It's been barely six weeks since the EMIR trade reporting obligations came into effect on 12 February and, as the regulatory dust begins to settle, parties to derivative transactions are still in the process of assessing their duties under the new regime. In the lead up to the February deadline, bank and securities firms were busy implementing their client outreach programmes whilst we were busy putting out client alerts and blogging about the new requirements under EMIR. We continue to help clients with their questions on this significant change to the EU regulatory landscape.
Two aspects of the new trade reporting regime in particular repay some close attention to avoid potential trip-ups. First, the rules relating to what has been termed 'backloading', or, in other words, the requirement to transaction report historic trades. After some uncertainty in the lead up to implementation, the requirements are now clearer. Broadly, counterparties need to ensure that all historic trades that were either 'live' on 12 August 2012 (the date EMIR came into force), or subsequently became live prior to 12 February 2014 (the date the reporting requirements came into force), are reported. For these trades, the deadline for reporting will range from just one day to a period of three years after the reporting obligations became effective, depending on the date of the trade and, if applicable, its termination date. Our client alert sets out these timeframes in more detail.
The second aspect worth paying attention to is how the transaction reporting regime applies to modifications of existing derivative contracts. In outline, EMIR makes any amendment or variation to an existing trade potentially reportable and the time frame to do so is stringent, requiring reporting within 1 working day. Precisely what a 'modification' looks like has not been spelled out in the regulation and will vary between transactions. However, it is possible that changes made to any of the reportable information for a transaction, which can be up to 80 data items, could be caught. As many existing structured finance and securitisation deals continue through the restructuring process, changes to hedging swaps can easily be caught by this requirement and transaction reporting can easily be forgotten in the excitement of the signing and closing process. A place holder in the signing and closing agenda can be a useful aide memoire.
After the initial rush to meet the February deadline, the questions about the new reporting rules will continue for a while longer. ESMA have, for example, just confirmed in their latest set of Q&As issued on 20 March that the 'backloading' obligations will still apply to transaction counterparties that have been liquidated or become insolvent, albeit the obligation rolls to any entity that assumes their obligations. Expect the questions to continue!
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