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EMIR: Getting to Grips with Portfolio Reconciliation and Dispute Resolution


On 19 July 2013, ISDA published the “ISDA 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol” (the “Protocol”).  The Protocol enables parties to amend ISDA Master Agreements (and certain other agreements) in order to reflect the portfolio reconciliation and dispute resolution provisions of EMIR, due to come into force on 15 September 2013.  It also includes certain confidentiality waivers relating to reporting and record keeping obligations under EMIR.

On 20 August 2013, ISDA supplemented the Protocol by publishing a standard amendment agreement (based on the Protocol) which enables counterparties to amend ISDA Master Agreements in an attempt to comply with EMIR portfolio reconciliation and dispute resolution requirements on a bilateral basis.

Portfolio Reconciliation

The portfolio reconciliation provisions of EMIR and the ‘Risk Mitigation Regulatory Technical Standard’[1] (the “RTS”) require all counterparties (FCs, NFCs+ and NFCs-) which execute uncleared OTC derivative transactions to agree, prior to trading, written procedures which are “robust, resilient and auditable” in order to reconcile key transaction terms.  The frequency with which a reconciliation must be carried out is a function of EMIR classification and the number of outstanding transactions between a pair of counterparties, and ranges from daily (for example, in the case of two FCs with more than 500 outstanding transactions) to annually (for example, in the case of an FC and an NFC- with 100 or fewer outstanding transactions).

Under the Protocol, the identity of the party with responsibility for actually conducting the portfolio reconciliation is a function of each party’s elected status as either a “Portfolio Data Sending Entity” (a “Sender”) or a “Portfolio Data Receiving Entity” (a “Receiver”).  Broadly, the situation can be summarised as follows:





Both Senders perform reconciliation

Receiver performs reconciliation


Receiver performs reconciliation

Parties to agree an alternate   reconciliation process

If the Receiver does not notify the Sender by 4:00pm (in place of business of the Sender) on the fifth joint business day after the reconciliation was due to be performed then it will be deemed to have affirmed the portfolio data sent to it.  In addition, a party can serve notice on its counterparty increasing or reducing the frequency of reconciliations if this is believed to be necessary in order to comply with the RTS.

In practice, the sell-side (and larger members of the buy-side which have reconciliation arrangements in place) seem to be electing to be a Sender under the Protocol, whereas smaller buy-side firms seem to be adopting the position of a Receiver.  As a result, the dealer community continue to perform reconciliations with their peers and are not left needing to find an alternate reconciliation process.  Slightly counter-intuitively, the buy-side finds itself performing reconciliations on behalf of dealers – with the attendant risk of failing to do so within five business days.  This position seems to be in contrast to other EMIR initiatives, such as transaction reporting, whereby the sell-side are generally attempting to assist buy-side compliance efforts.

Dispute Resolution

EMIR and the RTS require counterparties to agree “formalised” and “detailed” procedures to identify, record and monitor disputes relating to the recognition or valuation of a contract and the exchange of collateral.  These procedures should refer to resolution mechanisms such as third party arbitration and market polling.  In addition, specific procedures for disputes that are not resolved within 5 business days are required.  The dispute resolution provisions apply to all counterparties with the exception of the obligation to report ‘large disputes’ (i.e. disputes for an amount over EUR 15 million and which have been outstanding for at least 15 business days), which apply to FCs only.

The Question of EMIR Compliance

Whether the portfolio reconciliation provisions of the Protocol, of themselves, represent a “robust, resilient and auditable” process is questionable.  Primarily, this is a result of the fact that adhering parties are still required to bilaterally agree a number of provisions, including:

    • the date upon which portfolio data is to be delivered;


    • the date upon which a portfolio reconciliation is to be conducted – unless the default position detailed within the Protocol is acceptable;


    • the format, scope and level of detail relating to the Portfolio Data – in this respect, the Protocol simply requires the scope and detail to be such as “would be reasonable to the Portfolio Data Sending Entity if it were the receiving party”; and


  • in circumstances where two Receivers are matched, the entire reconciliation process.

The dispute resolution provisions of the Protocol are a high-level framework which say simply that:

    • either party can raise a dispute;


    • once raised, the parties will consult in good faith in an attempt to resolve a dispute;


  • disputes should be escalated to “appropriately senior members of staff” on both sides if not resolved within five business days; and
  • each party is to have internal processes to record and monitor disputes.

Much more than is the case with portfolio reconciliation, it is difficult to see how the dispute resolution provisions of the Protocol can be regarded as a “detailed” procedure, as required by EMIR and the RTS.

However, to highlight that the Protocol may not be strictly compliant with EMIR may be to miss the point somewhat.  The wide range of commercial agreement that can be reached between counterparties with respect to portfolio reconciliation and dispute resolution was never particularly well suited to the ‘one size fits all’ approach of an ISDA protocol.   Despite this, the Protocol does contemplate the use of alternative procedures and represents a useful framework around which a more tailored bilateral agreement can be reached if required.  On the whole, given that it is not possible to escape the portfolio reconciliation and dispute resolution requirements of EMIR, there seems to be little downside in adhering to its terms.

[1] Commission Delegated Regulation (EU) No 149/2013 of 19 December 2012

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