EMIR Are you prepared to report your derivatives transactions?

Transcription

1 EMIR Are you prepared to report your derivatives transactions? 17 June 2013

2 Xavier Zaegel Deloitte Luxembourg Are you prepared to report your derivatives transactions? 2013 Deloitte Tax & Consulting

3 Reporting of any derivatives to Trade Repository is one of the main requirement introduced by EMIR 1 Today s objectives 4 Ancillary impacts in terms of regulatory capital requirements (CRD IV provisions) for credit institution or collateral treatment for investment firms 3 Clearing Standardised OTC derivatives will need to be processed through Central Clearing Counterparties (CCP) EMIR Risk mitigation techniques (bi-lateral OTC): - Timely confirmation - Portfolio compression - Portfolio reconciliation - Mark-to-market valuation - Dispute resolution - Collateral requirements 2 Reporting OTC and traded derivatives positions to a Trade Repository (TR) Highlight the EMIR Reporting Requirements and go through practical cases Review Trade Repository Services Offering Regis TR How SWIFT can help you to connect to TR? What I need to do as from now? Key take away Deloitte Tax & Consulting

4 Agenda 1 Are you prepared to report your derivatives transactions? 2 Theory vs. Practice: Key Requirements & Case Studies 3 Regis TR 4 SWIFT 5 Q&A - Panel 6 What s Next: Challenges and Opportunities - Linking the dots Deloitte Tax & Consulting

5 Francesca Messini Deloitte Luxembourg Theory vs. Practice: Key Requirements & Case Studies 2013 Deloitte Tax & Consulting

6 OTC Derivatives Reporting The countdown to reporting obligation Key dates Trade Reporting Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Historical contracts: 16 August 2012 EMIR entry into force 19 December 2012 EU Commission adopted technical standards 15 March 2013 Entry into force of technical standards 15 March 2013 TR application begins 23 September 2013 Reporting start date for credit and interest rates (if TR has registered before 1 April 2013) 1 Jan 2014 Reporting start date for all other contracts (if TR has registered for product type before 1 October 2013) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Contracts outstanding on 16/08/12 and still outstanding on the reporting start date: Contracts outstanding on 16/08/12 that are closed on reporting start date: Contracts entered into on or after 16/08/12 that are closed on reporting start date: Contract reporting start date + 90 days Contract reporting start date + 3 years Contract reporting start date + 3 years Starting date: on the basis of the information available so far, ESMA s best estimate is that the registration of the first TR is not likely to take place before August 2013 and the reporting start date depends on the actual date of the registration of the first TR : where there is no TR registered before or on 01 April 2013, the reporting start date is extended to 90 days after the registration of the TR Reporting start date is extended by 180 days for the reporting of information referred to data on valuation and collateral ( Art. 3 of EU regulation 148/2013 RTS on reporting to TR) 6 Source: EMIR, Deloitte Analysis 2013 Deloitte Tax & Consulting

7 Theory: EMIR Requirements Key requirements aiming at increase market transparency Counterparties and CCPs shall ensure that the details of any derivative contract (OTC and ETD) they have concluded and of any modification or termination of the contract are reported to the TR no later than the working day following the conclusion, modification or termination of the contract. (Art. 9 EMIR Law) By the end of the day following the execution, contract and all its characteristics are reported Where no contracts are concluded, modified or terminated, no reports are expected, apart from the updates to valuations or collateral If no authorized TR is in place by 01 July 2015, the information are reported to ESMA Record keeping following termination of the contract: at least 5 years for counterparties At least 10 years for TRs DAILY data to report: Information on collateral can be reported on a portfolio or single transaction basis Fields on the contract valuation, as maintained and valued by the CCP Changes in market-tomarket or market-tomodel valuations on already reported transactions (for bilateral trades) Lifecycle events are covered and a log must be done (Art. 4 of EU No 148/2013); All information should be reported at the end of the day in the state that it is in at that point. Intraday reporting in NOT mandatory 7 Source: EMIR, Deloitte Analysis 2013 Deloitte Tax & Consulting

8 Theory: EMIR Requirements General Reporting Fields Counterparty data & Common data & Information related to the counterparties to the contract Reported separately by each counterparty or their appointed 3 rd party 26 data fields Contract Type Details on the transaction Risk mitig. / Reporting Clearing Modifications to the report Foreign Exchange Information pertaining to the derivative transactions executed between the two counterparties Common data reported must be agreed between both party 59 data fields split in 5 sections The details of the transaction are reported by Unique Trade ID (UTI) The derivative product are identified by a unique product ID (UPI), which reflects the class and type of derivative Reporting log for the modification of data About it The counterparties and the other entities (such as broking entity, CCP, clearing member, reporting entity) are identified based on a unique code (i.e. LEI) Common data specific to each type of products Interest Rates Options Commodities Specific information and fields are different from the class of derivatives being reported Not required to be reported if the UPI is reported in the Common data and contains all the information to be reported for the specific product 8 Source: EMIR, Deloitte Analysis 2013 Deloitte Tax & Consulting

9 Theory: EMIR Requirements Key requirements for historical contracts Specific requirements: 1 Frequency No need to report separately any life cycle events which occurred before the reporting date Requirement (Art. 5 EU 1247/2012) OTC Derivative and Exchange Traded Derivative (ETD) which were still outstanding on 16 August 2012 will have to be reported within 90 days of the date of the reporting obligation coming into force if they are STILL outstanding on that date And within 3 years of the date of the reporting obligation coming into force if they are NOT outstanding on that date 2 Content The contract can be reported at position level in its final state or, for contracts which are still outstanding, its state at the time the report is submitted OTC derivatives still outstanding will need to include the information on valuation and collateral as from the date of the reporting obligation (and not for all the days from 16 August 2012 to the date of the application of the reporting) OTC derivatives terminated before the reporting obligation starts applying should not include the information on collateral and valuation Trade-ID Applies to contracts still outstanding at the time of reporting need to be agreed between the two counterparties and reported, together with the other information on that contract 9 Source: EMIR, Deloitte Analysis 2013 Deloitte Tax & Consulting

10 Theory: EMIR Requirements Roles & Responsibilities into the Reporting framework Options Roles 1 Count A TR A UTI ESMA TR B Count B 1 Reporting by both counterparties Counterparty A and B reports separately to TR It is possible for each party to report to a different TR The TRs will reconcile the reported transactions via a Unique Trade ID (UTI) Both parties have to ensure that common data are consistent across both reports for the same trade 2 delegation Count A TR Count B 2 Reporting by one counterparty on the behalf of the other Counterparty B reports the Counterparty data of each party and only one copy of the Common data The full set of details should still be provided by counterparty A to B, as long as the information is available 3 delegation Count A 3 rd entity A TR 3rd entity 3 rd entity B Count B delegation 3 Reporting by a (single / different) 3 rd Party on behalf of 1 or both counterparties Conduct due diligence process of the reporting 3 rd party Same liabilities and directives as the counterparties: data protection schemes Voluntary delegation agreement, however the national authority can revoke the utilisation of a third party Written agreement between the parties 10 Source: EMIR, Deloitte Analysis 2013 Deloitte Tax & Consulting

11 Practices: Cases study Reporting process & roles Transactions cleared by the CCP Process Roles 1 Count A RFQ OTF RFQ Count B Counterparty(s) can delegate to CCP the reporting to TR: it can choose the TR to be used and leave the choice to the counterparty on whether to accept or not the service for its trades to be reported by the CCP on its behalf; Trades Confirmations If BOTH counterparties agree to delegate reporting to CCP, the report should indicate that is made on behalf of both (Counterparty data field 9); Margins Clearing Broker / CM Confirmation Margins Affirmation platform CCP Reporting to TR Confirmation Margins Margins Clearing Broker / CM The CCP becomes the counterparty in the report when the counterparty is not aware of the identity of the other; Avoid duplication: counterparties and CCPs should agree on the most efficient reporting method; In case of different TRs, CCPs and the counterparties should report to the TRs consistent data, including the same trade ID and the same valuation information to be provided by the CCP to the counterparties; Where clearing takes place on the same day of execution, the report should be submitted once to a TR up to 1 working day after the execution; Where clearing takes place after the day of execution and after reporting is made, novation should be reported as an amendment to the original report up to 1 day after the clearing took place. 11 Source: EMIR, Deloitte Analysis 2013 Deloitte Tax & Consulting

12 Implications Practices: Cases study Reporting transaction scenarios Cleared OTC transaction NON - Cleared OTC transaction Case study 1 BACK to BACK transactions Back-to-back Client A Investment firm (acts as principal) B CM CCP delegation B Counterparty TR 1 The Client (FC or NFC) has the duty to report to TR A 1 The Counterparty has the duty to report to TR B 2 The Investment firm, acting as principal, meaning 2 The investment firm, acting as principal, meaning becoming a counterparty of the derivative becoming a counterparty of the derivative transactions, has the duty to report to TR: report the transactions, has the duty to report to TR: report the Client as counterparty (field 3 of Counterparty data) other counterparty as counterparty (field 3 of Counterparty data) 3 The Client will name the Investment firm as its counterparty 3 The Counterparty will name the Investment firm as its counterparty 4 The Investment firm has to report the 2 trades 12 Source: EMIR, Deloitte Analysis 2013 Deloitte Tax & Consulting

13 Practices: Cases study Reporting transaction scenarios Cleared OTC transaction NON - Cleared OTC transaction Case study 2 Individuals and Private clients Individuals A Bank B TR B A B Implications 1 Individuals are not subject to the reporting obligation under EMIR 1 The Bank has the obligation to report the trade to TR, including the internal code of the individual with whom it has concluded the transaction 13 Source: EMIR, Deloitte Analysis 2013 Deloitte Tax & Consulting

14 Implications Practices: Cases study Reporting transaction scenarios Cleared OTC transaction NON - Cleared OTC transaction Case study 3 Bank as an AGENT Client A Bank (execution of order or receipt and transmission of orders) B CM CCP delegation B Counterparty TR 1 The Client (FC or NFC) has the duty to report to TR 2 A The Bank acts a agent (introducing broker): it means that it does not sign or enter into any derivative contract with the Client or the Counterparty and is therefore not considered as counterparty under EMIR, thus not being under the duty of reporting 1 2 B The Counterparty (FC or NFC) has the duty to report to TR The Bank acts a agent (introducing broker): it means that it does not sign or enter into any derivative contract with the Client or the Counterparty and is therefore not considered as counterparty under EMIR, thus not being under the duty of reporting 14 Source: EMIR, ESMA Q&A, Deloitte Analysis 3 4 The Client and the Counterparty have the duty to report, in quality of counterparties: they will know each other as they will sign the bilateral agreement The Bank is identified as broker by the Client and by the Counterparty in their reports (Counterparty Data - field 8) 2013 Deloitte Tax & Consulting

15 REGIS-TR the first European Trade Repository for Derivatives Powered by:

16 What REGIS-TR can be for the industry REGIS-TR What is REGIS-TR and who is behind REGIS-TR What REGIS-TR brings to the industry Interest rates and fixedincome Credit default swaps Equities Reporting of all asset classes Commodities Foreign exchange Exchange Trades Derivs A Trade Repository offering registration and reporting services for Derivatives out of Luxembourg Belonging to well known European Market Infrastructures within two exchange infrastructures Registration and reporting services for Derivatives and holding the customer data exclusively in the EU Providing a one-stop-shop service, based on a reliable, cost-efficient TR solution for all types of market participants Delivering added-value services well beyond regulatory compliance matching, exposure management, third-country domestic solutions 16

17 REGIS-TR is based on a secure and scalable system environment REGIS-TR Technical architecture: Developed on BME s mainframe IBM platform with a central database server using DB2 Efficiency, high security and scalability Contingency measures: Use of existing BME s mainframe also used for CSD function: Maximum back-up quality standards Availability of two redundant locations with data centres and offices, with synchronous data replication: Integrity of back-up data Internet access = BME Internet infrastructure with high capacity bandwidth and complete redundancy: connection with two different ISPs through two independent nodes. All components duplicated Tested every 6 months 17

18 REGIS-TR Reporting Flows REGIS-TR Supervisory Authorities Trading platforms Post-trading platforms Third Party delegation PDF Directly? CCPs Information enhancement Market Participants Clients Reporting Obligation 18

19 Reporting flow for Reporting Participants REGIS-TR Feb 2012 Seamless communication through alternative channels: Counterparty 1) Delegation (optional) Reporting Participant 2) New Trade 5) Modifications, Valuation/Collateral Update, Cancellation/Termination 3) Message Accepted/Rejected 5) Trade Status* 4) Reporting Regulator *) Trade status messages include information on contract, reconciliation and delegation statuses. 19

20 Reporting flow for Third Parties and Non-Reporting Entities REGIS-TR Feb 2012 Seamless communication through alternative channels: 1) Delegation Third Party 1) Delegation Non-Member Non- Reporting Entity 2) New Trade 5) BK, MX, VU, TT, FT 3) Message Accepted/Rejected 3) Trade Status* 3) Trade Status* 5) Check 4) Reporting Regulator *) Trade status messages include information on contract, reconciliation and delegation statuses. BK (Backloading), VU (Valuation Update), VR (Valuation Received), MX (Modification), xt (Termination) 20

21 Flexible account structures accomodating needs of customers REGIS-TR Feb 2012 Master Account Participant A Prop Direct Rep Prop From CCP1 Prop From CCP2 Prop From 3 rd P1 Prop From Count. Count. Count. Count. Count. Master Account Participant B Prop Direct Rep Prop From CCP1 Prop From CCP2 Prop From 3 rd P1 Prop From Count. Count. Count. Count. Count. Master Account (3 rd Party) Omnibu s acc Master Accounts For direct participants of REGIS-TR, allowing to link n sub-accounts containing the registered contracts (m prop and n client accounts) Sub-Accounts Identified as prop or counterparty account (n/m number of accounts) to facilitate reconciliation and control processes Special accounts for trades coming from 3rd Parties and CCPs to facilitate reconciliation and control processes Possible activities you can have in REGIS-TR: Reporting of own trades Reporting of customer s trades Outsourcing of reporting to 3rd Parties possible Consolidation of reporting obligation in one entity of a holding structure 21

22 REGIS-TR offers flexible and industry-standard access System Access and communication between participants and REGIS-TR: Use of web-based application Manual input/queries with secured Internet access. Web access, exportable to CSV files Mass upload/download of XML files through secured Internet access Advantages: REGIS-TR Feb 2012 Cost-efficient platform, accessible from anywhere Efficient/cost-effective particularly for small participants Efficient for medium- to large participants Automatic transfer of XML files through a SWIFTNet FileAct file transfer connection and SFTP under developement SOAP API connection via web services Processing of CSV files and data transfer via SWIFT MT messaging under development Customer Service helpdesk during EU working hours Use of low-cost widely used industry standards Alternative connection possibilities, further flexibilizing the options for participants Online helpdesk support Easy build-up of XML and CSV messaging that is widely used. 22

23 Access for market authorities REGIS-TR Access based on the ESMA technical standards Access granted in accordance with regulatory demand, be it international or domestic REGIS-TR will record information regarding the access to data given to the entities listed under EMIR, including the scope of data accessed and a reference to the legal provisions granting access to such data, as ESMA technical standards indicate XML reporting provided by push to respective supervisory authority Web based access with supervisor profile defined for each supervisory authority providing: Immediate full view of relevant entities positions exportable to CSV files Pre-defined queries exportable to CSV files Aggregated market dissemination on regular based (weekly statistics) Archiving of information: 10 years after termination of contracts Can be increased if required 23

24 Rolled-out and planned developments REGIS-TR Ongoing developments: Continuous enhancement of Final Report-compliant permanent test environment (Nov 2012) Connectivity to different CCPs, starting with Eurex Clearing Capturing of trade details of OTC- as well as Exchange-traded and cleared derivatives directly from the clearing-house Connectivity to SWIFT Capturing of trade details of OTC derivatives transactions confirmed via SWIFT MT messages directly out of the SWIFT system Value-added Services for 2013 Reporting Hub: REGIS-TR to perform central reporting hub services for future trade reporting necessities of the industry in the framework of e.g. MiFiD, REMIT, CRD IV Exposure Management: Existing international or domestic collateral pools for collateralisation of exposures in OTC derivatives (Clearstream Cmax) Bilateral portfolio reconciliation services for counterparties to comply with the reconciliation obligations defined in ESMA technical standards. 24

25 Added-value services with our partners REGIS-TR OTC Collateral Management: Collateral agreement negotiations CSA set-up Exposure valuation Margin call administration Portfolio reconciliation Cash/securities management Reporting through REGIS-TR TriOptima connection: TriOptima offers a range of analytical tools to support your derivative trading, including a connection to REGIS-TR. Portfolio reconciliation and counterparty exposure management Portfolio compression and early termination Counterparty risk balancing Other partners include: 25

26 Why REGIS-TR? REGIS-TR Product offering: Commercial offer: Close contact with ESMA First ESMA-compliant test environment launched in Nov Free access A complete technical documentation available. Mapping works can be started already. Reporting can be made easily via XML files and soon via CSV files as well Automation of connectivity: SWIFTNet and Web services SOAP API Connectivity to Eurex Clearing and Meff A number of software providers partnering: B+S, C24, Cinovo, CAD IT Reporting Hub: central reporting hub services e.g. MiFiD, REMIT, CRD IV Exposure Management: connection with Clearstream Collateral management system One-stop-shop in the EU Clearstream sales force coverage & technical help-desk to assist your IT team Flexible participation profiles, allowing any entity to participate directly or delegate to a third party or play both roles if necessary Legal agreements already available Flexible fee schedule with caps and discounts (free Backloading before reporting start date) 26

27 OTC derivatives reporting Use SWIFT to comply with EMIR 17June 2013 Joe Halberstadt

28 How can SWIFT help? Standards for electronic confirmations Consulting services EMIR Matching & Affirmations Access CCPs Reporting to Trade Repositories EMIR & OTC derivatives reporting - June

29 SWIFT standards Enhanced for OTC derivatives Carry additional data, like CCP information and unique transaction identifier Support reporting to Trade Repositories Confirm electronically and timely Solution New sequence: Reporting Information Optional sequence, all fields optional Effective date For live: November 2013 For test environment: July 2013 Interim solution: use existing messages with Unique Swap Identifier in field 72 EMIR & OTC derivatives reporting - June

30 SWIFT Affirmations + Alliance Lite2 Low-cost, secure solution to confirm trades electronically Easy: accept/reject with mouse click Integrated audit trail Cloud based Alliance Lite2 Accord Affirmations EMIR & OTC derivatives reporting - June

31 SWIFT solutions for derivatives reporting Automatic file transfer: FileAct Re-use your SWIFT connection Cost-effective, automated file transfer High security: authentication, electronic signature, encryption, non-repudiation Confirmation copy: FINInform Re-use your SWIFT connection No need to produce report for initial submission Confirmations containing trade details are copied to trade repository MT3xx You Reports (XML, FpML, csv, ) You Counterpart Trade repository REGIS-TR LSE Unavista Russia, Hong Kong DTCC Global Trade Repository Trade repository REGIS-TR EMIR & OTC derivatives reporting - June

32 Access CCPs via SWIFT Single SWIFT message to confirm trade, report to repository, submit for clearing! Re-use MT300 for NDF clearing at CCPs Seamless copy via collaboration with MarkitServ Future extension to FX Options (1) MT300 confirmation (6) MT304 You (2) Copy to CCP Gateway Counterpart (4) Status - MT396 (3) CB Take up Custodian (5) Submit to CCPs MarkitServ Clearing broker See MarkitServ press release. CCPs LCH SGX CME HKEX EMIR & OTC derivatives reporting - June

33 Thank you EMIR & OTC derivatives reporting - June

34 Further information Factsheets Standards Release Changes for OTC derivatives SWIFT Accord Affirmations with Alliance Lite2 OTC derivatives trade reporting MarkitServ FX Clearing Service EMIR & OTC derivatives reporting - June

35 Q&A Panel Nicolas Boatwright Laurent Collet Joe Halberstadt Francesca Messini Deloitte Tax & Consulting

36 Laurent Collet Deloitte Luxembourg What s next: challenges & opportunities linking the dots 2013 Deloitte Tax & Consulting

37 EMIR The journey to the compliance starts now What do you need to do? 1. Impact assessment Have a clear idea of how EMIR impact you in terms of : Products / volumes Clients (FC, NFC, NFC+, Persons) Counterparty Contracts 2. Set up the right priority to compliance tasks. Align your compliance planning in terms of tasks complexity, gap assessment, authorities timeline 3. Keep in mind the global regulatory picture. Collateral is a transversal topic within incoming regulatory framework (AIFMD, UCITS V & VI, ESMA Guidelines, CRD IV, ) 4. Setting up trade repository arrangements 5. Consider report directly to the trade repository or delegate reporting to your counterparty or a third party? 6. Identify data sources; planning around systems developments and user-acceptance testing; consideration of data protection issues 7. The longest journey starts with a single step, but how you reach your destination depends who walks at your side.. 37 Source: Deloitte Analysis 2013 Deloitte Tax & Consulting

38 Your facilitators today Benjamin Collette Partner Tel: Mobile: Mail: bcollette@deloitte.lu Xavier Zaegel Partner Tel: Mobile: Mail: xzaegel.lu Laurent Collet Partner Tel: Mobile: Mail: lacollet@deloitte.lu Francesca Messini Senior Manager Tel: Mobile: Mail: fmessini@deloitte.lu 42, Avenue J.F. Kennedy L Luxembourg Tel: onboarding@regis-tr.com SWIFT London Tel: Deloitte Tax & Consulting

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