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E-Day has dawned

15 September 2013. The deadline for compliance EMIR portfolio reconciliation and CCP registration is here.

Portfolio Reconciliation: The deadline falls six months after ESMA’s technical standards were published, requiring counterparties to “”agree in writing or other equivalent electronic means with each of their counterparties on the arrangements under which portfolios shall be reconciled. Such agreement shall be reached before entering into the OTC derivative contract.”  Said agreement having been reached, reconciliation has to be undertaken on a daily/weekly/quarterly/annual schedule depending on the size of the portfolio and the EMIR classification of the end-user. Under Article 11(1)(b) counterparties to OTC transactions are required to put in place “formalised…robust, resilient and auditable” processes to enable portfolio reconciliation. This is a non-trivial exercise which includes a number of new data points such as:  counterparty classification, LEI, counterparty reporting responsibilities, and a unique swap identifier. The obligation applies to all uncleared trades by all participants in the derivatives markets, who will have to resolve discrepancies in a “timely fashion”.  Risk magazine reports that some banks anticipate a fivefold increase in their reconciliation/dispute teams. While there has a last-minute rush to sign up to the ISDA portfolio reconciliation protocol (there is a separate NFC protocol), it is certain that there will be massive non-compliance- the changes are too large, too complex and too quick for all but the best prepared and informed. It is thought that the regulator will be initially sympathetic, looking for good-faith rather than exacting compliance. However, after today the ticking clock volume should be turned to deafening.

CCP Registration:  Today also marks the deadline for CCP application registration under EMIR. The “application for” and six month decision time (the first CCP authorisation will be after 15th October 2013) makes the deadline somewhat blurred. Nevertheless, a date worth noting in the EMIR timeline.  EU banks, and their subsidiaries, will have to clear through QCCP’s , or those CCP’s who have applied for and are awaiting authorisation. Anecdotal evidence suggests that a large number of third-country, emerging-market CCP’s have neglected to apply for authorisation under EMIR. Aside from the vastly increased Basel III risk-weightings attendant on dealing with non-QCCP’s, the reputational risk of sanction by ESMA will make such trades difficult to justify.

On such a momentous day for EMIR, it may be useful to have a quick reminder of what what is still to come.  Reproduced below is the EMIR timetable published by ESMA on their site. The sharpest-eyed of our readers will notice that the delay in the registration of Trade Repositories . The expected date of first Trade Repository registration decisions has been moved from 24th September  to 7th November. The consequence being that reporting to the (currently non-existing) trade repositories is  now pushed back to February 2014. The change was made last Friday, with minimal fanfare. A spokesman blamed the Trade Repositories for submitting incomplete applications.

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