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Portfolio Reconciliation: Are You a Giver or a Taker (of Data)?

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.

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:

 

Sender

Receiver 

Sender

Both Senders perform reconciliation

Receiver performs reconciliation 

Receiver

Receiver performs reconciliation

Parties to agree an alternate reconciliation process 

Presumably, firms without the desire or the infrastructure necessary to perform a portfolio reconciliation will elect to be Portfolio Data Sending Entities.  However, as the table above shows, this of itself is no guarantee of avoiding the requirement to perform a reconciliation.  As a case in point, as of 24 July 2013, only two firms had adhered to the Protocol:

  • ING Bank Slaski S.A., and
  • Mitsubishi UFJ Securities International plc.

Interestingly, both have adhered as “Portfolio Data Sending Entities”.  Accordingly, if the pair have an ISDA Master Agreement in place, both would be required to perform a portfolio reconciliation.

Perhaps of more relevance to the dealer community is the fact that, where two firms which have chosen to be Portfolio Data Receiving Parties are matched via the Protocol, the Protocol appears to provide no solution.  Rather, these firms will be required to agree an alternative portfolio reconciliation process on a bilateral basis with all other Portfolio Data Receiving Entities.  Will this be sufficient to encourage more firms to adopt the status of a Portfolio Data Sending Entity, even at the risk of losing control of the reconciliation process?

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