European regulators have been advised to remove certain reporting requirements related to exchange-traded derivatives (ETDs) under EMIR, due to concerns around the complexity of the derivatives reporting regime.
The Futures Industry Association (FIA) said in a whitepaper that the EMIR reporting framework for ETDs, which is duplicated under MiFID II, should be modified to allow firms to meet EMIR reporting requirements with position reports, removing the need to report transaction-level details.
Highlighting the fact that European regulators are unique in including ETDs within the scope of EMIR reporting requirements, FIA outlined that ETD contracts are fundamentally different from OTC derivatives which has resulted in ambiguity and challenges for market participants to report accurate data.
“The requirement to report transactions has placed an excessive burden on market participants given that, for ETDs, systemic risk is only detectable at a netted end-of-day position level,” the whitepaper from FIA stated.
“The EMIR reporting regime [has been] primarily designed with OTC derivatives in mind and not necessarily being fit for purpose for the reporting of ETDs. Different approaches should be adopted for the reporting of OTC derivatives and ETDs due to the fundamental differences in nature of the products, as well as the way in which lifecycle events take place.”
FIA added that removing ETD transaction-level reporting and adopting position-level EMIR reporting will result in a more accurate representation of ETDs and collateral changes. The removal of transaction-level reporting will not cause a loss in regulatory oversight for systemic risk, according to FIA, and regulators can source transaction data from reports submitted under MiFID II.
“Trade reporting is extremely important and needed, and it is one of the more significant changes that came out of the G20 Pittsburgh accords for the monitoring of systemic risks,” FIA president and CEO Walt Lukken, concluded. “Today we are making several recommendations to help regulators get the information to monitor risks in a way that is efficient for market participants.”