20 April 2017 – by Joshua Rosenberg, Regulatory Analyst, EMEA
On Monday the 3rd of April, the European Securities and Markets Authority (ESMA) updated its Questions and Answers (Q&A) on practical questions regarding the European Markets Infrastructure Regulation (EMIR) and published updated validation rules following the publication of the revised technical standards (RTS) on reporting under Article 9 of EMIR. Both of these new documents along with the new RTS will be applicable from 1 November 2017.
There are broadly speaking three categories of change in the revised technical standards: the addition or subtraction of fields, concatenation or separation of field elements, and format changes. These changes will impact firms differently depending on which asset classes they trade in and whether they are a financial or non-financial entity.
Around fifty fields have been added to the RTS, with some fields, which became superfluous due to the removal of interim taxonomies, having been removed. The new fields have been added as a result of the splitting of existing fields or to accommodate new reporting requirements. The main areas impacted are collateral reporting and the reporting of credit and interest rate derivatives.
Collateral reporting will become significantly more detailed as initial and variation margins must now be listed independently. Interest rate derivative fields are being rearranged to allow for different possible combinations of fixed and floating rate fields, as well as splitting elements relating to various frequencies associated with each field. Accommodation for the reporting of credit derivatives will now be facilitated using a new set of fields designed specifically for this asset class. In addition, some fields have also been simplified; for example, some time and date fields have been reduced to a single field containing a complete date time stamp.
The format changes proposed are also significant as many interim taxonomies have been removed and new requirements were imposed. The most notable changes involve a new taxonomy for the corporate sector classification for non-financial counterparties. This field was previously only required for financial counterparties. Product identifiers have also been reworked. Interim taxonomies have now been decommissioned and official identification in the form of ISIN and AII are now required. Asset class and contract type will now be populated in separate fields as additional information rather than as a substitute to these aforementioned identifiers. Although a small change, this will have a huge impact on the entire reporting population. ISIN classifications have long been a point of concern for the industry especially in relation to OTC derivatives. The same product identification is now mandatory in MiFID II and the changes in the RTS seek to standardise the approach to instrument classification across all transaction reporting regimes.
The above changes have been made to address a variety of shortcomings and ambiguities in the original reporting process. ESMA’s Q&A document has previously been essential for the reporting of multiple fields where a great amount of initial confusion was caused. The buy/sell flag for example is now clarified in the RTS and will be removed from the Q&A accordingly as of November 1st. Market participants should pay close attention to these new publications as they have been set up to allow a smooth transition come November. These documents display both the before and after state of the reporting requirements and are an invaluable resource. The RTS also makes a concerted effort to bring fields in line with upcoming MiFID II requirements. The standardisation of transaction reporting fields across Europe makes it more attractive than ever to have a single robust reporting solution that handles multiple transaction reporting requirements all in one place.
Trade repositories are in the process of finalising their specifications for the RTS and are expected to publish them by the end of April. Firms will need to act quickly to ensure that they are prepared for these changes. The EMIR RTS is an opportunity for firms to revisit their reporting solutions ahead of MiFID II in 2018 and the RTS is a perfect demonstration of why it is so important to have robust and flexible solutions in place that can be radically altered with minimum impact to the business while under tight time pressure.
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