Since February 2014, all counterparties are required to report details of any derivative contract they have concluded, or which the counterparty has modified or terminated, to a registered or recognised trade repository under the EMIR reporting requirements.
EMIR requirements involve:
- Reporting obligation for OTC derivatives
- Clearing obligation for eligible OTC derivatives
- Measures to reduce counterparty credit risk and operational risk for bilaterally cleared OTC derivatives
- Common rules for central counterparties (CCPs) and for trade repositories
- Rules on the establishment of interoperability between CCPs
EMIR requires all market participants to report details of all derivative contracts (interest rate swaps, FX, credit, equity and commodity) to Trade Repositories.
- Both Counterparties must report each trade unless by prior arrangement, one party can report on behalf of another counterparty.
- Either counterparty to a trade may delegate reporting to a third-party
- Where one counterparty reports on behalf of another counterparty, or a third-party reports a contract on behalf of one or both counterparties, the report details will included the full set of details as required by each counterparty.
Legal Entity Identifiers
All UK counterparties that enter into derivative trades will need to have a Legal Entity Identifier (LEI) in order to meet reporting obligations.
An LEI is a 20 character code that uniquely identifies entities who participate on the financial markets.
Who does EMIR apply to?
EMIR applies to any entity established in the European Union (EU) that has entered into a derivative contract, and applies indirectly to non-EU counterparties trading with EU parties. EMIR recognises two (2) main counterparties to a derivatives contract:
- Financial Counterparties – investment firms, fund managers, banks, insurers etc.
- Non-Financial Counterparties includes entities not involved in financial services
What needs to be reported?
Financial and Non-Financial firms trading in derivatives must report details of all derivatives trades via a Trade Repository. This includes all the details of trades and any event thereafter that affects the valuation or the terms of the trade. EMIR covers OTC derivatives and exchange traded derivatives.
Any derivative contract is required to be reported under EMIR reporting requirements, and includes:
- Financial derivatives settled physically or in cash;
- Commodity derivatives that must or may be cash settled
- Physically settled commodity derivative that are traded on a regulated market
- Physically settled commodity derivative that have characteristics of other derivative financial instruments
The definition of a derivative contract is based on the Markets in Financial Instruments Directive (MiFID).
When do reports have to be made?
Reports are required to be submitted to a recognised trade repository no later than one working day after the trade has been made.