EMIR Trade Reporting Additional Recommendations

Transcription

1 EMIR Trade Reporting Additional Recommendations 23 rd May 2014

2 Table of Contents 1. Introduction Q&A specific recommendations TR Answer 4(a) - Reporting of outstanding positions following the entry into force of EMIR (Backloading) TR Answer 17 - Position Level Reporting TR Answer 23 Venue of execution TR Answer 27 Order of Leg 1 and ETD Reporting Answer 5: Trade IDs and Transaction Reference Numbers (TRN) assignment Other recommendations Life-cycle events Mark-to-Market Collateral Changing nominal or rates over time Complex OTC-cleared products with multiple instances of fields General correction procedure Report reconciliation Counterparty LEI only available after reporting start date...10 Annex 1: EACH Working Group on EMIR Trade Reporting

3 1. Introduction The European Association of CCP Clearing Houses ( EACH ) appreciates the effort taken by the European Securities and Markets Authority s ( ESMA ) in drafting and publishing an updated Question & Answers dated 20 March 2014 on the implementation of the European Markets Infrastructure Regulation ( Q&As ). This document has provided useful clarification to the industry on a number of aspects of EMIR trade reporting and EACH are pleased to see that a number of elements of the approach outlined in the EACH White Paper dated 1 November 2013 ( EACH White Paper ) have been included. Nevertheless, EACH believes that additional guidance is required from ESMA in order to continue to improve and harmonise the reporting of Over-the-Counter ( OTC ) and Exchange-Traded Derivatives ( ETDs ). This document intends to provide ESMA with some key recommendations to include in any further guidance to allow for the more accurate and uniform reporting of cleared derivatives to Trade Repositories ( TRs ). 3

4 2. Q&A specific recommendations 2.1. TR Answer 4(a) - Reporting of outstanding positions following the entry into force of EMIR (Backloading) EACH understands that the three elements of the historical reporting obligation described in Article 5 of Commission Implementing Regulation (EU) No 1247/2012 can be summarised as follows: If a trade was executed on / after August 16, 2012 and still open on February 12, 2014, then it needs to be reported on February 12, If a trade was executed on / after August 16, 2012 but closed on February 12, 2014, then it needs to be reported within 3 years after February 12, If a trade was executed before August 16, 2012 and still open on February 12, 2014, then it needs to be reported 90 days after February 12, TR Answer 4(a) states that for centrally cleared contracts concluded between 16 August 2012 and 11 February 2014 counterparties are expected to report only their resulting net position at the CCP level as of the end of 11 February TR Answer 4(a) also states that contracts can be reported in its final state or, for contracts which are still outstanding, its state at the time the report is submitted and the final state of contracts across all three elements of the historical reporting obligation is the EOD position as of the end of 11 February. As such, EACH understands that all three aspects of the historical reporting obligation are fulfilled by EACH reporting the EOD position as of the end of 11 February. However, since the third item listed above is not specifically captured by the language in TR Answer 4(a), EACH recommends that ESMA further clarify this by adjusting the language in the Q&A to read: For centrally cleared contracts concluded before 16 August 2012 or between 16 August 2012 and 11 February 2014 counterparties are expected to report only their resulting net position at the CCP level as of the end of 11 February TR Answer 17 - Position Level Reporting EACH appreciates ESMA s clarification that it is possible to use position level reporting as a supplement to trade level reporting in TR Answer 17. In line with the EACH Whitepaper, EACH continues to strongly advocate that all ETD and OTC-cleared contracts that are risk managed by the CCP based on a netted open position should be reported at the position level as a supplement to trade level reporting. EACH considers the reporting of position information for these contracts essential to provide ESMA 4

5 with the ability to assess systemic risk across cleared markets. EACH recommends that ESMA further clarify this by adjusting the language in the Q&A to read: It is possible to use position level reporting as a supplement to trade level reporting provided that all of the following conditions are met. In particular, all ETD and OTC-cleared contracts that are risk managed by the CCP based on netted open positions should be reported at the position level as a supplement to trade level reporting. In addition, the fourth condition listed in TR Answer 17 states that, in order to use position level reporting as a supplement to trade level reporting, the original trade reports must have reached a suitable end of life state. This condition further clarifies that this should be achieved by marking the original trades / event reports as compressed and then reporting the resulting net position. As described within section of the EACH White Paper, compression and netting are two distinct and separate aggregation methodologies. As a result, EACH understands that original trades / event reports should only be marked as compressed when cleared trades are aggregated by a compression event to eliminate economically redundant trades and that original trades / events reports should be marked as netted per section of the EACH White Paper when cleared trades are netted into a single overall exposure; a position. EACH recommends that ESMA further clarify this point by adjusting the language in the Q&A to read: This should be achieved by marking the original trades / events as netted (i.e. putting the value O into the Action type (Table 2 Field 58) and netted into the Details of action type (Table 2 Field 59)) and then reporting the resulting net position (either as a new position or as an update to an existing position) TR Answer 23 Venue of execution TR Answer 23 states that Table 2 Field 2 should be populated with the Exchange Product Code assigned by the Regulated Market and that Table 2 Field 10 (Venue of execution) should be populated with the MIC code of the venue of execution and not with XOFF or XXXX for Alternative Instrument Identifier (AII) contracts. In order for listed derivatives that are traded off-exchange to be identified using AII (rather than the Interim taxonomy), EACH understands that Table 2 Field 2 should be populated with both the four-character MIC code of the venue of execution and immediately followed by the Exchange Product Code assigned by the Regulated Market. EACH recommends that ESMA further clarify this by adjusting the language in the Q&A to read: Field No 2 should be populated with the MIC code of the venue of execution and the Exchange Product Code assigned by the Regulated Market. At the same times field No 10 (Venue of execution) in Table 2 Common Data should be populated with the MIC code of the 5

6 venue of execution or, where relevant, XOFF for listed derivatives that are traded offexchange TR Answer 27 Order of Leg 1 and 2 In line with industry practice when confirming OTC trades, EACH recommends that ESMA update TR Answer 27 to require TRs to reconcile transactions where the order of leg 1 and 2 and the Counterparty Data Field 13 Counterparty side are swapped. Trying to agree a standard leg order for all kind of structured OTC products would create an unnecessary burden to the industry ETD Reporting Answer 5: Trade IDs and Transaction Reference Numbers (TRN) assignment ESMA states in ETD Reporting Answer 5 that the purpose of the TRN is to group reports relating to the same execution with a unique number. As a result, EACH understands that the TRN is only required for trade reporting and is not required for position reports. EACH appreciates ESMA s clarification in ETD Reporting Answer 5 that a code generated at the clearing level by the CCP can be used as the TRN. Since the code assigned by the trading venue may not be available to all counterparties to the cleared derivatives resulting from a single execution, EACH advocates the mandatory use of a code generated by the CCP for all cleared trades. In addition, EACH recommends that ESMA clarifies that the field TRN remains empty for position reports and that for delegated reporting of cleared client trades the TRN is filled with the code provided by the CCP. ESMA should also confirm that the TRN cannot be provided for post trade events like trade separation. 3. Other recommendations 3.1. Life-cycle events TR Answer 5 states that All information should be reported at the end of the day in the state that it is in at that point. Intraday reporting is not mandatory. ETD Reporting Answer 3 states that... the trade should be reported in its post give up state.... As a result, EACH understands that any trade level lifecycle events (i.e. lifecycle events which occur on the day of execution, prior to the first netting cycle at EOD at the latest like give-up, average pricing, trade separation, account transfer) should not be reported. In addition, where a trade level lifecycle event influences the initial cleared trade, this initial cleared trade should not be reported. Instead, any new trades should only be reported in their EOD state. 6

7 The EACH White Paper recommended that both the initial cleared trade and all lifecycle events should be reported so that ESMA had full visibility of the original trade that was cleared by the CCP and how the CCP s exposure changes throughout the day. Since this will require substantial changes to the way EACH initially implemented its reporting for some CCPs, EACH requests that ESMA confirm its understanding as described in the paragraph above. In addition, EACH recommends that ESMA clarify that position level lifecycle events should not be reported separately since the resulting position changes are reported with the daily position reporting. This will also lead to change effort at some CCPs since section of the EACH White Paper proposed as off-setting and on-setting transactions such that the sum of all reports on a particular day fully explain the day-over-day change in EOD position Mark-to-Market As discussed in section 3.3 of the EACH White Paper, in accordance with Article 3(5) of Commission Delegated Regulation (EU) No 148/2013 and TR Answer 3 (a), for contracts cleared by a CCP, mark to market valuations shall be reported as maintained and valued by the CCP. Our comments in this section refer to the valuation as reported by the CCP and the Clearing Member on the CCP clearing leg. Depending on the contractual arrangements between Clearing Members and their clients a different valuation might apply to the client leg. EACH recommends that ESMA clarify the MTM reporting approach in the Q&As to allow for accurate and uniform reporting of valuation information to TRs by defining either of the following two options. For the avoidance of doubt EACH recommends that the reported MTM valuation always has to apply to the whole outstanding trade or position and there is no separate reporting for single delivery dates. In a cascading event, a position in a single future with several delivery dates will be replaced by several new futures with single delivery dates, e.g. a 3 month futures contract is replaced by 2 monthly and 4 weekly futures contracts. After the cascading event these new futures positions will then each have their own mark-to-market valuation. EACH also recommends the removal of the final sentence of TR Answer 3 (a2) which contradicts previous feedback provided by ESMA. MTM reporting Option 1: In line with ESMA Q&A TR Questions 3(a) and previous feedback from ESMA, EACH CCPs will report as valuation a daily EOD settlement price or fair market value price as defined by the CCP in native currency at a position level for ETD and at a position or trade level for OTCcleared (depending on aggregation methodology used by asset class / CCP). 7

8 MTM reporting Option 2: EACH will calculate ETD MTM as the daily variation margin for futures and future-styled options and as the discounted net present value for premium-paid options, forwards and OTC cleared products. MTM for futures and future-styled Options = (CCP settlement price on T CCP settlement price on T-1) x EOD position MTM for premium-paid Options = (option price) * EOD position MTM for forwards = (CCP settlement price on T Trade Price) x EOD position MTM for OTC cleared products = Net Present Value where T is date to which the valuation relates. It is very important to note the different treatment for futures and future-styled options regarding mark-to-market. For these products the CCP resets the position price at every end of day to the current settlement price and pays out the difference to the previous day as variation margin. Since the variation margin is actual cash paid from the loss-making counterparty to the profit-making counterparty and not available anymore as collateral the mark-to-market valuation of the resulting position must not include the cumulated variation margin. This would show a value which has already been paid out and which therefore is no longer a basis for the claims between counterparties. On the contrary for premium paid options the changes in value are accumulated as premium margin which is not paid out but kept as collateral and accordingly the mark-tomarket valuation must include accumulated premium margin which is equal to the option price Collateral According to the definition of Field 25 Value of the collateral in the technical standards only the counterparty posting collateral has to report. Therefore EACH CCPs will report zero in field 25 and leave the field 24 empty. To enable Clearing Members to report, EACH CCPs provide the value of collateral held at the CCP at EOD relating to that Clearing Member s or market participant s portfolio. These collateral values correctly reflect the expected available amount in case of default by including any excess collateral but not including accrued interest and not including any amounts called for but not yet settled, and by applying an appropriate haircut to non-cash collateral. The haircut on non-cash (security) collateral is necessary since otherwise the reported collateral value for non-cash collateral would overstate the expected liquidation value compared to cash collateral. As the total collateral value is reported in one amount this normalizes the single collateral values to be summed up to an overall cash equivalent value. 8

9 To provide clarity for delegated reporting EACH recommends ESMA to confirm that EMIR Counterparty Data Field 25 Value of the collateral should be reported as a single value. Hence reporting parties should convert collateral values in different currencies to a single value in the default clearing currency using the exchange rates available from the CCP. These exchange rates must not include currency haircut since the expected value of the collateral is required and since a currency haircut would have to be applied differently for currencies in which the counterparty is over-collateralised versus currencies where it is undercollateralised thus making the collateral valuation incorrectly dependent on the counterparty position. For the avoidance of doubt, EACH would like to point out that variation margin cannot be considered as collateral since it is settled and realised daily and as such no longer available in case of default. EACH recommends that ESMA clarify the above reporting approach for Collateral in the Q&As. In addition, since the majority of CCPs use alphanumeric formats to name portfolios, EACH recommend that ESMA allow an alphanumeric format to be used to report field 24 of the Counterparty Data table such that Clearing Members are able to use internal codes already in use to maintain this valuation information rather than having to map each of their existing codes to another numeric code. In addition, EACH recommend that ESMA increase the Collateral portfolio code format (field 24 of the Counterparty Data) to 50 characters in length since some CCP s existing codes are much longer than the 10 characters currently allowed and we would like to future proof for the introduction of individually segregated accounts which will be introduced with EMIR. EACH intends to report Field 22 Collateralization as OC=One-way Collateralized from the CCP perspective Changing nominal or rates over time For OTC-cleared trades where e.g. the nominal or the interest rate changes over time, EACH recommends to report only the nominal and interest rate at the beginning of the trade lifetime and not update it regularly Complex OTC-cleared products with multiple instances of fields For complex OTC-cleared products with multiple settlement dates or delivery start / end dates, EACH recommends to report only the first instance of the particular date only (or the last instance only in the case of delivery end day). 9

10 3.6. General correction procedure EACH understands that any guidance issued by ESMA should be applied on a forwardlooking basis only. EACH will make all reasonable efforts to apply any changes required by additional ESMA guidance as soon as possible but highlights that the ease of implementation and date of implementation will likely vary by CCP. As a result, EACH will work with their respective Members to communicate when any changes will be applied to ensure uniform reporting by EACH Members and market participants Report reconciliation EACH understands that only trade reports will be reconciled between TRs initially. In line with the comments made in section 2.1 of the EACH White Paper and in section 2.2 above, EACH continues to strongly advocate that all ETD contracts that are risk managed by the CCP based on the netted open position should be reported at the position level as a supplement to trade level reporting.. EACH recommends in line with TR Answer 19 that in case of reconciliation differences the way the transaction has to be reported should take the following order of preference for centrally cleared contracts: transactions between CCP and Clearing Member: as reported by the CCP transactions between Clearing Member and other parties: as reported by the Clearing Member EACH further understands that where reports sharing the same UTI do not match, counterparties are responsible for agreeing the required modifications and then submitting a modified report using Action Type E = Error as necessary to remedy the mis-match for transaction reports.ccps may fix a reconciliation break on a forward-looking basis by a simple modification message Counterparty LEI only available after reporting start date As ESMA is aware, some counterparties did not obtain their Legal Entity Identifier (LEI) in time for the reporting start date. EACH recommends that where a counterparty only obtained and provided the CCP with their Legal Entity Identifier (LEI) after the reporting start date, the LEI should only be applied for any new reports. ESMA should require TRs to provide the functionality for a LEI update to outstanding trades, positions and lifecycle events, without requiring the cancelling and resubmission of reports. 10

11 Annex 1: EACH Working Group on EMIR Trade Reporting The EACH Working Group on EMIR Trade Reporting has 14 CCPs: BME Clearing, S.A. CC&G (Cassa di Compensazione e Garanzia S.p.A.) CME Clearing Europe Ltd Eurex Clearing AG European Commodity Clearing AG ICE Clear Europe KDPW_CCP S.A. KELER CCP Ltd LCH.Clearnet Ltd LCH.Clearnet SA LME Clear NASDAQOMX Clearing AB OMIClear Oslo Clearing ASA The group is chaired by Mark Woodward, ICE Clear Europe. This document does not bind in any manner either the association or its members. Responses to this paper should be addressed to: Rafael Plata rafael.plata@eachccp.eu +32 (0)