ESMA has updated its EMIR Implementation Q&A suite (ESMA/2014/682). The latest instalment includes a useful table (pp 6-8) detailing recent amendments and the Articles to which they relate. The ninth Q&A is relevant to all market participants as it largely covers reporting, an EMIR obligation few can escape. A short summary of the covered areas below, followed by a full transcription:
- Collateral reporting
- Valuations reporting
- Backloaded position reporting
- TR reporting – empty fields
- Structured product reporting
- Collateralisation field
- Contracts with no maturity date
- Notional amount field
- OTC derivatives novations
Reporting of collateral
(a) Should a collateral portfolio with multiple currency values be normalised to base currency or reported in multiple currency values?
(b) How should non-cash collateral be reported?
(c) What forms of collateral should be included
(d) How should counterparties report the collateral amount where the collateral agreement allows the covering of exposures in transactions that are not to be reported under EMIR?
(e) When should collateral be reported for types of collateral (such as securities) where settlement of the movement could take place after the collateral movement was initiated?
(a) As specified in Article 3 of Commission Delegated Regulation (EU) No 148/2013 (RTS on reporting to TR), collateral can be reported on a portfolio basis. This means the reporting of each single executed transaction should not include all the fields related to collateral, to the extent that each single transaction is assigned to a specific portfolio and the relevant information on the portfolio is reported on a daily basis (end of day).The collateral should be reported at the total market value that has been posted by the Counterparty responsible for the report. Therefore any haircuts or similar used by the receiver of the collateral and any fees or similar amounts should all be ignored.
(b) Non-cash collateral should be reported as its current cash equivalent as evaluated at the moment of posting/amending the collateral.
(c) Consistent with TR Answer 3b (a1) below, the collateral should be the sum of any initial margin (or similar) posted by the reporting counterparty and any variation margin (or similar) also posted by the reporting counterparty. Note that there is no obligation to report collateral received (to avoid double-counting) and therefore if the variation margin is flowing in the opposite direction to the initial margin, it would be the other counterparty that would have to report the variation margin on their report.
(d) The collateral reported should be just the collateral that covers the exposure related to the reports made under EMIR. If it is impossible to distinguish within a pool of collateral the amount which relates to derivatives reportable under EMIR from the amount which relates to other transactions the collateral reported can be the actual collateral posted covering a wider set of transactions.
(e) The collateral should be reported as the total market value that has been posted by the counterparty responsible for the report. The fact that certain types of collateral might take a couple of days to reach the other counterparty should be ignored.
The reporting start date is extended by 180 days for the reporting of information referred to in Article 3 of Regulation (EU) 148/2013, i.e. data on exposure. The corresponding fields in the table are the fields related to valuation and collateral (fields 17 to 26 of Table 1). The resulting date is therefore 11 August 2014 with the first reports being due no later than the end of 12 August 2014 including the valuations and collateral as at the end of 11 August 2014. (Bold denotes “new” info.)
(a) How should information on valuation be reported to TRs?
(a2) Which price should be considered for the purpose of calculating the mark-to-market value of contract to be reported in Table 1, Field 17?
(a3) How should the mark to market value be calculated?
(c) Where reporting has been delegated to a counterparty, e.g. from A to B, is it acceptable for B’s valuation to be submitted in the A’s report?
(a) With reference to transactions cleared by a CCP, the fields on the contract valuation should be reported on a daily basis at position level, as maintained and valued by the CCP in accordance with Article 3 (5) of Commission Delegated Regulation (EU) No 148/2013.
(a2) The mark to market value (Table 1, Field 17) should be based on the End of Day settlement price of the market (or CCP) from which the prices are taken as reference. If an End of Day settlement price is not available, then the mark to market value should be based on the closing mid-price of the market concerned. Counterparties should use a mark-to-market or mark-to-model price as referred to in Article 11(2) of EMIR. For transactions cleared by a CCP, counterparties should use the CCP’s valuation in accordance with Article 3 (5) of Commission Delegated Regulation (EU) No 148/2013.
(a3) The mark to market value should represent the absolute value of the contract.
(c) Whenever a price is available for the valuation, such valuation should be considered as ‘mark-to-market’.
Reporting of outstanding positions following the entry into force of EMIR (Backloading)
TR Answer 4 modification (Bold denotes “new” info.)
(a) The reporting obligation applies equally to OTC derivatives and ETDs. As such, as specified in Article 5(3-4) of Commission Implementing Regulation (EU) No 1247/2012 (ITS on TR reporting), ETDs which were still outstanding on 16 August 2012 will have to be reported within 90 days of the date of the reporting obligation coming into force if they are still outstanding on that date, and within 3 years of the date of the reporting obligation coming into force, if they are not. For all reportable contracts concluded before the reporting start date there is no need to report separately any life cycle events which occurred before the reporting date. The contract can be reported at position level in its final state or, for contracts which are still outstanding, its state at the time the report is submitted. For centrally cleared contracts concluded before 16 August 2012 or between 16 August 2012 and 11 February 2014 counterparties are expected to report only their resulting net position at the CCP level as of the end of 11 February 2014.
Reporting to TRs: Empty fields
Are all fields specified in the Annex of the Commission Delegated Regulation (EU) No 148/2013 mandatory?
Answer (Bold denotes “new” info.)
In general, all fields specified in the RTS are mandatory. Nevertheless, two different instances need to be acknowledged, namely:
1. The field is not relevant for a specific type of contract/trade, for example:
– settlement date field where the underlying is an index,
– commodity underlying field in case of equity derivatives,
– Domicile of the Counterparty in case of coverage by LEI.
2. The field is relevant for a given type of contract/trade, however:
a. there is a legitimate reason why the actual value of this field is not being provided at the time the report is being submitted, or
b. none of the possible values provided for in the Annex of the Commission Implementing Regulation (EU) 1247/2012 for a given field apply to the specific trade (e.g. in the case of report submitted by the CCP, field No 7 in the Table 1 Counterparty Data).
In order to enable the TRs distinguishing between the two instances above and allow them to comply with requirements of Article 19 of the Commission Delegated Regulation (EU) 150/2013 (in particular to verify the compliance of the reporting counterparty or submitting entity with the reporting requirements), a different approach should be envisaged when it comes to population of the not relevant and relevant fields.
In the first case, since the field is not relevant for a given trade, it should be left blank.
In the second case, the mandatory relevant field should not be left blank and should include the Not Available (NA) value instead.
Reporting valuations of swaps on structured products
How should counterparties report valuations relating to complex contracts related to the same trading strategy?
Where the contracts pertaining to the same strategy have been reported separately according to Q&A TR 26, the valuation should be reported on a per contract basis.
How should the collateralisation field (Table 1, field 22) be populated?
(1) ‘‘Uncollateralised’’— A derivative contract shall be described as ‘‘Uncollateralised’’ when the reporting counterparty to such derivative contract is not posting any collateral (neither initial margin nor variation margin) at any time.
(2) ‘‘Partially Collateralised’’— A derivative contract shall be described as ‘‘Partially Collateralised’’ when the agreement between the counterparties states that either one or both counterparties will regularly post variation margin and either they do not exchange initial margin at all or only the reporting counterparty receives initial margin.
(3) ‘‘One-way Collateralised’’— A derivative contract shall be described as ‘‘One-way Collateralised’’ when the agreement between the counterparties states that only the reporting counterparty to such derivative contract agrees to post initial margin, regularly post variation margin or both with respect to the derivative contract.
(4) ‘‘Fully Collateralised’’— A derivative contract shall be described as ‘‘Fully Collateralised’’ when the agreement between the counterparties states that initial margin must be posted and variation margin must regularly be posted by both counterparties.
The word ‘‘regularly’’ is used above to exclude situations where the counterparties may set a threshold amount(s) that is so high that one or both counterparties will rarely post variation margin, if at all.
The implications of this approach are summarised in the table below.
|Value to be reported in the collateralisation field on their respective reports|
|Counterparty 1||Counterparty 2|
|VM posted by Counterparty1 but not by Counterparty 2, no IM||PC||U|
|VM posted by both counterparties, no IM||PC||PC|
|IM + VM posted by Counterparty 1, nothing posted by Counterparty 2||OC||U|
|IM posted by Counterparty 1 only, both counterparties post VM||OC||PC|
|IM + VM posted by both counterparties||FC||FC|
|No collateral posted by either counterparty||U||U|
Contracts with no maturity date
Some derivative contracts, like Contracts For Difference (CFDs), may not have any specified maturity date and at the moment of their conclusion the termination date is also not specified. Counterparties may at any moment decide to close the contract, with immediate effect. They can also close it partially as counterparties may terminate only a part of the volume on one day and the other part or parts of the contract on any other day. How should these contracts be reported under EMIR?
Each opening of a new contract should be reported by the counterparties to the TR as a new entry. Once the contract is closed, the counterparty should send a termination report to the initial entry, completing the field “Termination date”. If the contract is closed partially, counterparties send a modification report to the initial entry, reducing only its “Notional amount” (remaining volume is equal to the not yet terminated volume). If there is another partial close, yet another modification report is sent – until the contract is finally closed in whole. Then, the counterparties send a termination report marked as ‘cancelled’, completing the field “Termination date”. In these cases, the opening price of the contract is reported only in the first report (new) and it is not updated in the following modification reports.
Notional amount field
The RTS on the minimum details of the data to be reported to trade repositories indicates in field 14 that the notional amount field should represent the “original value of the contract”. However, trades are regularly terminated or novated in part or increased or decreased. Therefore, the current notional might be substantially different from the original one as its value will reflect updates to the trade resulting from lifecycle events, e.g. Partial Terminations. Which type of values is the notional amount field intended to capture?
When an opening of a new contract occurs, the notional amount field represents the “original value of the contract”. When the nominal value is increased or decreased as result of lifecycle events, counterparties send a modification report to the initial entry, modifying the quantity and/or the “Notional amount” accordingly to reflect the remaining volume. If the quantity changes then the “Notional amount” should be updated accordingly.
OTC Derivatives Novations
How should counterparties report OTC derivatives novations from the point of view of the remaining party? Assumption: For the exiting party, the existing transaction terminates, whilst for the entering party, a new transaction shall arise.
For the original report relating to the existing transaction, counterparties should send a termination report marked as ‘cancelled’, completing the field “Termination date”. The remaining counterparty and the new counterparty should then send a new report relating to the new transaction.