Trade body the Futures and Options Association (FOA) has raised concerns with UK and Italian regulators on potentially burdensome regulatory requirements for reporting listed derivatives trades.
The issue relates to article nine of the European market infrastructure regulation (EMIR), Europe’s blueprint for OTC derivatives reform, which obligates trade counterparts – both buy- and sell-side firms – and central counterparties (CCPs) to report derivatives trades to newly-created data repositories.
The FOA and a number of its members are concerned about the potential for duplicative reporting obligations.
Firms will be able to meet their regulatory reporting obligations through the trade repository rules under EMIR, but this will not be the case until the finalisation of new transaction reporting rules in MiFIR, the regulation accompanying MiFID II.
With MiFID II at least two years behind EMIR – which will be implemented in early 2013 – firms may need to report derivatives trades both to regulators and trade repositories until the new rules are finalised, in particular where a trade repository is not also an Approved Reporting Mechanism.
“There is a pressing need for the European Securities and Markets Authority (ESMA) to ensure there is harmonisation between the reporting standards in EMIR and the current and future transaction reporting regimes,” Blake Stephenson, manager, regulation at the FOA, told theTRADEnews.com. “This requires some detailed preparatory work before issuing a consultation paper, which is expected later this month.”
ESMA is expected to unveil detailed technical standards for EMIR on 25 June for a six-to-eight week consultation. The securities watchdog will then need to present its final technical standards to the European Commission in September, for final publication by the end of this year.
There are also technical changes to the way listed derivatives are reported that will need to be considered by the industry, including an increase in the number of data fields required when reporting – 27 under current transaction reporting requirements, rising to 90 under EMIR’s trade repository obligation – and new rules that mean FX and commodity derivatives, as well as trade beneficiaries, must be identified.
Within the last two weeks, the FOA has met with UK watchdog the Financial Services Authority and Italian regulator CONSOB to discuss the issues.
“Regulators assume that the obligation is easier for exchange-traded derivatives because the reporting can be passed through to third parties such as CCPs and the exchanges,” said Stephenson. “The feeling is that it perhaps isn’t quite as simple as that in practice.”
Buy-side firms so far appear to have focused much of their efforts on OTC derivatives that will be traded on exchange-like platforms and centrally cleared when EMIR takes effect.
“Our review of the impact EMIR will have on our business has so far mainly been focused on changes affecting OTC derivatives trading,” said Paul Squires, head of trading at AXA Investment Managers. “We will soon look more closely at any impact of the regulation on listed derivatives, including transaction reporting."