Article: A Guide to the EMIR Trade Reporting Obligations – Part 218 December 2013
Time has come to move on to EMIR Trade Reporting - Part 2 (EMIR Trade Reporting Part 1 is here). Before I get into detail, there are some valid points that I received from Carsten Kunkel, Tom Riesack and Ricky Maloney that I wish to encompass in this post. First of all, let's all agree that the list of questions posed in my previous post is by no means an exhaustive list because as Tom puts it "no case is like the other. This is for the most part because they all have different starting points, systems, affiliate structures, dependencies, budgetary and manpower constraints and so on.....".
Tom is absolutely right and that is why anyone going through this "guide" should decide which questions best apply to his/her case and if there are some more concerns that should be addressed, based on their profile and business needs. Carsten, speaking from a solution provider's point of view actually put the questions in a different order, starting from the current and desired future business size to end at the "budget" question that comes last and may lead you to even take harsh decisions as "stop trading derivatives".
I can assure you that many Non-Financial entities will take such a decision to avoid EMIR implications, especially the ones that do a few derivatives to hedge their commercial activity. My view is that knowing your budget limitations right from the start may save you time and effort, as some alternatives may be unrealistic even to give them a look. Time is money, don't they say? Rickey Maloney, on the other hand, is of the opinion that you should take as much advantage from your current business as you can, meaning that if there is an infrastructure already in place there is no need to change everything.
He also brought up a question that I have also heard a couple of times and I am sure you have heard it too, "Who would know if the reporting wasn't accurate?" Don't tell me that this question never crossed your mind, your nose will grow big like Pinocchio's! Having said all these, and given that you will have already cancelled any holiday plans by now, you are at the point where you should either
- a) choose a 3rd Party Provider, following your decision to delegate
- b) decide which TR you will connect to, if you will self report
- c) liaise with your counterparties to find out their requirements, if you will delegate reporting to them.
Question 4 : What are the criteria to be taken into account before choosing my 3rd Party Providers?
The 3rd Party Provider should help you adapt to the new workflow for Trade Reporting as it will serve as the go-between with TRs. You should seek answers (incorporating here Carsten's 3 questions as well) to the following:
- Is there one 3rd party offering which covers ALL derivatives (both OTC and ETD)?
- If yes, does it cover ALL reporting fields? For example, some do not support market values & collateral fields.
- If they do cover everything, how difficult/expensive is it to setup interfaces to that provider? Or if I rephrase this a bit, will they take raw data and do the mapping work for you or will they require you to send data in the final format?
- Is there a compatibility with your current infrastructure?
- If you have to use different 3rd party providers, do they all report to the same TR?
- What kind of Agreements do you have to execute? Are they negotiable?
Do they make the necessary upgrades every time the TRs change their requirements? Will these changes affect you in any way?
- Do they have a connectivity with any CCP?
- Do they provide Reporting services under other Regulations as well ?
- What is their client base?
- What is the average on-boarding time?
- Do they provide any other services apart from Reporting? and last but not least....
- What will they charge you for their services?
Lots of questions but all equally crucial for your decision.
Question 5: What are the criteria to be taken into account before choosing my Trade Repositories?
Congrats!! You are very brave, you decided to self report thus you now have to decide which TR you will connect with. Having gone through this process myself for the sake of my entity, I can assure you that this isn't an easy task. TRs themselves are not alike, they have different policies in some areas thus making them comparable is a challenge of its own. So ask yourselves some questions and take some steps at the same time.....
- Do you need to look into all available TRs? My answer would be no. Try to narrow your options as much as possible from the beginning as getting into detail for each and every TR is a time consuming project itself. First of all search for those that cover the asset classes you need or may need in the future.
- Assuming you have come down to 2 or 3 TRs, can you start testing with all of them even if you haven't made your final decision and at what cost? This is a highly critical question as connecting with TRs in UAT environment could result in significant changes in your initial approach and consideration of what Reporting means for your current infrastructure.
- If the answer to the above is yes, go and ask for access to their UAT. However scary this may sound as you may not be ready to send data over, this will help you "unlock" technical documents that will give you a clue of what each TR asks for Reporting.
- Once you establish a communication with the ones in scope, ask for their presentations on their offerings and start working on them. There is lots of information inside the slides that you need for your comparison.
So what are the points that you should take into consideration when doing the comparison? Try the ones below, not necessarily in this order :
- Ownership/Relationship. Who is behind the TR? Is it someone you are already doing business with in another area?
- Asset classes coverage. Do they cover all asset classes?
- Data Storage. Where do they keep their data and for how long?
- Who are they regulated by?
- System Architecture. Do they have a robust and scalable system? Do they have BCP infrastructure?
- Legal Environment. What are the Agreements you need to execute with them? Are you the only one who will have the contractual relationship with the TR or will your counterparties sign an Agreement with them too ? Will your affiliates (if any) be grouped under your Agreement? This is a very crucial part of your analysis as the TR's legal requirements may impose operational pitfalls on you and your clients and will determine cost as well. You legal team has a lot of work to do here!!
- Suite of Connectivity Options & functionality. What kind of formats and connectivity means do they provide? Are they flexible enough? Do you need to build extra infrastructure to connect with them and if yes at what cost? Your experience from UAT will give you valuable insight on this one.
- Do they only report under EMIR or do they offer reporting for other jurisdictions as well?
- Who do they partner with? Do they connect with any 3rd Party Providers that you may already be using for other business? e.g affirmation platforms
- Do they connect with any CCPs?
- Do they perform reconciliation? If your counterparty reports the trade to another TR, how is the reconciliation done?
- What is the accounts' structure? This is highly related to the Agreements you or your clients will execute with them.
- Which TR will your counterparties use?
- What is the average on-boarding time?
- Availability for advice and consultancy. Are they reachable and available when you need them? The more clients they service and the closer we get to the Reporting deadline, the more difficult it will be to get quick feedback from them.
- What is their cost policy? This is one of the areas that you will find it difficult to compare as some price on "open positions" per month basis and others on a "per transaction/message" basis. Don't be shy, ask them lots of questions (others do too), send them emails asking for specific examples on the structure you desire. If you do have an estimation of your volumes and open positions it will help you reach a rough estimation of what each TR will cost you.
Get all of the above in a matrix and pinpoint the most significant areas of difference. According to your business needs, if you have a clear picture of what each TR can offer you, it won't be difficult to reach a decision.
Question 6: What do I need to do if I wish to delegate reporting to my counterparty?
If you have already made such a decision you will probably have concluded that the business you do with them justifies such delegation. You need to contact them though and get some asnwers on a few things like :
- Do they offer reporting services on all products? Does this service include historical trades? As there is an uncertainty with regards to ETD reporting, your counterparty may avoid such product offering for a while.
- Can you choose between a partial and full delegation of your reporting obligation to your counterparty? Can you differentiate per product type or event?
- Who will be the UTI generating party for the purposes of the delegated reporting?
- Which TR will your counterparty use?
- Will you be able to view what is reported on your behalf? Is there a cost entailed or legal Agreement necessary in order to have such option?
- What is required from you to effect the reporting on your behalf? (LEI issuance etc)
- What Agreement will be necessary to be put in place for the delegated reporting service?
- How much will this service cost you?
If you think that after choosing your partners, your "Reporting" task is completed, think again. More things need to be done as we move towards the 12th February 2014 and these will follow in a Part 3 post, hopefully not long after holidays. At this point, do you believe there are other things that should be taken into account before we move on? Feel free to share your comments and add to this discussion. Maria L.