The European Securities and Markets Authority (ESMA) announced a new consultation to consider revisions to the regulatory technical standards (RTS) and implementing technical standards (ITS) for trade reporting under the European Market Infrastructure Directive (EMIR). The RTS and ITS were finalized in 2012 and 2013 at a time when, according to ESMA, “there was only limited practical experience with the reporting of derivatives.” Since then, reporting counterparties have identified a series of issues requiring further clarification.
ESMA has classified its proposed amendments as clarifications, adaptations and introductions.
'Clarifications' refer to instances where the meaning of a reporting field is open to interpretation or where completing the field is approached inconsistently by reporting counterparties. For example, mark-to-market value reporting will be adjusted in light of market practice in valuing different types of derivatives: futures and options will be marked-to-market based on the size of the contract and the current market price, whereas other types of derivatives, such as swaps and forwards, will be valued based on their replacement cost, taking into account delivery of the underlying asset. Cleared trades will be valued based on the central counterparty (CCP)’s settlement price.
By contrast, an 'adaptation' is an update to an existing reporting field to reflect clarifications made in the Q&As. This would include expanding the range of possible values beyond “financial counterparty” and “non-financial counterparty” to include CCPs and certain public or international entities.
Finally, an 'introduction' is a new field or value to reflect market practice or other regulatory requirements. In this regard, ESMA has proposed new data fields to distinguish between trade-level and position-level reporting as well as to provide greater clarity on the identity of the underlying reference asset for a derivative contract.
The consultation paper contains a series of questions for which ESMA requests public comment. The consultation period will close on February 13, 2015. The European Commission will have three months from the publication of ESMA’s final report to endorse the proposed amendments to the RTS and ITS. The consultation paper can be found here.
Nathaniel Lalone is a partner at Katten Muchin Rosenman UK LLP – www.kattenlaw.com