frank Wall Street
and Consumer Protection Act (the DoddFrank Act) in the US, European Market
Infrastructure Regulation (EMIR) and similar
measures throughout Asia, are to centralise
and manage counterparty credit risk and
increase transparency.
Commerzbank is a leading international
commercial bank with branches and
offices in more than 50 countries. The core
markets of Commerzbank are Germany
and Poland.
With the business areas Private Customers,
Mittelstandsbank, Corporates & Markets
and Central & Eastern Europe, its private
customers and corporate clients, as well
as institutional investors, profit from a
comprehensive portfolio of banking and
capital market services.
Commerzbank finances more than 30 per
cent of Germany’s foreign trade and is
the unchallenged leader in financing for
SMEs. With its subsidiaries comdirect and
Poland’s mBank it owns two of the world’s
most innovative online banks.
Nicholas Chaudhry
Head of OTC Client Clearing
Commerzbank
Nicholas Chaudhry is Head of OTC Client
Clearing at Commerzbank. In his 17
years Capital Market experience he has
held senior positions in Fixed Income
Prime Brokerage and OTC Client Clearing
businesses in Europe and Asia. At
Commerzbank Nicholas is responsible for
developing OTC Client Clearing solutions
and strengthening the product offering
to clients.
OTC Client Clearing at Commerzbank is
focused on delivering tailored solutions
to clients looking to address the
regulatory requirements that have arisen
from both EMIR and Dodd-Frank. OTC
Client Clearing is a core component of
the new Market Service product solution
service which the Bank offers to its clients.
International Securities Services, February 2015
counterparties (CCPs); (iii) reporting to trade
repositories; and (iv) collateralisation of
bilateral derivatives exposures.
This has resulted in: significant change in the
market structure and transaction processing
practices from trade execution to middle
or back-office processing and reporting;
increased emphasis on real-time processing
and STP of trade lifecycle processes along
with fully integrated data management and
workflows; which impact key elements of
business process, operations and technology
infrastructure which will in turn require
considerable change and enhancement.
Brian Bollen: Do you have enough
information to properly report on the EMIR
regulations?
Vincent Dessard
Senior Regulatory Policy Advisor
EFAMA
Vincent Dessard is senior policy advisor
at EFAMA. He is in charge of capital
markets, capital requirements and risk
management related files. Before joining
EFAMA in 2011, Vincent spent 6 years
in BNP Paribas Investment Partners
(previously Fortis Investments) initially
setting up its capital markets legislative
unit, developing and negotiating
its contractual standards rules and
integrating this unit into ABN Amro
Asset Management and ultimately in
BNP Paribas Investment Partners.. He
has been the central point legal for the
Lehman bankruptcy. He started his career
at Euroclear SA where he held different
positions e.g. in collateral management.
Vincent is a company lawyer, member of
Belgian Institute for In-House Lawyers.
Vincent has a master in law from the
Université Catholique de Louvain.
Daniel Jude: CME Clearing Houses (CCPs)
- CME INC in the US and CME Clearing
Europe in Europe are the holders of master
records for CME Markets (Futures & options
and OTC Cleared) and therefore we offer a
free Delegated Reporting Service (DRS) to
all our affected clients to assist them with
meeting their EMIR reporting obligation.
“
reporting very well, both on its merits, as
well as IT. KDPW_TR constantly supports
its participants in obtaining an updated
knowledge on the possible changes in
regulations and guidelines provided by
ESMA. Nevertheless there are still practical
challenges limiting reporting to all TRs.
LEI codes are the basis for EMIR reporting.
LEI codes are the basis for EMIR reporting. Therefore the main challenge
is the global LEI database which should be reliable and unfortunately is
still not.
- Iwona Sroka, KDPW & KDPW_CCP
CME CCPs continue to receive requests
from clients on a weekly basis to switch
from their current Delegated Reporting (DR)
method via Brokers or middleware to CME
DRS. Where a client wishes to benefit from
the DRS arrangements, all trades reported
via CME CCPs are reported to CME ETR (the
CME Group European Trade Repository) and
clients can access the submitted data via our
web based platform in real time. This enables
EMIR reporting counterparties to view and
reconcile the data to ensure they are in
compliance with their obligation.
”
Therefore from the KDPW_TR point of view,
the main challenge is the global LEI database
which should be reliable and unfortunately is
still not. The next important issue is defining
field formats. Although the standards
to some extent define the reporting of
information, the formats of certain fields
(in particular numeric fields and data fields)
are still not defined clearly enough The
harmonisation work in that area is in place
and we believe that the quality of data will
increase significantly by the end of 2015.
CME believes that the Clearing House is best
placed to undertake the reporting of futures
& options and OTC transactions in a timely,
compliant and accurate manner. Other
Delegated Reporting solutions can often
struggle with the reporting of the valuation
and collateral information, CCPs undertake
this daily as part of the clearing workflow.
Silvano Stagni: We have noticed that most
of our clients were already capturing the
majority of the data that has to be included in
transaction reporting. Some have problems
with the availability of data for open trades
that have to be backloaded. This is mostly
due to some information not being captured
at the time when the trade was executed
because it was not necessary to do so.
Vincent Dessard: EFAMA and its members
have been actively exchanging information
within members but also with other market
actors, this, since the opening of discussion
on EMIR.
Brian Bollen: What mechanisms are you
putting in place to deal with trade reporting
for EMIR?
Iwona Sroka: Our clients and market
participants are prepared for the proper
EFAMA is the representative association for
the European investment management
industry. EFAMA represents through its
26 member associations, 62 corporate
members and 24 associate members
about EUR 17 trillion in assets under
management of which EUR 11 trillion
managed by 55,000 investment funds
at end September 2014. Over 36,000 of
these funds were UCITS (Undertakings
for Collective Investments in Transferable
Securities) funds.
Daniel Jude: The CME Group as stated
above has put in place a robust solution to
assist clients with meeting their obligations.
Whether you trade on our exchanges or
clear through our clearing houses CME can
alleviate the operational burden of reporting.
Vincent Dessard: EFAMA members are
dealing with the reporting of transactions
in two different ways according to their
structure and their strategic approach. They
can either handle it in-house treatment
or outsource to a service provider or by
delegation to their counterparties.
Iwona Sroka: KDPW_TR offers its users two
communication interfaces: A2A (Application
to Application) and U2A (User to Application).
A2A is an interface supporting automatic
data exchange between the KDPW trade
repository application and participant
applications. A2A is implemented on the
basis of the exchange of standard XML
messages via IBM WebSphere MQ. KDPW_
CCP reporting to KDPW_TR uses the A2A
system.
Nick Chaudhry: Commerzbank has
developed in-house solutions for proprietary
and client reporting. We have developed
reporting obligation and lifecycle events to
the swap data repository. We also provide
support for new data elements, reference
data and identifiers such as trade, product
type, entity, event, and collateral portfolio
code.
CME Group is the world’s leading and most
diverse derivatives marketplace, handling
3 billion contracts worth approximately
$1 quadrillion annually (on average).
The company provides a marketplace
for buyers and sellers, bringing together
individuals, companies and institutions
that need to manage risk or that want to
profit by accepting risk.
Brian Bollen: Have you seen the EMIR
regulations having an impact on the number
of OTC trades made?
Daniel Jude: It was believed that two of
the cornerstones of EMIR would have a
detrimental impact on the volumes of OTC
transactions.
The first is the reporting requirements of
EMIR, but as an ESMA-registered TR our
public aggregate data available via our
website in line with the ESMA requirements
show that the volume of transactions
continues to remain consistent to volumes
prior to the commencement of transaction
reporting.
The second is the EMIR clearing mandate
which is due to commence within the next
12 months. We believe this will have an
impact on the proportion of OTC Cleared
vs OTC Bilateral. CME Clearing Houses
continue to see a switch away from OTC
bilateral to OTC cleared as clients begin to
voluntarily clear ahead of the EMIR Clearing
Mandate and also we are noticing a shift
towards Futures & Options (exchange trade
derivatives). This, along with the anticipated
equivalence of the US and EU derivatives
frameworks and recognition of overseas
clearing houses, could a see further shift in
the OTC derivatives markets from bilateral
settlement to central clearing.
Iwona Sroka: Owing to the lack of statutory
regulations enforcing mandatory CCP
clearing of OTC trades and uncertainty
as to their final shape, (e.g. restricting
mandatory clearing to only four currencies)
and implementation deadlines, EMIR
has had no impact on these types of
transactions. Bearing in mind the profile of
the counterparties on the OTC market (i.e. all
professional investors), mandatory reporting
to the trade repository does not, we believe,
have any impact on the number of trades
executed on this market.
“
This impacts upon the ease with which
collateral can be reported on a line-by-line
basis.
Daniel Jude
Chief Operating Officer
CME Group
Daniel Jude serves as the Chief Operating
Officer for CME European Trade
Repository, based out of the company’s
London office. Since joining CME Group,
Daniel has been heavily involved in the
development of CME Trade Repository
and the application for authorisation
submitted to ESMA. He covers the CME
Swap Data Repository in the US, CME
European Trade Repository in Europe,
CME Canadian Trade Repository in
Manitoba, Quebec and Ontario and more
recently CMEs application to become a
Registered Reporting Mechanism under
REMIT.
Prior to joining CME Group, Daniel gained
more than 10 years financial services
industry experience. He has worked for
RBS IB, UBS IB and MarkitSERV, specialising
in FX, Rates and Credit products. In recent
years, Daniel’s main focus was assisting
Banks, Hedge Funds, Asset Managers,
Commercials and Corporates with their
operational readiness for EMIR and DoddFrank.
Brian Bollen: What has been the most
difficult issue to deal with?
Daniel Jude: From a Clearing House
perspective the main issue has been around
account structures, whether our clearing
members have the clients’ accounts in an
omnibus vs individual segregated account.
CME Clearing Houses continue to see a switch away from OTC bilateral
to OTC cleared as clients begin to voluntarily clear ahead of the EMIR
Clearing Mandate and also we are noticing a shift towards Futures &
Options.
- Daniel Jude, CME Group
”
Iwona Sroka: Short deadlines to implement
changes. And also the differences in
interpretation of regulations and guides for
reporting by market participants.
Silvano Stagni: A lot of our clients
mentioned problems with the UPI (Unique
Product Identifiers) and the UTI (Unique
Trade Identifier). The lack of a universally
accepted model, like the LEI, has created a
level of confusion that will be reflected in
the aggregation of trades and the repository
reporting of aggregated results to regulators
Nick Chaudhry: Article 39 - Asset
Segregation. In the transition to centralised
clearing for OTC and exchange-traded
derivatives, differences are being picked up
on in the respective regimes being rolled out
in Europe (European Market Infrastructure
Regulation (EMIR)), and in the US (the DoddFrank Act). One of the biggest differences
is the client segregation models required
by each. While the US has chosen to focus
on a Legally Separated, Operationally CoMingled (LSOC) approach, the European
regulator (ESMA) has stipulated that a
Central Counterparty (CCP) can only be
re-authorised under EMIR if it can offer a
choice of both omnibus and individual asset
segregation structures.
This condition represents a major difference
in the two regimes, and is raising issues for
global CCPs. Closer to home, it’s also creating
additional workload for clients to understand
the capital, funding and operational cost
associated with each segregation model
before deciding which type they wish to use.
Brian Bollen: Do you think regulators are
ready to begin assessing the data that has
been provided?
Daniel Jude: CME ETR has many National
International Securities Services, February 2015
Competent Authorities registered to receive
the data submitted by counterparties and
they have begun to start asking questions
around the data that we have supplied to
them.
KDPW is the central institution
responsible for the management and
supervision of the depository-settlement
system in relation to trading in financial
instruments in Poland. Trading takes place
according to the highest international
standards, including total securities
dematerialisation.
The Polish central securities depository
was created in 1991 as a department of
the Warsaw Stock Exchange.
On 7 November 1994, this department
was removed from the organisational
structure of the Warsaw Stock
Exchange and since then, KDPW has
been functioning as a separate and
independent joint stock company, with
the State Treasury, as represented by the
Minister of the State Treasury, the Warsaw
Stock Exchange and the National Bank of
Poland each holding 1/3 of shares.
Vincent Dessard: Taking into account the
impressive amount of work allocated at the
treatment of replies to consultations, we
are confident that the regulators are either
already assessing the data provided or are
preparing the final push to start assessing
those data actively.
Iwona Sroka: KDPW_TR is in constant
contact with UE Regulators which obtain
the data held in our repository via our
communication interfaces. However, in our
opinion, even if Regulators are ready to begin
assessing the data, they are unfortunately
not able to do so accurately. There is still
a lot of work to increase the consistency
and reliability of TR data (such as data field
formats, global LEI database, UTI and UPI
standard). Furthermore, individuals who
“
- Vincent Dessard, EFAMA
Silvano Stagni: Not yet, I think they are
gearing up to it by recruiting the right people
and putting the relevant infrastructure in
place.
Educated at the Warsaw School of
Economics, where she obtained her Ph.D.
in Economics. In 2001-2009 with the
Warsaw Stock Exchange as Advisor to the
Management Board and then Director of
the Market Communication Department.
Member of the Board of Directors of the
European Central Securities Depositories
Association (ECSDA), Member of the
Payment System Council at the National
Bank of Poland.
Nick Chaudhry: Shortfall or not, the issues
regarding collateral management remain
and the implications for both buy- and sellside participants in the derivatives market
will be far-reaching. Collateral management,
largely an afterthought in the less regulated
environment, will become an imperative and
unless firms take measures to streamline
the process and mitigate the impact of
the new regulations, it will consume time
and resources and potentially impact
profitability. Considering the cost and
resource allocation, the ability of buy-side
firms to do this in-house in a scalable way is
difficult to determine.
From an asset manager’s perspective, as we are third-parties to the
clearing arrangements, our most important risks sit with the Clearing
Members.
carry out business activities cannot obtain
LEI codes. This legal form of business activity
is very popular in Poland and in our opinion
it has had an impact on onboarding new
reporting entities and the quality of data,
thus on the assessment. KDPW_TR is waiting
for the ROC decision in this respect.
Ph. D. Iwona Sroka
President & CEO
KDPW and KDPW_CCP
Silvano Stagni: Nowadays most sellside companies are netting their position
on a daily basis, so there is little need for
collateral. The main risk will come from
non-financial counterparties and those
buy-side institutions that do take positions.
However, the initial reaction to the apparent
complexity and the need for collateral
overstated the issue.
Brian Bollen: The possibility of a collateral
shortfall seems to have been pretty much
exposed as a bit of a red herring in recent
months. Would you agree that the initial
hysterical forecasts were vastly overdone?
Or do risks persist that we ought to take into
consideration?
Daniel Jude: EFAMA said, and we maintain
this position, that a global shortfall is not
really a risk. What we see is a risk of issues
in the delivery of eligible collateral. The
problem is even more important to asset
managers because they might not have
eligible assets in their portfolio to deliver
to their counterparties and would need to
transform it into eligible asset (that would
have to remain in line with the requirements
in the prospectus), or they do not have access
to credit and are forced to use the assets
collected according to their prospectus.
”
Brian Bollen: Have there been enough
safeguards put in place to cope with a CCP or
Clearing member that needs to default?
Vincent Dessard: EFAMA members have
worked extensively to ensure that their
process and risk monitoring tools are in
place. From an asset manager’s perspective,
as we are third-parties to the clearing
arrangements, our most important risks
sit with the Clearing Members. The second
level of issue might come from some
legal uncertainties (e.g. the treatment of
conflicting situation such as a broker that
is also a CM and that is defaulting on the
bilateral but cannot be called in default from
a CCP’s perspective).
Iwona Sroka: The safeguards defined in EMIR
relating to the default of the CCP or clearing
member, and put in place by the CCP, is
deemed sufficient if they can be shown
to be effective on the basis of local law.
There may be certain exceptional situations
(e.g. porting in instances where a foreign
participant defaults) where the provisions
of EMIR may prove not entirely effective
owing to the specific regulations governing
bankruptcy law in a given jurisdiction.
Silvano Stagni: Reading the rules would
make you think so. This does not mean
that it won’t happen. It all depends on how
effective the implementation of those rules
will be.
International Securities Services, February 2015
Brian Bollen: What has been the impact on
an operational level in terms of numbers of
staff and training of staff to deal with EMIR
within your organisation?
Iwona Sroka: Following the introduction of
new EMIR requirements, we needed to make
some changes at the organisational level of
the KDPW Group. This consisted of moving
“
Clearly there is more work to be done on this
subject, but I believe the market is engaged
and moving towards a solution.
Brian Bollen: When do you realistically think
the first wave of assessment will be?
Vincent Dessard: We believe that the
assessment will go in two directions, each
Issues not yet clarified are indirect clearing, interplay between EMIR and
CRR. Moreover, the elephant in the room is cross-border equivalence,
specially between the US and Europe.
- Nick Chaudhry, Commerzbank
some staff to perform duties involving
services arising directly from the provisions
of EMIR. Owing to the wide-ranging
changes introduced by EMIR and other
EU regulations and directives governing
the financial market, training is a necessity
and permanently ongoing. It is also worth
underlining that KDPW_TR and KDPW_CCP
have both separately organised a range of
training seminars and meetings with market
participants and national regulators aimed
at instructing the Polish capital market, in its
broadest sense, about new responsibilities
and obligations being imposed as a result
of EMIR. Active participation in conferences,
training seminars, high-level international
meetings and an individual approach to
clients requires the non-stop engagement
of KDPW Group staff in the development
of services and in raising the quality and
accuracy of data reported.
”
having different time lines. One, regulatory
assessment that should come by end of Q2
2015. Two, internal assessment of both the
internal impacts but also of the services
provided by CMs that might start a year to
18 months after first implementation by the
company.
Iwona Sroka: Taking into consideration the
harmonization work which is pending we
assume that the first assessment should
Silvano Stagni: As far as reporting to
repositories is concerned, it will probably be
towards the end of 2015. ESMA is currently
reviewing the fields to include in transaction
reporting to repositories. The first wave of
assessment will be a few months after the
amendments to transaction reporting will
be implemented.
Brian Bollen: Is EMIR implementation
proceeding as smoothly as official bodies
like the FCA would have us believe, or is it
encountering unexpected speed bumps?
Do you see any possible complications as it
continues? Are there any unexpected delays
happening, and if so, where in the system are
they? What needs to be done to overcome
the issue?
Vincent Dessard: As above, we believe that
the regulators have done amazing work
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Regulation.
Nick Chaudhry: This topic has had much
focus over the last few months. A report from
ISDA recently said, “CCP recovery preferable
to resolution”. The report stated three
principles.
One, “recovery of a CCP is preferable to its
closure. As a result, recovery efforts should
continue so long as the CCP’s default
management process is effective, even if prefunded resources have been exhausted. In
the event the default management process
hasn’t been effective in re-establishing
a matched book – signalled by a failed
auction – the CCP may have to consider
the closure of the clearing service. At this
point, it is likely that resolution authorities
will be considering whether this should
trigger resolution.” Two, “recovery methods
should be clearly defined in clearing service
rule books to provide transparency and
predictability over the maximum time
frame for the default management process
before recovery tools are deemed to have
failed.” Three, “clearing services should be
segregated and structured to be of limited
recourse to the clearing provider to mitigate
the potential for contagion across other
clearing services of the CCP.”
start by the end of 2015. It should be also
noted that as long as UPI, UTI standards and
other work on the quality of data remain
unimplemented, an accurate assessment will
not be possible. That is why it is difficult to
specify a more accurate deadline.
Silvano Stagni
Group Head of Marketing and
Research
Hatstand
Silvano Stagni: After a long career as
Change Director and Strategist for major
financial institutions, Silvano decided
to focus his professional growth on the
Impact of Regulatory Change on IT. His
experience in bridging communication
gaps between stakeholders is the basis
of his style as a consultant and writer.
Silvano joined Hatstand in June 2012 and
now runs Hatstand’s regulatory practice
in London and global thought leadership.
Established in 1999, Hatstand has
developed from a boutique consultancy
into a global IT player, our success placing
us both in The Sunday Times Tech Track
Top 100 Companies and also the London
Stock Exchange’s prestigious “1,000
Companies to Inspire Britain” list.
In addition to our proven highly
experienced
senior
consultants,
Hatstand nurtures the most talented IT
professionals and provides them with
bespoke training and mentoring to
pursue prosperous careers in the financial
industry. We achieve this with our
unique talent management programme,
Hatstand Green Beret, and through a
traditional consultancy model.
International Securities Services, February 2015
within that timeframe. However, we are not
as optimistic as the FCA seems to be as we
noticed (and are convinced that some other
regulators would agree), there are some
elements that are not as smooth as they
could have been: definition of instruments
such as forex; a big bang approach for
reporting too important to avoid massive
reconciliation issue; proposed frontloading
“
On December 18 2014 the European
Commission informed ESMA of its intention
to endorse with amendments the draft RTS on
IRS released in October 2014. The proposed
amendments impact the RTS in three main
“speed bumps”: frontloading, categorisation
of investment funds and treatment of nonEU intergroup transactions.
The market reaction to OTF (Organised Trading Facility) and to the
obligation to trade on-exchange will ultimately require a review of some
of the provision of EMIR.
- Silvano Stagni, Hatstand
mechanisms not taking market reality
into account (gratefully corrected by the
European Commission in the meantime).
Iwona Sroka: The problem we see is the way
in which local regulators operate differently
depending on their home country. We do
not see uniform guidelines on how the
authorisation process is to be carried out.
Hence the notable differences with respect
to how applications are processed. For
instance, in determining the first group
of currencies to come under the clearing
obligation for which technical standards are
being drafted, the opinions of some experts
relating to the inclusion of a broader range of
currencies was not taken into account.
Silvano Stagni: Based on conversations
with our clients, the implementation of the
reporting side of EMIR is proceeding quite
smoothly. Detailed central clearing technical
standards for specific asset classes are slow
in coming and this makes it difficult to plan
their implementation.
Nick Chaudhry: EMIR implementation is
proceeding but there are delays. The first
CCP to be re-authorised under EMIR was
back in March 2014. In theory the level 1
text allowed for the clearing mandate to be
published seven months after. However the
first clearing mandate will not be until late
2015, notwithstanding frontloading which
comes in to play this spring.
”
Other issues not yet clarified are indirect
clearing, interplay between EMIR and CRR.
Moreover, the elephant in the room is crossborder equivalence, specially between the
US and Europe.
Brian Bollen: Do you think market
participants are ready for the reporting that
will be required?
Vincent Dessard: We believe that this is
an ongoing exercise. To be able to meet
the required reporting requirements,
the regulators should take into account
implementation time required to adapt
the IT systems and also adapt prospectuses
(which may take even more time, taking into
account the approval process to follow with
the NCAs).
Silvano Stagni: Reporting to transaction
repositories became effective almost a year
ago. Larger financial institutions are ready,
the sell-side is almost ready. Smaller buy-side
institution are counting on the sell-side to
report on their behalf and many companies
are providing that service. This, however, is
going to change once the ESMA review of
the reporting technical standards has been
approved because those changes will have
to be implemented.
ESMA is an independent EU Authority that
contributes to safeguarding the stability
of the European Union’s financial system
by ensuring the integrity, transparency,
efficiency and orderly functioning of
securities markets, as well as enhancing
investor protection. In particular, ESMA
fosters supervisory convergence both
amongst securities regulators, and across
financial sectors by working closely with
the other European Supervisory Authorities
competent in the field of banking (EBA),
and insurance and occupational pensions
(EIOPA). operational readiness for EMIR and
Dodd-Frank.
Brian Bollen: Will we need to wait until Mifid
II is implemented before EMIR can fully come
into force?
Vincent Dessard: The reply to this question
is complex. On the one hand, EMIR could
be fully applied to Reporting, Margin
requirement and Clearable instruments as
defined by ESMA and through recognised
CCPs. For this part, MiFID II is not needed.
On the other hand, the consolidated tape
regime and trading obligation for derivatives
have to wait for MiFID II. Consequently, we
believe that this question cannot currently
receive a straightforward reply.
Iwona Sroka: If we consider only the
reporting segment, it is not necessary to
wait for MIFID II because EMIR regulations
related directly to transaction reporting have
already come into force.
Silvano Stagni: EMIR only addresses posttrade actions; pre-trade and trade issues are
addressed in MiFID II/MiFIR. I think that the
market reaction to OTF (Organised Trading
Facility) and to the obligation to trade onexchange will ultimately require a review
of some of the provision of EMIR as it will
increase the number of derivatives traded
on exchange and the overall volumes of
exchange trades compared to non-exchange
trades and non-liquid OTCs.
Nick Chaudhry: Certain elements of EMIR
need to be addressed now by sell- and buyside firms. The general consensus in the
market is, start to prepare for the onset of
mandatory clearing now and not using the
“
We have little to add to the
International Securities Services
roundtable as the key points have
already been made with some
eloquence by participants. We would,
however, like to draw the attention of
readers to documents published by
ESMA which advance the clearing
and derivatives agenda some degree.
The consultation on the “Review of
the technical standards on reporting
under Article 9 of EMIR”, for example,
closed in early February, which
means that the feedback received
will now be used to form ESMA’s final
view on the matter later this year.
In addition, we have submitted an
amended standard for IRS clearing to
the European Commission, moving
the actual start of clearing closer.
We are also currently consulting on
the implementation details of MiFID
II, which will also clearly have an
impact upon derivatives markets and
market participants.
- Reemt Seibel, ESMA
”
fully phase in periods defined in the IRS RTS.
There are two main drivers for this. One,
clearing broker capacity - currently there is
capacity in the market for clearing brokers
to provide clearing services and onboard
clients. However this capacity is not infinite
and is reducing over the short term, which
will lead to bottlenecks in the market. From
the end-user perspective the longer they
wait the harder it will become to obtain OTC
clearing services and have certainty that they
can satisfy their EMIR Clearing obligations.
Two, pricing - This is clearly linked to capacity
and as the capacity runs out of the market,
pricing of Clearing services will increase for
late arrivals. Which could easily outstrip
costs of starting the process early next 2015.
The onset of MiFID II does indeed bring
further challenges. As such it is important
to get in front of EMIR in terms of clearing
obligations, collateral management and
reporting requirements and leave time to
prepare for electronic trading venues and
multiple OTF/MTF connectivity.
Brian Bollen: What can companies be doing
now to make sure that when assessment is
conducted, that their data will be accepted?
Vincent Dessard: We believe that most (if
not all) asset managers are already informed
of their duties in terms of reporting (or at
least that reporting is required) and setting
up their systems in accordance with the
regulatory evolution. We would then insist
on the need to watch for regulatory changes,
exchange views within the scope of local or
European trade bodies or directly with peers
to ensure that any new rules is understood
both by the regulators and the market actors.
Iwona Sroka: Market participants covered
by EMIR’s reporting obligation have to report
in accordance with the technical standards
and ESMA guidelines (set out in the Q&A
published by ESMA). In particular, they must
report on time. They should also reconcile
reports with the transaction counterparty
and respond to TR messages which provide
information about errors. In case of any
doubts on correct reporting obligated
companies should consult ESMA or the TR to
which they are reporting.
Silvano Stagni: In order to provide a reliable
aggregated scenario to regulators and
Brian Bollen is a vastly experienced
financial journalist, who has spent
his entire professional life observing
and writing about the international
institutional finance industry,on subjects
ranging from the Latin American debt
crises of the mid-1980s to the emergence
of direct debt as an asset class.
Brian Bollen
Consulting Editor
International Securities
Services Magazine
relevant competent authorities data has to
be correct from the beginning. Companies
can reassure regulators only by a level
of self-assessment. This self-assessment
process could be made more credible if it is
performed by an external unbiased body.
Brian Bollen: Thank you everyone for your
time and patience. Is there anything further
you would like to add that we have perhaps
overlooked, which might be addressed in a
similar future discussion?
Nick Chaudhry: Is there an argument for
some sort of utility that supports market
participants in fulfilling their regulatory
obligations? Collateral would seem to be
a key element to the cost question; how
will collateral management/transformation
play into the cost mix? What are the
unintended consequences? What are we
dealing with now (and in the future) that
the regulators have not foreseen? What
additional complexity will MIFID II add to the
cost debate? Cross-border implementation
issues: how do global regulators solve these
and provide clarity to the market?
Brian Bollen MA (Hons), Fellow of ifs
University College
Freelance Journalist: Writer, Editor, Media
Consultant & Media Trainer
He has been a full-time freelance
journalist since January 22 1993, when
he left the Financial Times building at
Number One Southwark Bridge for the
last time, after more than eight years as
a full-time writer, executive editor and
editor within the FT Group.
Owner, Author and Editor of Brian Bollen’s
Blog
(www.brianbollen.com)
He passed his banking exams and was
elected an Associate of the Institute of
Bankers in July 1983, towards the end
of his five-year spell on the Midland
Bank International graduate programme
and was invested as a Fellow of the ifs
School of Finance in March 2007, since
upgraded to ifs University College.
Tel: 01908 234952
(Int’l: +44 1908 234952)
brianbollen@mac.com
(writing, editing, copywriting, ghostwriting and coaching assignments
currently being undertaken)
http://www.brianbollen.com
www.iss-mag.com | +44 0 207 492 1958 | info@iss-mag.com
International Securities Services, February 2015
5
th
Proudly
celebrating
our 5th Anniversary
2010 - 2015
Making the most of trade reporting data
Nearly one year after the EMIR
trade reporting start date, we asked
John Kernan, SVP at REGIS-TR, a
trade repository jointly owned
by Clearstream and Iberclear,
how the market has embraced
the regulatory change and which
questions are commonly raised by
market participants regarding trade
reporting.
Back in 2009, the G20 agreed that all
standardised contracts should be traded
on an exchange or on electronic trading
platforms and cleared through central
counterparties.
Non-centrally
cleared
contracts would be subject to higher capital
requirements and all OTC contracts would
be reported to trade repositories. Five years
on, the European Market Infrastructure
Regulation (EMIR) has been implemented
and both Exchange Traded Derivatives
(ETD) and over-the-counter (OTC) contracts
have been reported to trade repositories for
nearly a year.
Although the (EMIR) reporting requirement
gave rise to six new trade repositories such
as REGIS-TR, the European trade repository
jointly run by Clearstream and Iberclear, both
trade repositories and market participants
found ensuring compliance with the
regulation challenging.
The bumpy road towards EMIR compliance
Most financial institutions are impacted by
a large number of regulatory changes in
addition to EMIR. As a result, they initially
have to deploy solutions on a tactical
basis to meet the regulatory deadlines
only to formulate a long-term strategy at a
later date. Many non-financial institutions
were not used to operating within these
regulatory constraints at all. Implementing
an EMIR trade reporting solution in time
for February 2014 reporting start date
was further complicated by delayed
availability of technical specifications, late
registration of trade repositories, declined
extension requests for ETD reporting and,
consequently, a compressed timeframe for
implementation.
Reporting of collateral and valuation
updates was implemented in August 2014
for all financial institutions and large nonfinancial institutions. The market was broadly
better prepared than in February. However,
changes on data validation rules mandated
for1 December challenged all participants both the buy-side and the sell-side.
“
Most financial institutions are
impacted by a large number of
regulatory changes in addition to
EMIR. As a result, they initially have to
deploy solutions on a tactical basis to
meet the regulatory deadlines only to
formulate a long-term strategy at a
later date.
”
ESMA’s open consultation paper currently
under discussion presents an opportunity
to improve reporting and interpretation of
data, while it will almost certainly result in a
revision of the current EMIR trade reporting
framework. On the face of it, the consultation
intends to address shortcomings identified
during the first ten months of reporting– the
much discussed “soft start” – by introducing
improvements to better fulfil the reporting
objectives, providing clarification on some
data fields and their descriptions and by
moving good practice/guidance from
their non-binding Q&As into fully ratified
standards.
“
By consolidating raw data from
disparate systems, participants tell
us that they are now better able to
manage margining requirements
and
counterparty
exposure
monitoring.
”
There had long been demands in the market
for measures such as more prescriptive
standards and a greater degree of market
consultation. Participants will, however,
expect a longer timeframe to implement
change than was the case for December’s
new validation rules mandated by ESMA
which did not leave much time for reviewing
technical specifications, developing, testing
and implementing.
It is worth noting that EMIR is not the only
John Kernan
Senior Vice President
Regis-TR
John has spent 20 years in the securities
services industry with Chase Manhattan,
Deutsche Bank and State Street,
before spending five years as SVP for
Clearstream’s core custody product
management. He assumed responsibility
for REGIS-TR product management in
January 2014. John has held a number
of senior positions in the UK, Ireland and
Luxembourg and is currently a member
of the ALFI EMIR/OTC Derivatives working
group.
regulation which mandates trade reporting.
MiFID II and the accompanying regulation
MiFIR are expected to come into force in
2017. Transaction reporting is a key element
of MiFID II which will see additional product
types and data fields in scope. The REMIT
Implementing Act on market abuse in the
wholesale energy markets triggers reporting
requirements for standardised contracts
on 7 October 2015 and non-standardised
contracts on 7 April 2016. The Swiss
equivalent of EMIR, FinfraG is expected to
enter into force in early 2016. Additionally,
Securities Financing Transactions (SFT) are
likely to become reportable under shadow
banking regulation foreseen for 2016/17.
International Securities Services, February 2015
Data consolidation benefits
Before EMIR, whether you were a
supermarket using derivatives to hedge
against changes in your future power
consumption requirements, a binary options
broker offering retail customers online
dealing or a large investment manager using
swaps as part of a Liability Driven Investment
(LDI) fund strategy, you were unlikely to view
trade reporting as a central aspect of your
business operations.
“
Whilst they may delegate the act
of sending the report to the trade
repository, the participant themselves
remain responsible to their regulator
for the timely reporting and accuracy
of the data.
”
However, during the post-crisis regulatory
push, trade reporting was catapulted onto
the agenda of almost all market participants.
Not everyone was pleased with this
development; non-financial institutions
argued they were being punished for
transgressions within the banking sector.
While these concerns may or may not be
justified, the mandatory implementation
of the reporting regime is bringing certain
benefits to participants. By consolidating
raw data from disparate systems,
participants tell us that they are now better
able to manage margining requirements
and counterparty exposure monitoring and
can also perform broader analysis to realise
operational efficiency or identify commercial
opportunities.
For example, one trader at the EuroFinance
corporate treasury conference in Budapest
2014 acknowledged that EMIR and REMIT
trade reporting requirements had acted as
a catalyst for their firm to use the data for
monitoring internal trading activity.
Outsourcing vs. in-house reporting
Depending on the specificities of the
regulation, some of the operational burden
of reporting may bedelegatedbe outsourced,
but for EMIR a number of institutions using
multiple venues and counterparties have
found this not to be a fitting solution.
Whilst they may delegate the act of sending
the report to the trade repository, the
participant themselves remain responsible
to their regulator for the timely reporting
and accuracy of the data.
Furthermore, sell-side institutions offering
delegated reporting services normally do so
on a best endeavours basis, i.e. they do not
accept any contractual liability for errors.
Buyside institutions will be deterred from
delegating reporting by the need of
From inception, REGIS-TR had the philosophy
that participants should not have to shoehorn the TR reporting model into their
existing operational framework. To this end,
they have entered into a number of strategic
partnerships aimed at providing flexibility.
This is one of the reasons why they have
so many corporate customers as well as
large financial institutions amongst their
participants.
REGIS-TR is a central trade repository for
derivatives transactions across multiple
product classes and jurisdictions. The
trade repository is open to financial
and non-financial institutions, primarily
in Europe, and will service all types of
derivative contracts in a unique market
offering.
The registry collects and administers
details of transactions reported by
its clients to give market participants
and regulators an aggregated view of
positions in compliance with upcoming
regulation.
In addition to its core services, REGIS-TR
will introduce a number of value-added
products including centralised collateral
management and third-party exposure
valuation services. The company is
already progressing well towards its goal
of becoming a one-stop-shop for the
registration of the full range of derivatives.
REGIS-TR is a joint venture launched by
the Spanish central securities depository
(CSD) Iberclear and Clearstream, an
international central securities depository
(ICSD). It is incorporated under the law of
Luxembourg, where it is headquartered.
Its operations are now live.
implementing a robust control and oversight
mechanism for reporting undertaken on
their behalf by multiple counterparties. As a
result, they will prefer to report themselves.
As the landscape becomes more fragmented
with regulatory requirements overlapping
but not perfect facsimiles of each other,
many market participants are revisiting
their reporting solution in order to leverage
their data more effectively. For many, this
means bringing the trade reporting back inhouse. Some organisations have effectively
built their own internal data repository
infrastructure to meet the multiple
regulatory requirements, others prefer
external providers.
More than a simple repository
Either way, there is an expectation that
trade repositories will evolve from simply
receiving data to offering practical solutions
to ease the burden of regulatory compliance
across multiple jurisdictions and to help their
participants readily analyse the data.
Going forward, REGIS-TR will extend its
services to enable participants to send data
from multiple platforms on a piecemeal basis,
support them in re-modelling the data into
the appropriate regulatory templates and
then process data packages in accordance
with the regulator’s technical standards.
Trade repositories that can effectively
combine operational flexibility, quality
of service, powerful data analytics and a
holistic reporting compliance view have
the strongest chance of becoming the onestop-shop regulatory reporting solution
for their region. While global regulatory
goals are common, regional expertise is
key to help participants address them. The
implementation of EMIR has proven that
the reporting requirements differ between
regions on multiple levels. REGIS-TR’s focus is
firmly on European regulation.
How regulators use the data
Another frequently raised concern amongst
market participants is the question of what
regulators are doing with the data, especially
the issues surrounding reconciliation have
been well documented. The belief that
regulators might not be doing much with
the data could be perceived as a mitigating
factor to timely compliance with the
reporting requirements, especially as some
participants seem to think the prospect of
trade reporting fines is a distant one due to
the huge volumes - between reporting start
date in February 2014 to the end of 2014,
REGIS-TR alone received more than two
billion individual trade reports.
It is true that a number of data quality
issues need to be resolved so that National
Competent Authorities (NCAs) can properly
identify trades where one counterparty has
a reporting obligation but has failed to file
“
the UK’s Financial Conduct Authority
states non-compliance with the full
scope of ESMA as being high on their
agenda.
”
their corresponding report. However, the
expectation that volume and reconciliation
differences will prevent NCAs from doing
anything at all is surely misplaced.
Whilst the NCAs are not at liberty to divulge
to the trade repository specifically what they
International Securities Services, February 2015
intend to do with the data – it is clear that
the level of focus is certainly increasing. In
their EMIR supervisory priorities for 2015,
the UK’s Financial Conduct Authority states
non-compliance with the full scope of ESMA
as being high on their agenda. Indeed, it was
the first topic mentioned.
Germany
has
formalised
this
by
implementing a law requiring auditors to
check German firms’ compliance with EMIR.
All financial counterparties will be subject
to the new audits, as well as NFCs with more
than EUR 100 million notional outstanding
in OTC derivative contracts. At recent
conferences, other NCAs also indicated that
they are indeed checking the data and are
having discussions with some of their larger
participants concerning the poor quality of
some of the more fundamental data being
reported, namely, the LEI and the UTI, both of
which have been subject to increased levels
of validation by the trade repositories at the
behest of ESMA.
But it is not just compliance with the
reporting obligation that the data will be
used for. At a derivatives clearing conference
in October, a representative from the French
markets regulator – Autorité des Marchés
Financiers (AMF) – confirmed that they are
using data reported under EMIR to probe
a case of market abuse. In an interview in
2014, John Tanner of the FCA also confirmed
that “anybody who is a prudential regulator
will look at individual exposures. Regulators
concerned with systemic risk will be looking
at the inter-relationships between individual
exposures. But that is just a sample of the
various uses to which the data will be put.”
Data quality issues aside, the data reported
may come into its own if another Lehman
Brothers type scenario unfolds. One of the
many problems with the Lehman Brothers
case was that they were estimated to
be counterparty to more than 900,000
derivatives contracts worth an estimated
notional of more than USD 35 trillion
(figures from 2013 Jones Day white paper,
”The European Market Infrastructure
Regulation and transparency in the OTC
derivatives market”). The lack of centralised
reporting requirements resulted in a lack
of transparency which, in turn, made it
impossible to quickly unpick the complex
myriad of Lehman Brothers’ contracts. Much
of this value may never be fully transparent,
save in the event of another well publicised
crisis.
EMIR as a catalyst for data supported
decision making
To conclude, whilst some market participants
are still debating about the merits of EMIR
trade reporting requirements, the fact
remains that EMIR trade reporting is in
place and, changes prompted by ESMA
consultation paper notwithstanding, its
scope is unlikely to fundamentally change.
For other participants, the debate has moved
on and they are looking into long term,
strategic trade reporting solutions. They see
EMIR as a catalyst for re-engineering their
processes and for consolidating their data
to leverage it for a more data-supported
decision-making process.
Reproduced by permission of Rocket magazine and Clearstream
www.iss-mag.com | +44 0 207 492 1958 | info@iss-mag.com
International Securities Services, February 2015