Frequently asked Questions ( FaQ )

EMIR / OTC Derivatives Style Definition: Emphasis Formatted: Left: 2,5 cm, Right: 2,5 cm, Top: 2,5 cm, Bottom: 2 cm, Header distance from edge: 1,25 cm, Footer distance from edge: 1,25 cm Formatted: Centered Frequently asked Questions ( FaQ ) Issue 12 Luxembourg, November 21, 2013April 17th, 2014

Important This document was prepared by ALFI's EMIR / OTC Derivatives FAQ working group. The FAQ working group gathered members of the following EMIR/OTC Derivatives sub-working groups: Legal Questions & Contractual Arrangements Executions & Clearing with CCP Collateral Requirements Valuation and Trade Repositories EMIR Impact on Pooling Structures The working group comprises representatives of asset managers, management companies, securities service firms, audit firms, law firms, and document and information management firms. This document contains the working group's answers to the industries frequently asked questions about these nine regulatory and implementing technical standards that complement the obligations defined under the Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties (CCPs) and trade repositories (the so-called European Markets Infrastructure Regulation - EMIR) adopted on 4 July and entered into force on 16 August 2012. The answers are not necessarily definitive and they might not be suitable for every circumstance. This document is not meant to be an industry standard or a guide to best practice but it represents the view from a group of market participants. The FAQ has not been validated by any regulator. This document must not be relied upon as advice and is provided without any warranty of any kind and neither ALFI nor its members who contributed to this document accept any liability whatsoever for any action taken in reliance upon it. This document may be amended without prior notice to incorporate new material and to amend previously published material where the working group considers it appropriate. ALFI will publish amended copies of this document to its members, showing marked-up changes from the immediately preceding copy. The titles used in this document are references to the relevant recitals, chapters, sections and articles of the EU Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties (CCPs) and trade repositories and associated guidelines and consultation papers regarding the technical standards. ALFI's members are welcome to submit a question to the working group, which will review it and consider whether to include it in a future copy of this document. Please send your questions to info@alfi.luinfo@alfi.lu. We will acknowledge receipt of each question but we regret that we may be unable to reply individually to each one. ALFI 20132014 ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 2

Definitions ACER AIFMD ARM BCBS BIS CA CCPs CICI CFTC CPSS CP CM DP DTCC EMIR EBA EIOPA ESAs ESCB ESMA ESRB ETD Agency for the Cooperation of Energy Regulators Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 Approved Reporting Mechanism Basel Committee on Banking Supervision Bank for International Settlements Competent Authority Central Counterparties CFTC Interim Compliant Identifier U.S. Commodity Futures Trading Commission Committee on Payment and Settlement Systems Consultation Paper Clearing Members Discussion Paper Depository Trust & Clearing Corporation European Market Infrastructures Regulation Regulation (EU) 648/2012 of the European Parliament and Council on OTC derivatives, central counterparties and trade repositories also referred to as the Regulation. European Banking Authority European Insurance and Occupational Pension Authority European Supervisory Authorities European System of Central Banks European Securities and Markets Authority European Systemic Risk Board Exchange-traded derivatives Formatted Table Formatted Table Formatted: Font color: Black Formatted Table Formatted Table FC Financial Counterparty means an investment firm authorised in accordance with Directive 2004/39/EC, a credit institution authorised in accordance with Directive 2006/48/EC, an insurance undertaking authorised in accordance with Directive 73/239/EEC, an assurance undertaking authorised in accordance with Directive 2002/83/EC, a reinsurance undertaking authorised in accordance with Directive 2005/68/EC, a UCITS and, where relevant, its management company, authorised in accordance with Directive 2009/65/EC, an institution for occupational retirement provision within the meaning of Article 6(a) of Directive 2003/41/EC and an ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 3

alternative investment fund managed by AIFMs authorised or registered in accordance with Directive 2011/61/EU FMIs FSB GAAP GLEIS IFRS INSEE IOSCO ITS LEI LOU LOUs MIFID NFC ODRF OTC ROC RTS SIG STP TRs UCITS UPI UTI Financial Markets Infrastructures Financial Stability Board Generally Accepted Accounting Principles Global LEI System International Financial Reporting Standards Institut National de la Statistique et des Etudes Economiques International Organisation of Securities Commissions Implementing Technical Standards Legal Entity Identifier Local Operating Unit Local Operating Utilities Markets in Financial Instruments Directive Non-financial Counterparty means an undertaking established in the Union other than the entities referred to as a financial counterparty.financial Counterparty. OTC Derivatives Regulators Forum Over the Counter LEI Regulatory Oversight Committee Regulatory Technical Standards Skin-in-the-Game Straight Through Processing Trade Repositories Undertakings for Collective Investments in Transferable Securities Unique Product Identifier Unique Trade Identifier Formatted Table Formatted Table Formatted Table Formatted Table Formatted Table ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 4

Introduction to EMIR The following documents are the important references for the industry: European Market Infrastructure Regulation (EMIR) - Regulation on OTC derivatives, central counterparties (CCPs) and trade repositories The financial crisis which started in 2008 has trigged the regulation of the derivative market (EMIR). The G20 agreed at the Pittsburgh summit in September 2009 that: All standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements. We ask the FSB and its relevant members to assess regularly implementation and whether it is sufficient to improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse. The G20 initiated a reform program in 2009 with the aim to reduce the systemic risk from OTC derivatives, improve transparency in derivatives markets, and protect against market abuse This program included 4 elements: All standardised OTC derivatives should be traded on trading venues where appropriate All standardised OTC derivatives should be cleared through central counterparties (CCPs) OTC derivatives contracts should be reported to trade repositories Non-centrally-cleared derivative contract should be subject to higher capital requirements The Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties (CCPs) and trade repositories (TRs) (EMIR) was published in the Official Journal of the European Union on 27 July 2012, and entered into force on 16 August 2012. The objectives of EMIR are: to develop a safer clearing process for standardized OTC derivatives based on the key role of the CCP, to lay down uniform requirements for OTC derivative contracts and for the performance of activities of CCPs and trade repositories, to enhance a more sound and robust risk management framework for non standardised OTC derivatives with a set of risk-mitigation techniques, to introduce an obligation of reporting to Trade Repositories for all derivatives (i.e. OTC and ETD) to apply operational and governance standards for CCPs and specific requirements for TRs. Formatted: Indent: Left: 0,63 cm, Hanging: 0,37 cm Since EMIR is a regulation, it has a direct effect in all EU Member States and does not require any transposition into national law. It will be directly applicable (i.e. legally binding in all Member States without implementation into national law) from the day it entries into force. Several elements of EMIR have required further detailed provisions (i.e. Regulatory Technical Standards and Implementation Technical Standard, hereafter RTS and ITS respectively): these have been drafted by the European Securities and Market Authority (ESMA), approved by European Commission and published in the Official Journal of the European Union. RTS and ITS have been published as Commission Delegated Regulation and are thus directly applicable in all Member States from their entry into force. EMIR Regulatory and Implementing Technical Standards Most of the obligations under EMIR needed to be specified further via regulatory and implementing technical standards and thus will take effect following the entry into force of these technical standards. The European Commission on 19 December 2012 adopted these regulatory technical standards ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 5

developed by ESMA. The technical standards were published as Commission Delegated Regulation in the Official Journal of the European Union. The key elements are: (i) OTC (over-the-counter) derivatives: the regulatory technical standards specify the provisions of the European Market Infrastructure Regulation (EMIR) related to indirect clearing arrangements, the clearing obligation procedure, the public register, access to a trading venue, non-financial counterparties, and risk mitigation techniques for OTC derivatives contracts not cleared by a CCP. (ii) (iii) Central counterparties: the regulatory technical standards specify the provisions of EMIR related to the requirements for CCPs, as well as the capital, retained earnings and reserves of a CCP. The implementing technical standards specify the format of the records to be maintained by CCPs. Trade repositories: the regulatory technical standards specify the provisions of EMIR related to the minimum details of the data to be reported to trade repositories, the details of the application for registration as a trade repository, as well as the data to be published and made available by trade repositories and operational standards for aggregating, comparing and accessing the data. The implementing technical standards specify the format and frequency of trade reports to trade repositories and the format of applications for registration of trade repositories. Note also that the ESAs have not yet produced the relevant draft regulatory technical standard on collateral exchange for OTC not-centrally cleared and the. The Basel Committee on Banking Supervision (BCBS) and IOSCO are still coordinating the global guidelineshave published in September 2013 their final policy framework on margin requirements for OTC not-centrally cleared. What does this mean for the Luxembourg Fund Industry? EMIR is of high relevance for the Luxembourg fund industry. UCITS funds, and as the case may be their management companies, and all alternative investment funds managed by AIFMs authorised or registered in accordance with AIFMD are by virtue of law considered financial counterparties. As a result, they are subject to the full array of obligations under EMIR and every fund or management company has to be EMIR ready and compliant no matter how frequent derivatives are used. It is important that also non-eea AIFs are captured, if they are managed by an EEA management company. The final ramifications of EMIR on the Luxembourg fund industry are generally still difficult to evaluate. Some points however deserve special attention. The central posting of collateral changes the currently dominant system of bilateral (netted) collateral. Further, the type of collateral acceptable to a CCP may not be part of the assets a fund is allowed to be invested in. Regulatory compliance has to be ensured regarding the various EMIR requirements. The operational approach towards such obligations will be different in accordance with every fund s individual business set-up. ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 6

Key documents for EMIR / OTC Derivatives Practitioners The Regulation 648/2012 (EMIR) can be found under the following link: http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=oj:l:2012:201:0001:0059:en:pdf http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=oj:l:2012:201:0001:0059:en:pdf The regulatory technical standards are available under the following link: http://new.eur-lex.europa.eu/legal-content/en/txt/html/?uri=oj:l:2012:352:full&from=en http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=oj:l:2013:279:0004:0009:en:pdf http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=oj:l:2013:279:0002:0003:en:pdf http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=oj:l:2013:244:0019:0022:en:pdf http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32013r0148&rid=9 http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32013r0149&rid=8 http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32013r0150&rid=7 http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32013r0151&rid=7 http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32013r0152&rid=4 http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32013r0153&rid=8 The implementing technical standards are available under the following link: http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=oj:l:2013:052:full:en:pdf http://eur-lex.europa.eu/lexuriserv/lexuriserv.do?uri=oj:l:2013:244:0019:0022:en:pdf http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32012r1247&rid=1 http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32012r1248&rid=1 http://eur-lex.europa.eu/legal-content/en/txt/pdf/?uri=celex:32012r1249&rid=1 Other useful information on EMIR and related provisions: CSSF Circular 13/557 http://www.cssf.lu/fileadmin/files/lois_reglements/circulaires/hors_blanchiment_terrorisme/cssf13_55 7.pdf http://www.cssf.lu/fileadmin/files/lois_reglements/circulaires/hors_blanchiment_terrorisme/cssf13_55 7.pdf CSSF Press Release 14/11 http://www.cssf.lu/fileadmin/files/publications/communiques/communiques_2014/cp1411 EMIR_re porting_obligation_120214.pdf CSSF Press Release 13/26 http://www.cssf.lu/fileadmin/files/publications/communiques/communiques_2013/pr1326_reminder_ EMIR_240613.pdf European Commission EMIR FAQ http://ec.europa.eu/internal_market/financial-markets/docs/derivatives/emir-faqs_en.pdf Formatted: Default Paragraph Font, Font: Times New Roman Field Code Changed ESMA Questions & Answers on EMIR Implementation http://www.esma.europa.eu/system/files/2013-1527_emir_questions_and_answers_2013_m10_d22.pdf http://www.esma.europa.eu/system/files/2014-297_qa_vii_on_emir_implementation_20_march_14_0.pdf European Commission webpage on EMIR http://ec.europa.eu/internal_market/financial-markets/derivatives/index_en.htm http://ec.europa.eu/internal_market/financial-markets/derivatives/index_en.htm ESMA webpage on EMIR ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 7

http://www.esma.europa.eu/page/european-market-infrastructure-regulation-emir http://www.esma.europa.eu/page/european-market-infrastructure-regulation-emir ESMA Final Report on Draft technical standards under the Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC Derivatives, CCPs and Trade Repositories http://www.esma.europa.eu/system/files/2012-600_0.pdf ESA s Consultation Paper of 14 April 2014 on Draft regulatory technical standards on risk-mitigation techniques for OTC derivative contracts not cleared by a CCP under Article 11(5) of Regulation (EU) No 648/2012 http://www.eba.europa.eu/documents/10180/655149/jc+cp+2014+03+%28cp+on+risk+mitigation+fo r+otc+derivatives%29.pdf FSB OTC Derivatives Market Reforms - Fifth Progress Report on Implementation http://www.financialstabilityboard.org/publications/r_130415.pdf http://www.financialstabilityboard.org/publications/r_130415.pdf BCBS IOSCO Second Consultative Document - Margin requirements for non-centrally cleared derivatives http://www.bis.org/publ/bcbs242bcbs261.pdf LEI Funds Guidance http://www.gfma.org/uploadedfiles/initiatives/legal_entity_identifier_(lei)/lei-fund-guidance- 2013.pdf Formatted: Italian (Italy) ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 8

Index 1. General... 129 1.1 The legislative process: where are we today?... 129 1.2 What can be further expected by ESMA?... 129 1.3 Is outsourcing permitted and if yes to what extent?... 129 1.4 For which codes a fund should ask for?... 139 1.5 If required, what are the consequences of registering with the CFTC and obtaining that CICI code?... 139 2. Scope... 1410 2.1 Which legal entities / vehicles are in scope of EMIR?... 1410 2.2 Which instruments are in scope under which obligation of EMIR?... 1410 2.3 Dodd-Frank has put the FX forward out of scope for the central clearing and risk mitigation techniques. Is there a similar exemption in EMIR?... 1410 3. Reporting... 1410 3.1 What is the mandatory deadline for the connection to a Trade Repository for OTC derivatives in Europe?... 1410 3.2 Who needs to report to a TR in Europe?... 1511 3.3 What is the accepted time delay between trade agreement and reporting to a TR?... 1611 3.4 What about existing contract portfolio, does it need to be reported as well?... 1611 3.5 Do both counterparties have to use the same TR in the future?... 1612 3.6 Which contract details will regulators require?... 1612 3.7 How are cleared transactions handled from a reporting perspective?... 1612 3.8 As regards avoidance of double reporting what is the current view/ expectation of a TR? How can double reporting be avoided?... 1712 3.9 How does a TR see the double reporting in terms of various entries in the reporting tables from the two different counterparties (see above; some entries will be the same). Do you see any issue if they are reported twice?... 1712 3.10 It is possible to report the tables separately by a reporting entity? For example, the one table at the day of transaction and the other table a day later?... 1713 4. Centrally cleared OTC Derivatives... 2013 5. Non-centrally cleared OTC Derivatives... 2013 1. General... 1211 ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 9

1.1 The legislative process: where are we today?... 1211 1.2 What can be further expected by ESMA?... 1211 1.3 Is outsourcing permitted and if yes to what extent?... 1211 1.4 For which codes a fund should ask for?... 1312 1.5 If required, what are the consequences of registering with the CFTC and obtaining that CICI code?... 1312 2. Scope... 1413 2.1 Which legal entities / vehicles are in scope of EMIR?... 1413 2.2 Which instruments are in scope under which obligation of EMIR?... 1413 2.3 Dodd-Frank has put the FX forward out of scope for the central clearing and risk mitigation techniques. Is there a similar exemption in EMIR?... 1413 3. Reporting... 1413 3.1 What is the mandatory deadline for the connection to a Trade Repository for OTC derivatives in Europe?... 1413 3.2 Who needs to report to a TR in Europe?... 1514 3.3 What is the accepted time delay between trade agreement and reporting to a TR? 1615 3.4 What about existing contract portfolio, does it need to be reported as well?... 1615 3.5 Do both counterparties have to use the same TR in the future?... 1615 3.6 Which contract details will regulators require?... 1615 3.7 How are cleared transactions handled from a reporting perspective?... 1615 3.8 As regards avoidance of double reporting what is the current view/ expectation of a TR? How can double reporting be avoided?... 1715 3.9 How does a TR see the double reporting in terms of various entries in the reporting tables from the two different counterparties (see above; some entries will be the same). Do you see any issue if they are reported twice?... 1716 3.10 Is it possible to report the tables separately by a reporting entity? For example, the one table at the day of transaction and the other table a day later?... 1716 4. Legal Entity Identifiers (LEIs)... 1716 4.1 What is a Legal Entity Identifier (LEI)?... 1816 4.2 What is ISO 17442:2012 Financial Services - Legal Entity Identifier (LEI)?... 1816 4.3 What is the purpose of LEIs?... 1817 4.4 Who can obtain a LEI?... 1817 4.5 What are the initial requirements for use of LEIs?... 1917 4.6. What LEIs are currently available?... 1918 4.5 Who can issue pre-leis?... 1918 ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 10

4.6 Who are the endorsed pre-lou S today?... 1918 4.7 How do I apply for a pre-lei?... 2018 4.8 Cost of obtaining an LEI/pre-LEI?... 2019 5. Centrally cleared OTC Derivatives... 2019 6. Non-centrally cleared OTC Derivatives... 2019 ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 11

1. General 1.1 The legislative process: where are we today? The regulation (EU) No 648/2012 of the European Parliament and the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR), entered into force on 16 August 2012. EMIR will be completed by different technical standards prepared by ESMA, EBA and EIOPA. Further, the European Parliament has endorsed the technical standards as adopted by the Commission and pronounced on 19 December 2012. The following Implementing Technical Standards (ITS) were published in the Official Journal of the European Union on 21 December 2012 and entered into force on 10 January 2013: - Implementing technical standards with regard to the format of the records to be maintained by central counterparties; - Implementing technical standards with regard to the format and frequency of trade reports to trade repositories; - Implementing technical standards with regard to the format of applications of trade repositories. The following Regulatory Technical Standards (RTS) entered into force on 15 March 2013 after their publication in the Official Journal of the European Union on 23 February 2013. - Regulatory technical standards on capital requirements for central counterparties; - Regulatory technical standards on requirements for central counterparties; - Regulatory technical standards on indirect clearing arrangements, the clearing obligation, the public register, access to a trading venue, non-financial counterparties, risk mitigation techniques for OTC derivatives contracts not cleared by a CCP; - Regulatory technical standards on the minimum details of the data to be reported to trade repositories; - Regulatory technical standards specifying the details of the application for registration as a trade repository; - Regulatory technical standards specifying the data to be published and made available by trade repositories and operational standards for aggregating, comparing and accessing the data. Formatted: Bulleted + Level: 1 + Aligned at: 0 cm + Indent at: 0,63 cm Formatted: Bulleted + Level: 1 + Aligned at: 0 cm + Indent at: 0,63 cm Further, the CSSF has published on 23 January 2013 the circular CSSF 13/557 regarding EMIR. The circular explains mainly the scope, the requirements and the exemptions under EMIR. Two sections are also dealing with the registration and supervision of TRs and CCPs. In addition, the CSSF has published on 24 June 2013 the press release 13/26 aiming at remind all concerned entities about the obligations applicable to them under EMIR. On 12 February 2014, the CSSF has issued the press release 14/11 in order to remind all concerned counterparties that as from 12 February 2014, they need to report details of any derivative contract (OTC or exchange traded) they have concluded, or which they have modified or terminated, to a registered or recognised Trade Repository (TR). 1.2 What can be further expected by ESMA? ESMA will draft further ITS and RTS on various topics (e.g. the joint paper with EBA and EIOPA on risk mitigation techniques for OTC derivatives not cleared by a CCP under the Regulation on OTC derivatives, CCPs and Trade Repositories). 1.3 Is outsourcing permitted and if yes to what extent? Yes, it will be permitted, but it must comply with the general outsourcing requirements. ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 12

1.4 For which codes a fund should ask for? - Legal entity identifier (LEI) - Unique product identifier (UPI) (for the moment not available for funds) Formatted: Font: Not Italic 1.5 If required, what are the consequences of registering with the CFTC and obtaining that CICI code? Registering with the CFTC means to follow the rules imposed by the CFTC as well as any other related regulation. ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 13

2. Scope 2.1 Which legal entities / vehicles are in scope of EMIR? Pursuant to Article 1 (2) of EMIR, the regulation shall apply to central counterparties (CCPs) and their clearing members, to FCs and to TRs. Further, it shall apply to NFCs and trading venues where so provided. For further guidance, you may refer to the ESMA/2013/324 Questions and Answers document published on March 20 th, 2013 and last updated on August 5 th 2013March 20 th 2014 (ESMA/2013/10802014/297). 2.2 Which instruments are in scope under which obligation of EMIR? all derivative contracts (i.e. OTC and ETD) Reporting obligation OTC derivative classes declared subject to Clearing obligation the clearing obligation by ESMA OTC derivative classes not cleared subject to the clearing obligation See also point 2.3 Risk-mitigation techniques For further guidance, you may refer to the ESMA/2013/324 Questions and Answers document published on March 20 th, 2013 and last updated on October 22 th 2013March 20 th 2014 (ESMA/2013/15272014/297). 2.3 Dodd-Frank has put the FX forward out of scope for the central clearing and risk mitigation techniques. Is there a similar exemption in EMIR? There is generally no exemption in EMIR like in Dodd-Frank. However, it is currently under discussion whether or notthe BCBS and IOSCO provides in their final policy framework of September 2013 on margin requirements for non-centrally cleared derivatives that the margin requirements apply to all non-centrally cleared derivatives, except for physically- settled FX forwards and swaps should be exempted from the margin requirement (Q1 of the Second Consultative Document issued by BCBS and IOSCO, February 2013 (which is still open)).. Furthermore, from a Luxembourg perspective the CSSF has clarified in its press release 14/11 that Until clarification is provided on the definition of currency derivatives in relation to the frontier between spot and forward as well as to their conclusion for commercial purposes, and on the definition of commodity forwards that must be physically settled, the CSSF will not ensure the implementation of the relevant provisions of EMIR for forex derivatives up to 7 days, forex derivatives for commercial purposes, and physically settled commodity forwards, since those contracts are not clearly identified as derivatives contracts across the European Union. Formatted: Font: Italic 3. Reporting 3.1 What is the mandatory deadline for the connection to a Trade Repository for OTC derivatives in Europe? Pursuant to Art. 5 of the implementing technical standards with regard to the format and frequency of trade reports to trade repositories it is stated relating to the reporting start date: 1. Credit derivative and interest rate derivative contracts shall be reported: (a) (lit. (a) of Art. 5 (1) of the implementing technical standards is no longer applicable); ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 14

(b) 90 days after the registration of a trade repository for a particular derivative class under Article 55 of Regulation (EU) No 648/2012, where there is no trade repository registered for that particular derivative class before or on 1 April 2013; (c) by 1 July 2015, where there is no trade repository registered for that particular derivative class under Article 55 of Regulation (EU) No 648/2012 by 1 July 2015. The reporting obligation shall commence on this date and contracts shall be reported to ESMA in accordance with Article 9(3) of that Regulation until a trade repository is registered for that particular derivative class. According to ESMA s best estimate on their website, the adoption of the registration decision of the first TR(s) is not likely to take place before 7 November 2013. Thus the reporting start date of interest rate and credit derivatives is currently fixed on 12 February 2014, however this depends on the actual date of the registration of the first TR(s). On 7 November 2013, ESMA adopted the decision to register the first four trade repositories (DTCC Derivatives Repository Ltd. (DDRL), Krajowy Depozyt Papierów Wartościowych S.A. (KDPW), Regis- TR S.A., UnaVista Ltd,). The registration of the trade repositories took effect on 14 November. The reporting obligation began on 12 February 2014 after a 90 days period. Two more TRs, namely CME Trade Repository Ltd. (CME TR) and ICE Trade Vault Europe Ltd. (ICE TVEL) were registered by ESMA with effective date as of 5 December 2013. 2. Derivative contracts not referred to in paragraph 1 shall be reported: (a) (lit. (a) of Art. 5 (2) of the implementing technical standards is no longer applicable); (b) 90 days after the registration of a trade repository for a particular derivative class under Article 55 of Regulation (EU) No 648/2012, where there is no trade repository registered for that particular derivative class before or on 1 October 2013; (c) by 1 July 2015, where there is no trade repository registered for that particular derivative class under Article 55 of Regulation (EU) No 648/2012 by 1 July 2015. The reporting obligation shall commence on this date and contracts shall be reported to ESMA in accordance with Article 9(3) of that Regulation until a trade repository is registered for that particular derivative class. Also regarding the other derivative contracts, the adoption of the registration decision of the first TR(s) is not likely to take place before 7 November 2013 according to ESMA s best estimate on their website. Thus the reporting of the other derivatives is expected to start as well on 12 February 2014, however this depends on the actual date of the registration of the first TR(s). As mentioned above, the ESMA registered the first four trade repositories. These trade repositories cover all derivative asset classes. Therefore the reporting obligation will begin on 12 February 2014 for all derivative contracts. 3. Those derivative contracts which were outstanding on 16 August 2012 and are still outstanding on the reporting start date shall be reported to a trade repository within 90 days of the reporting start date for a particular derivative class. 4. Those derivative contracts which: (a) were entered into before 16 August 2012 and are still outstanding on 16 August 2012: or (b) were entered into on or after 16 August 2012, and that are not outstanding on or after the reporting start date shall be reported to a trade repository within 3 years of the reporting start date for a particular derivative class. 5. The reporting start date shall be extended by 180 days for the reporting of information referred to in Article 3 of the delegated act with regard to regulatory technical standards specifying the minimum details of the data to be reported to trade repositories pursuant to Article 9(5) of Regulation (EU) No 648/2012 (e.g. all posted collateral / collateral posted on a portfolio basis / code identifying the portfolio of collateral posted to the other counterparty related to the reported contract). 3.2 Who needs to report to a TR in Europe? According to Article 9 (1) of EMIR, the reporting obligation is laid down as follows: ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 15

1. Counterparties and CCPs shall ensure that the details of any derivative contract they have concluded and of any modification or termination of the contract are reported to a trade repository registered in accordance with Article 55 or recognised in accordance with Article 77. The details shall be reported no later than the working day following the conclusion, modification or termination of the contract. The reporting obligation shall apply to derivative contracts which: (a) were entered into before 16 August 2012 and remain outstanding on that date; (b) are entered into on or after 16 August 2012. A counterparty or a CCP which is subject to the reporting obligation may delegate the reporting of the details of the derivative contract. Counterparties and CCPs shall ensure that the details of their derivative contracts are reported without duplication. Therefore, each party to an OTC contract is responsible for the reporting, but has to ensure that no double reporting takes place. Hence, a coordinated arrangement is necessary among the different parties involved in an OTC derivative contract. 3.3 What is the accepted time delay between trade agreement and reporting to a TR? With reference to Article 9 (1) of EMIR, as set out above, the details of a derivative contract shall be reported by Counterparties and CCPs not later than the working day following the conclusion, modification or termination of the contract. 3.4 What about existing contract portfolio, does it need to be reported as well? Yes, see above relating reporting requirements and expected "deadlines". 3.5 Do both counterparties have to use the same TR in the future? Article 19 (c) of the Commission Delegated Regulation (EU) N 150/2013 of 19 December 2012 foresees that An application for registration as a trade repository shall contain the procedures put in place by the applicant in order to verify that the data can be reconciled between trade repositories if counterparties report to different trade repositories. Moreover, Article 4 (2) of the Commission Delegated Regulation (EU) N 151/2013 of 19 December 2012 provides that The counterparties to a trade shall generate a unique trade identifier for each derivatives contract to enable trade repositories to aggregate and compare data across different trade repositories. 3.6 Which contract details will regulators require? Contract details are listed Commission Delegated Regulation (EU) No 148/2013 ANNEX Details to be reported to a TR, table 1 Counterparty data and table 2 Common Data. Currently, there are more than 80 fields to be completed. 3.7 How are cleared transactions handled from a reporting perspective? As per Article 2 of the Commission Delegated Regulation (EU) No 148/2013, 1. Where an existing contract is subsequently cleared by a CCP, clearing should be reported as a modification of the existing contract. ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 16

2. Where a contract is concluded in a trading venue and cleared by a CCP such that a counterparty is not aware of the identity of the other counterparty, the reporting counterparty shall identify that CCP as its counterparty. In addition, please find below further details regarding the reporting of the clearing details for ETDs: - Clearing of ETDs normally takes place on T+0 and therefore reporting should be done once clearing takes place. Thus, the trade will be reported as a cleared one. - In the cases in which clearing takes place after T+0 and after reporting, clearing will be reported as a modification to the report. 3.8 As regards avoidance of double reporting what is the current view/ expectation of a TR? How can double reporting be avoided? Double reporting is avoided by the use of unique Trade IDs. This is regardless of whether a trade is reported on a delegation basis (both sets of counterparty data received and 1 set of common data), both counterparties report to the same TR or even if each counterparty to the trade reports to a different TR. In order to avoid double counting, the TR will likely validate the unicity of the Trade ID per counterparty in the registry. Therefore, the TR will likely reject communications in the following cases: 1. When a Reporting Entity communicates a Trade ID that has already been communicated by two other reporting entities (and, thus likely reconciled by TR). In this case, the third communication of the reconciled Trade ID will be rejected as it has already been reported. 2. When a Reporting Entity reports the same Trade ID twice and the second communication is a duplicate of the first one. In this case, a TR may validate the Trade ID at a counterparty level and rejects the second report to avoid duplicated positions to be registered and reported in the reporting entity s account. Even in the case that two messages are received, one from each counterparty to the trade, each message must therefore contain the two sets of data. 3.9 How does a TR see the double reporting in terms of various entries in the reporting tables from the two different counterparties (see above; some entries will be the same). Do you see any issue if they are reported twice? Whenever the two counterparties to a trade report their side of the trade separately, each of them will report their counterparty data and the common data separately. The TR might carry out a reconciliation process based on the trade ID by comparing all the elements in the common data (except for the transaction reference) and the counterparty IDs and counterparty sides that need to be mirror image, within the counterparty data. The TR might inform of the result of the reconciliation to participants. Additionally, duplicate communications could be rejected in the events foreseen in the previous points. 3.10 Is it possible to report the tables separately by a reporting entity? For example, the one table at the day of transaction and the other table a day later? Principally, they shall be reported together at the same time. However, if certain modifications are required, an updated reporting could be made at a later stage. 4. Legal Entity Identifiers (LEIs) ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 17

4.1 What is a Legal Entity Identifier (LEI)? An official LEI is a unique identifier associated with a legal person or structure that is organised under the laws of any jurisdiction (excluding natural persons) and created in accordance with the international standard ISO 17442. LEIs will enable consistent and unambiguous identification of parties to financial transactions. 4.2 What is ISO 17442:2012 Financial Services - Legal Entity Identifier (LEI)? Developed by the global community under the International Organization for Standardisation, ISO 17442:2012 specifies the elements of an unambiguous legal entity identifier (LEI). The standard outlines the structure and minimum data record requirements of the LEI code. Following adoption of ISO 17442:2012, the FSB confirmed the structure of the code allocation scheme to be used for the Global LEI System: Characters 1-4: A four character prefix allocated uniquely to each LOU Characters 5-6: Two reserved characters set to zero Characters 7-18: Entity-specific part of the code generated and assigned by LOUs according to transparent, sound and robust allocation policies Characters 19-20: Two check digits as described in the ISO 17442 standards 4.3 What is the purpose of LEIs? The aim of issuing Legal Entity Identifiers is to uniquely identify all parties to financial transactions for the purpose of systemic risk analysis. Each legal entity must therefore have only one identifier which is universally recognised. In the aftermath of the financial crisis, the global regulatory community saw that a common identification scheme for entities involved in financial transactions was a pre-requisite to the monitoring of risk in the global financial system. Indeed, although the first specific call for such a scheme came in policy statement made by the US Treasury's Office of Financial Research in November 2010, the LEI was already firmly on the G20 agenda. In November 2011 it mandated the FSB to deliver recommendations to the G20 Leaders' Summit in June 2012 for a global identification scheme for legal entities and a governance framework for its implementation. The FSB opted for a "federated" registration model, whereby various local registrars around the world will issue LEIs and maintain the associated data, connected to a central hub that would provide access to a consolidated register. Together, these form to key operational components of the so-called "Global LEI System" (GLEIS), which is now being created under the leadership of the global regulatory community 4.4 Who can obtain a LEI? Any entity with a legal personality or structure that is organised under the laws of any jurisdiction, excluding natural persons, is eligible for an LEI. Moreover the standard goes on to confirm that in the case of umbrella funds, both the umbrella itself and any sub-funds etc. that sit within it and are provided for under its constitution can be entities for LEI purposes. This is key as the umbrella typically will not itself be a counterparty in a transaction, as all the assets are legally (in a protected cell regime, at least) ring-fenced at sub-fund level. In this context, the FSB recommended that the term legal entity as used in the context of LEIs should take into account the possibility that in some jurisdictions asset pools or other segregated parts of a legal entity may carry sufficiently independent rights (i.e., are able to enter into financial transactions) that would make such asset pool eligible for an LEI. ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 18

Hence, in relation to the Luxembourg fund industry umbrella funds, sub-funds and pools are eligible to receive a LEI (and there are precedents to this effect). This is further described in the LEI Funds Guidance under : http://www.gfma.org/uploadedfiles/initiatives/legal_entity_identifier_(lei)/lei- Fund-Guidance-2013.pdf. 4.5 What are the initial requirements for use of LEIs? The initial focus has been on derivatives trading, with the CFTC's rules on swap trade reporting under the Dodd-Frank Act being the first to require the LEI. This was followed by the Implementing Technical Standards for trade repository reporting under EMIR and most recently we have seen the requirement extended to other legislation with clear reference to the LEI in the recent ESMA consultation on guidelines for the reporting obligations under the AIFMD. 4.6. What LEIs are currently available? Notwithstanding that the LEI exists as an international standard and is already creeping into regulatory requirements, there isn't yet a global system in place to formally co-ordinate their issuance. While the global LEI system is being developed, a network of interim solutions providers (Local Operating Utilities LOU s ) is emerging under specific guidelines that were laid down originally by the FSB. These guidelines, which are now under the guardianship of an "LEI Regulatory Oversight Committee" (ROC), were developed with a view to maintaining the integrity of the LEI as a global standard for the unique and unambiguous identification of legal entities pending the operational implementation of the global system. Interim LEIs that are issued under these guidelines are being referred to collectively as "pre-leis". A critical feature of pre-leis is that they will be adopted into the global LEI system unaltered (at which point the "pre-" designation will fall away); consequently there will be no need to obtain new identifiers or amend any data when that happens. 4.5 Who can issue pre-leis? As noted above, under the federated model selected by the FSB, LEIs will be issued by a variety of organisations and, while the global LEI system is being developed, the interim solution will to a large extent mirror that, with local solution providers now emerging as "pre-lous". The current organisations endorsed as pre-lou s are listed under 6 below. The acceptance of an organisation as a pre-lou is conditional upon them meeting the ROC guidelines, which in summary are: (a) Compliance with all FSB recommendations, which in particular include that use of pre-leis should be free of any intellectual property restrictions and that any fees should be on a cost-recovery basis only; (b) Self-registration only (c) Checks to be made with other pre-lous before issuing a pre-lei to ensure that one does not already exist for the subject entity; (d) Portability of existing pre-leis to/from another pre-lou; (e) Sponsorship of the pre-lou by a member of the ROC; (f) Confirmation from the sponsoring ROC member that the pre-lou will satisfy all of the above criteria. 4.6 Who are the endorsed pre-lou S today? The Depository Trust & Clearing Corporation s (DTCC) CICI Utility (https://www.ciciutility.org) WM Datenservice - Germany (https://www.geiportal.org) ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 19

Institut National de la Statistique et des Etudes Economiques ( INSEE ) France (https://leifrance.insee.fr/) (INSEE will register French entities only) London Stock Exchange (http://www.lseg.com/lei) Takasbank Turkey (http://www.takasbank.com.tr/en/pages/lei.aspx) Irish Stock Exchange (http://www.ise.ie/market-information/ise_pre-lei_services/) In Luxembourg, the Banque Centrale de Luxembourg (BCL) is sponsoring the establishment of a Luxembourg local operating unit (LOU), to be operated by LuxCSD. 4.7 How do I apply for a pre-lei? Application for pre-leis must be made by the entity itself, or someone (a physical person) expressly appointed by the entity for this purpose, to one of the endorsed pre-lous.. The pre-lou is responsible for issuing the identifiers and for ensuring the uniqueness to each subject item. Responsibility for the accuracy of reference data rests with the LEI registrant, but the pre-lou has responsibility to exercise due diligence in guarding against errors, as consistent with ROC standards. To that end validation checks will be performed by the pre-lou in the main using appropriate sources for validation. Appropriate sources for the validation process that a pre-lou should perform may include business registries, exchanges, securities regulators, web sites, government records, publicly available private data sources, legal instruments provided by the entity, and other private sources. In the case of funds constituting documents or prospectus, ISDA agreement, custodian records could be consulted. For pooling structures the following options are recommended to validate information on pools: obtaining confirmation/certificates from the Custodian banks, publishing pool names on the fund's website, or include pool names in the fund constitutional documents. 4.8 Cost of obtaining an LEI/pre-LEI? LEIs are not free, but charges by the LOUs cannot represent more than is required to recover their costs. The current charges of two endorsed pre-lous are as follows: Initial Annual DTCC/SWIFT (CICI) $200 $100 WM Datenservice (GEI) 150 100 London Stock Exchange 100 55 4.5. Centrally cleared OTC Derivatives In process 5.6. Non-centrally cleared OTC Derivatives 1 In process 1 Within the EMIR text, it is referred to as risk mitigation for non-centrally cleared OTC Derivatives, but throughout this document, a term with a more general meaning is used. ALFI EMIR/OTC Derivatives FaQ, Issue 1, November 21, 20132, April 17 th, 2014 Page 20