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Emily CatesBy Emily Cates, specialist in operational processing, Rule Financial
With the Feb. 12 trade reporting deadline fast approaching, the race for European Markets Infrastructure Regulation compliance is now well and truly underway. EMIR is one of many new regulations governing derivatives trading across the globe and, like its North American counterpart Dodd-Frank, is the culmination of the post financial crisis movement towards increasing transparency and reducing risk within the market.
The impact of EMIR on the derivatives market-of which notional amounts outstanding for over-the-counter contracts alone totalled USD693 trillion at end-June 2013 according to Bank of International Settlements data-will be huge, and firms that wish to continue to participate in this market will need to make comprehensive and fundamental changes to their operating models. However, time is fast running out and firms that have not already addressed the considerations outlined in this article are in great peril of missing upcoming deadlines.
The First Hurdle
Despite numerous delays, the deadline for EMIR trade reporting is nearly upon us. However, some firms are still struggling to implement their trade reporting solutions as elements of the mandate have proven to be far more complex than initially anticipated. In particular, the creation of a unique trade identifier is causing some difficulty. When trading, both counterparties will need to use a UTI in order to identify the trade with a trade repository. Deciding which counterparty will need to generate the UTI, and then determining how best to exchange, consume, track and maintain it over the life of a derivative transactions is proving to be troublesome. Allied to this issue is the task of back-loading. The European Securities and Markets Authority has stipulated that all trades that were live between Aug. 12, 2012 and the go-live date need to be back-loaded to the chosen trade repository. Considering the gargantuan trade volumes of some organisations, this is no small task.
Adding to the chaos is the unexpected inclusion of exchange traded derivatives in the February deadline. It was initially anticipated that ETD transactions would not need to be reported until 2015. Firms that had planned to delay the implementation of an ETD reporting solution are now struggling to cope with vast amounts of additional and unanticipated work.