Emir

EMIR Level 2 Validation

On 27^th April ESMA has published the updated Q&As that relates to the second level of the EMIR validation specifications. As ESMA clearly states that a failure to comply with the requirements will trigger a rejection of the trade reports by the TRs. The trade repositories are obliged to apply the rules of the validation to the trade reports and to reject those trade reports that do not comply with the level 2 validation specifications. A table with all of the EMIR level 2 validation rules published by ESMA is available via excel sheet here.

The difference between level 2 validation and level 1 validation is that ESMA now imposes validation on the content of the fields and validation on the basis of correlation between the fields. Another difference is that the level 2 validation covers 84 fields which is more than the first one.

ESMA requires the trade repositories to apply those changes into their systems by 31^st Oct 2015. UnaVista has scheduled the change in their live environment for the week-end of 24^th of Oct 2015. Regis-TR has completed phase one of the implementation into their live environment on the 3^rd of Sept 2015.

The table below represents the correct values of several fields and the connection between the values in different fields. For example if the value in field CD10 Venue is filled with a valid MIC listed on the MiFID database, then the other fields below (Taxonomy used, Product-ID1, Product-ID2, etc.) should contain certain values that would be validated at the time the trade report is being submitted to the relevant trade repository. Otherwise the reports will be rejected.

Other important changes of the EMIR level 2 validation are:

• Date and time fields will require the data to be presented using zero offset from UTC (coordinated universal time) for the fields: field CP1 “Reporting timestamp”: YYYY-MM-DDThh:mm:ssZ; field CP20 “Valuation time”: hh:mm:ssZ; field CD19 “Execution timestamp”: YYYY-MM-DDThh:mm:ssZ; field CD26 “Confirmation timestamp”: YYYY-MM-DDThh:mm:ssZ. The systems should be adjusted accordingly or the time should be corrected prior to submission of the reports.
• Valid LEIs to be populated in: field CP2 “Counterparty ID” (reporting counterparty ID), field CP3 “ID of the other counterparty”; fieldCP8 “Broker ID”; field CP9 “Reporting entity ID”; field CP10 “Clearing member ID”; field CP11 “Beneficiary ID”; field CD31 “CCP ID”. The fields should contain 20 alphanumerical characters and check digit. Although EMSA also allows client code or internal code to be used, some of the trade repositories, for example UnaVista will continue to require LEI only. Another change is that the option for using BIC in the fields above will be removed after 31^st Oct 2015.
• Field CD8 “Trade ID” (UTI) can be up to 52 alphanumerical characters. Four special characters are allowed “:”, “.”, “-“, “_”. Additionally, ” ” (the space) is allowed for the UTIs reported with action type “New” before the end of 31.12.2015. The special characters not allowed at the beginning or the end. Not allowed to change the content of this field once it is reported. Until centralised UTI generation solution/methodology is in place, the uniqueness of the Trade ID shall be preserved at counterparties’ level, i.e. the combination of the field CP2 “Counterparty ID”, field CP2 “ID of the other counterparty” and field CD8 “Trade ID” shall be unique.
• Value “X” is allowed in field CP6 “Corporate sector of the counterparty” only if the Reporting counterparty is CCP, i.e. if the entry in the field CP2 reporting “Counterparty ID” field is matching the field CD31, “CCP ID”. Although this detail is not included in the ESMA excel sheet, UnaVista has announced that ESMA required them to implement it.
• Field CP15 “Directly linked to commercial activity or treasury financing” can only be blank when field CP7 “Financial or non-financial nature of the counterparty” is “F” (for financial counterparties) or NA (“X”) for CCP. When populated, can only contain “Y” or “N” value. Single character allowed only.
• Field CP16 “Clearing threshold” can only be blank when field CP7 “Financial or non-financial nature of the counterparty” is “F” (for financial counterparties) or NA (“X”) for CCP. When populated, can only contain “Y” or “N” value. Single character allowed only.
• Field CP17 “Mark to market value of contract” When populated should be up to 20 numerical characters including decimals. The decimal mark is not counted as a numerical character. If populated, it shall be represented with a dot. The negative symbol, if populated, is not counted as a numerical character.
• Field CD1 “Taxonomy used” can only be “I” for ISIN/AII + CFI or “E” for Interim taxonomy. If field CD10 “Trading venue” is regulated market MIX on http://registers.esma.europa.eu/publication/ or “XOFF”, the value must be “I”. If field CD10 “Trading venue” is populated with an MTF MIC listed in the MiFID database, both values “I” and “E” are allowed. If field CD10 “Trading venue” is populated with non-EEA MIC or “XXXX”, then this field shall be populated with “E”. Note: until a Unique Product Identifier is endorsed in Europe, “U” value cannot be accepted in this field.
• Field CD2 “Product ID 1”. If field CD1 “Taxonomy used” has value “I”, then whether ISIN or Exchange product code is used is determined by: if field CD10 “Trading venue” is “XOFF” or an ISIN regulated marker under MiFID database, then ISIN must be 12 characters with valid check digit. If field CD10 “Trading venue” is an AII regulated market MIC on the MiFID database, then the code can contain up to 12 characters. If field CD10 “Trading venue” is populated with a non-EEA MIC or with “XXXX”, then the value must be CO, CR, CU, EQ, IR or OT.
• Field CD3 “Product ID 2”: if field CD1 “Taxonomy used” is “I”, then the field CD3 “Product ID 2” must be a valid CFI code (6 characters long, the first two characters cannot be “XX”); if field CD1 “Taxonomy used” is “E”, then only “CD”, “FR”, “FU”, “FW”, “OP”, “SW” or “OT” values will be accepted.
• Field CD4 “Underlying” shall be populated in all cases except when field CD1 “Taxonomy used” is “E” and at the same time field CD2 “Product ID 1” is “CO”, “CU” or “IR”. In all other cases the permissible values are: ISIN, LEI, “B” for Basket, “I” for Index and validation rules for LEI will apply.
• Field CD10 “Venue of execution”. ISO 10383 Market Identifier Code (MIC). 4 alphanumerical characters only. Where relevant, “XOFF” for derivatives listed on regulated markets in EEA countries traded off- exchange or “XXXX” for OTC derivatives. If this field is populated with MIC, following validations shall be performed: MIC Code shall be validated against MiFID Database of Regulated Markets and MTFs. If it is a MIC code listed in the MiFID Database, it shall be accepted; If the MIC is not listed in the MiFID database, it shall be validated against the list of MIC codes maintained and updated by ISO and published at: http://www.iso15022.org/MIC/homepageMIC.htm (column “MIC” in table “MICs List by Country” of the respective Excel file. In case the MIC pertains to a venue in a non-EEA country, the report shall be accepted. Otherwise the report shall be rejected.
• Field CD20 “Effective date”. The value of this field shall be greater than or equal to the value of the date part of the field CD19 “Execution timestamp” for all trades where field CD10 “Venue of execution” is populated with MIC code, i.e. not “XOFF” or “XXXX”.
• Field CD21 “Maturity date” when populated the value of this field shall be greater than or equal to the value in field CD20 “Effective date”.
• Field CD22 “Termination date” when populated the value of this field shall be greater than or equal to the value of the date part of the field CD19 “Execution timestamp”. If field CD22 “Termination date” and field CD21 “Maturity date” are both populated, the value of field CD22 “Termination date” shall be less than or equal to the value of the field CD21 “Maturity date”.
• Field CD23 “Settlement date” when populated the date of settlement shall be greater than or equal to the value in field CD19 “Execution timestamp”.
• Field CD13 “Price notation” if it is populated with currency, then it shall contain ISO 4217 Currency Code (official list only), 3 alphabetical characters.
• Field CD17 “Up-front payment” When populated: up to 10 numerical characters including decimals; the decimal mark is not counted as a numerical character; the negative symbol, if populated, is not counted as a numerical character; cannot be “NA”.
• Field CD25 “Master agreement version” if populated 4 numerical digits starting with “19” or “20”.
• Field CD26 “Confirmation timestamp” when populated shall be greater than or equal to the field CD19 “Execution timestamp”. Common input format: YYYY-MM-DDThh:mm:ssZ.
• Field CD30 “Clearing timestamp” shall be populated, only if field CD29 “Cleared” is populated with “Y”. When field CD30 is populated, its value shall be greater than or equal to the value of the field CD19 “Execution Timestamp”. Common input format: YYYY-MM-DDThh:mm:ssZ.
• Field CD31 “CCP” populated if CD29 “Cleared” is “Y” with LEI in all cases (even for non-EEA entities). BIC is not accepted.
• Field CD33 “Fixed rate of leg 1”, field CD34 “Fixed rate of leg 2”, field CD39 “Floating rate of leg 1”, field CD40 “Floating rate of leg 2”. If field CD2 “Product ID 1” is with value “IR”, at least one of the above fields should be populated with up to 10 numerical characters, the decimal mark (a dot) is not counted as a numerical character. The negative symbol, if populated, is not counted as a numerical character. For bond derivatives these fields should be used.
• Field CD35 “Fixed rate day count” and field CD36 ”Fixed leg payment frequency” must be populated if field CD33 “Fixed rate of leg 1” or field CD34 “Fixed rate of leg 2” are populated.
• Field CD37 “Floating rate payment frequency” and similarly field CD38 “Floating rate reset frequency” must be populated if field CD39 “Floating rate of leg 1” or field CD40 “Floating rate of leg 2” is populated.
• Currency fields (depending on whether field CD2 “Product ID1” is populated with “CU” and respectively field CD1 “Taxonomy” is populated with “E”) then: field CD41 “Currency 2” must be populated with ISO 4217 currency code – official list only, 3 alphabetical characters; at least one of fields CD42 “Exchange rate 1” and CD43 “Forward exchange rate” must be populated with up to 10 numerical digits including the decimal; field CD44 “Exchange rate basis” must be populated.
• Commodity fields (depending on whether field CD2 “Product ID1” is populated with “CO” and respectively field CD1 “Taxonomy” is populated with “E”) then: field CD45 “Commodity base” must be populated with “AG”, “EN”, “FR”, “ME”, “IN”, “EV”, “EX”; and field CD46 “Commodity details” must be populated with “GO”, “DA”, “LI”, “FO”, “SO”, “OI”, “NG”, “CO”, “EL”, “IE”, “PR”, “NP”, “WE”, “EM”.
• Energy fields (if field CD46 “Commodity details” is populated with “NG” or “EL”), then: field CD49 “Load type” must be populated with one of the following values: “BL”, “PL”, “OP”, “BH”, “OT”; field CD50 “Delivery start date and time” must be populated with YYYY-MM-DDThh:mm:ssZ; field CD51 “Delivery end date and time” must be populated with YYYY-MM-DDThh:mm:ssZ and the delivery end date and time shall be greater than the delivery start date and time; fields CD52 “Contract capacity”, CD53 ” Quantity Unit” and CD54 “Price/time interval quantities” must be populated.
• Option fields (if field CD3 “Product ID2” is populated with “OP”, or if field CD2 “Product ID1” is a CFI code indicating options) then: fieldCD55 “Option type” can only contain “P” for put or “C” for call value; field CD56 “Option style (exercise)” can only contain the following values: “A” for American, “B” for Bermudan, “E” for European, “S” for Asian; field CD57 “Strike price (cap/floor rate)” must be populated with up to 10 numerical characters including decimals.
• Field CD58, named Action Type. The first report received for given UTI by the reporting counterparty shall have only action type “N”. It would be no longer possible the trade reports to be sent with missing UTI’s. Furthermore only one report with the action type “New” for a given combination of Counterparty ID- ID of the other counterparty-Trade ID (UTI) shall be accepted.

EMIR level 2 validation rules are a challenge for the companies who have already organized in-house their EMIR reporting. EMIR Reporting Ready, Ltd. is able to assist the financial institutions by either organizing the EMIR reporting on their behalf of by consulting them and providing them with the best approach for successful and compliant EMIR reporting.

For further information please check our EMIR reporting Solutions.

Information about Fines for inaccurate EMIR reporting.

Delay in submitting the RTS on indirect clearing under MiFIR

The European Securities and Markets Authority (ESMA) has notified the European Commission to inform it that it has not submitted its draft MiFIR RTS on exchange-traded derivatives in order to ensure consistency with the EMIR RTS on the indirect clearing of OTC derivatives.

ESMA believes that in order to ensure the orderly functioning of markets amendments need to be made to the EMIR RTS and will launch a consultation shortly on these changes. It will then submit both sets of draft RTS together.

2015/1498 Letter to European Commission:Technical Standards on Indirect Clearing

ESMA adds Index CDS to central clearing obligation

The European Securities and Markets Authority (ESMA) has today finalised and issued a draft regulatory technical standard (RTS) for the central clearing of Credit Default Swaps (CDS), ESMA is required to develop RTS which implement the European Market Infrastructure Regulation (EMIR). The draft RTS defines the types of CDS contracts which will have to be centrally cleared, the types of counterparties covered by the obligation and the dates by which central clearing of CDS will become mandatory.

This submission follows the first RTS on Interest Rate Derivatives developed by ESMA and adopted by the European Commission on 6 August 2015. The new rule on Index CDS mirrors the overall approach of the first RTS, in particular with regards to the categorisation of counterparties, the scope for frontloading and the treatment of intragroup transactions.

EMIR, with the overarching objective of reducing systemic risk, introduces the obligation to clear certain classes of OTC derivatives in central clearing houses (CCP) that have been authorised (European CCPs) or recognised (third-country CCPs) under its framework. Central clearing of OTC derivatives is part of the G20 commitments aimed at reducing risk in the global financial system and requires a process for the identification of classes of OTC derivatives that should be subject to mandatory clearing. ESMA’s assessment whether a class of OTC derivatives should be subject to central clearing is based on a number of criteria, including liquidity, price availability and standardisation.

CDS contracts are amongst the types of OTC derivatives that contributed to financial market instability during the 2008 financial crisis. The addition of some CDS classes to the clearing obligation is therefore an important step in reducing systemic risk.

Two iTraxx Index CDS to be centrally cleared

The draft RTS adds two iTraxx Index CDS to the clearing obligation:

• Untranched iTraxx Index CDS (Main, EUR,5Y)
• Untranched iTraxx Index CDS (Crossover, EUR,5Y).

Next Steps

ESMA has sent the draft RTS for endorsement to the European Commission, which has three months to do so, followed by a non-objection period by the European Parliament and Council.

ESMA publishes 14th update to its EMIR Implementation Q&As

The European Securities and Markets Authority (ESMA) has today issued the 14th update of its Q&As document on the implementation of the European Markets Infrastructure Regulation (EMIR). The Q&As provide answers and guidance related to questions received regarding the implementation of EMIR.

This update includes guidance on a procedure to be followed by counterparties and TRs in order to update counterparty’s identifier in case where a counterparty obtains LEI or its LEI changes due to a merger or acquisition.

Below is the new text added in the 14^th update of the Q&A:

The entity with the new LEI (i.e. merged or acquiring entity or entity which updates its identification to LEI – further “new entity”) or the entity to which it delegated the reporting shall notify the TR(s) to which it reported its derivative trades about the change and request update of the identifier in the outstanding trades as per letter (a) below. If the change of the identifier results from a merger or acquisition, the merged or acquiring entity is also expected to duly update the LEI record of the acquired/merged entity no later than the next LEI renewal date according to the terms of the endorsed pre-LOU/accredited LOU who issued the old LEI.

The TR shall identify all the outstanding trades, where the entity is identified with the old identifier in any of the following fields: counterparty ID, ID of the other counterparty, broker ID, reporting entity ID, clearing member ID, Beneficiary Id, Underlying and CCP ID, and replace the old identifier with the new LEI.

This is done through the following controlled process:

1. The new entity or the entity to which it delegated the reporting, submits written documentation to the TR(s) to which it reported its derivative trades and requests the change of the identifier due to a corporate event or due to the LEI code being assigned to the entity. In the documentation, the following information should be clearly presented (i) the LEI(s) of the entities participating in the merger and/or acquisition or the old identifier of the entity which updates its identification to LEI, (ii) the LEI of the new entity and (iii) the date on which the change takes place. In case of a merger or acquisition, the documentation should include evidence or proof that the corporate event has taken or will take place and be duly signed.
2. The TR broadcasts this information to all the other TRs through a specific file, where the (i) old identifier(s), (ii) the new identifier and (iii) the date as of which the change should be done, are included. To the extent possible, the file should be broadcasted in advance so that the change is not done retrospectively, but as of the date specified in (iii).
3. Each of the counterparties to the trades, where any of the merged entities is identified, is informed of the modification by the TR to which they report.
4. TR(s) shall notify also the regulators who have access to the data relating to the trades that have been updated.
5. The change is kept in the reporting log by each of the TRs.
6. Subsequent reports with the old LEI should be rejected by the TRs

2015/1485 Q&A

Final technical standards on MiFID II, MAR, and CSDR

The European Securities and Markets Authority (ESMA) today published its final technical standards (TS) on some of the most important pieces of post-crisis financial regulation: the Markets in Financial Instruments Directive (MiFID II), the Market Abuse Regulation (MAR) and the Central Securities Depositaries Regulation (CSDR). ESMA’s TS translate how the legislation will apply in practice to market participants, market infrastructures and national supervisors. The new technical standards will alter the functioning of European financial markets by increasing their transparency, safety and resilience as well as investor protection.

Steven Maijoor, ESMA Chair, said:

“The rules put out by ESMA today on MiFID II, MAR and CSDR will notably change the way Europe’s secondary markets function. And this will no doubt impact market participants and regulators alike. The magnitude of this change should not be underestimated. But the past has taught us that change is needed in order to make markets more transparent, efficient, and safer to invest in. This will entail a certain cost but we should not forget the other side of this equation, which is the great benefits safer and sounder markets will bring to everybody.”

1. MiFID II to increase market transparency, efficiency and safety.

The rules ESMA is delivering today on MiFID II, once implemented, will bring the majority of non-equity products into a robust regulatory regime and move a significant part of OTC trading onto regulated platforms. The key rules introduce:

Fairer, safer and more efficient markets

• tests to determine whether a non-financial firm’s speculative investment activities are so great that it should be subject to MiFID II;
• ranges for the new EU-wide commodity derivatives position limits regime;
• rules governing high-frequency-trading, imposing a strict set of organisational requirements on investment firms and trading venues;
• provisions regulating the non-discriminatory access to central counterparties (CCPs), trading venues and benchmarks, designed to increase competition;
• provisions requiring trading venues to offer disaggregated data on a reasonable commercial basis;

Greater transparency

• thresholds for the pre- and post-trade transparency regimes extended to equity-like instruments, bonds, derivatives, structured finance products and emission allowances;
• a newly introduced liquidity assessment for non-equity instruments;
• a newly-introduced trading obligation for shares and certain derivatives to be traded only on regulated platforms and, in the case of shares, systematic internalisers, instead of over-the-counter;
• a double volume cap mechanism to limit dark trading and reshape the use of waivers for shares and equity-like instruments;
• newly introduced reporting requirements for commodity derivatives; and

Stronger investor protection

• improved disclosure to strengthen the best execution regime.

2. MAR to increase market integrity and investor protection

ESMA’s MAR TS will strengthen the existing market abuse framework by extending its scope to new markets, platforms and behaviours. They contain prohibitions for insider dealing and market manipulation, and provisions to prevent and detect these. The TS focus on:

• the conditions under which transactions in buy-back programmes and stabilisation measures are not considered market abuse;
• requirements for market participants conducting market soundings and for competent authorities establishing accepted market practices;
• specific requirements to report suspicious orders and transactions;
• rules for public disclosure of insider information and  the delays of such;
• specific formats for establishing insider lists and for the notification and disclosure of managers’ transactions; and
• specific arrangements on how to present investment recommendations or other information recommending or suggesting an investment strategy.

3. CSDR to harmonise functioning of European central securities depositories

The CSD Regulation harmonises the authorisation and supervision of central securities depositories (CSDs) within the EU. It provides organisational, conduct of business and prudential requirements to ensure CSDs are safe, efficient and sound. It also introduces a settlement discipline regime, including measures to prevent and address settlement fails, such as a mandatory buy-in and cash penalties as well as reporting requirements for internalised settlement. ESMA’s TS, which translate CSDR provisions into applicable rules, cover:

Harmonised CSD requirements

• cooperation requirements among authorities;
• requirements for the recognition of third-country CSDs, ensuring a level playing field;
• requirements for EU CSDs covering risk monitoring tools, record keeping, investment policy, reconciliation measures;
• requirements regarding non-discriminatory access to CSDs by participants, issuers, CCPs and trading venues, or between CSDs, as well as access by CSDs to CCPs and trading venues; and

Internalised settlement reporting

• requirements on how to report internalised settlements to national regulators to allow proper risk monitoring.

Considering that ESMA consulted recently on the buy-in process, ESMA has decided to delay the delivery of the RTS on settlement discipline.

Next steps

ESMA’s different sets of final draft TS have been sent for endorsement to the European Commission. The Commission now has three months to approve these. Once endorsed, both the European Parliament and the Council have an objection period.

After CSDR, which entered into force back in 2014, MAR and MiFID II will enter into force in 2016 and 2017 respectively.

2015/1464 – Final report on MiFIDII / MiFIR

2015/1464 – Annex I – Draft Technical standards on MiFID II / MiFIR

2015/1464 – Annex II – CBA on MiFID II /MiFIR

2015/1455 – Final Report MAR TS

Cost analysis for Final Report on MAR technical standards

2015/1457 – Final Report CSDR TS on CSD Requirements and Internalised Settlement

2015/1457 – Annex II – CSDR TS on CSD Requirements and Internalised Settlement

2015/1457 – Annex III – CSDR TS on CSD Requirements and Internalised Settlement

2015/1466 – Press Release MIFID II MAR CSDR

2015/1468 – Trading venue briefing

2015/1469 – Investment Firms briefing

2015/1470 – Non-financials briefing

ESMA updates list of authorised CCPs – CME Clearing Europe extends services

The European Securities and Markets Authority (ESMA) has published today an update of its list of central clearinghouses (CCPs) which are authorised under the European Markets Infrastructure Regulation (EMIR).

Today’s update concerns CME Clearing Europe which has been authorised to extend its activities and services to clear short term interest rate futures (STIRs) and deliverable swap futures (DSFs) .

ESMA recommends changes to EMIR framework

The European Securities and Markets Authority (ESMA) has published four reports focused on how the European Markets Infrastructure Regulation (EMIR) framework has been functioning and providing input and recommendations to the European Commission’s (EC) EMIR Review.

Three of the reports are required under Article 85 of EMIR, and cover non-financial counterparties (NFCs), pro-cyclicality and the segregation and portability for CCPs. The fourth report responds to the EC’s Review including recommendations on amending EMIR in relation to the clearing obligation, the recognition of third country CCPs and the supervision and enforcement procedures for trade repositories.

2015/1260 Press Release

2015/1251 EMIR Review Report no.1 – Review on the use of OTC derivatives by NFCs

2015/1252 EMIR Review Report no.2 – Review on the efficiency of margining requirements to limit procyclicality

2015/1253 EMIR Review Report no.3 – Review on the segregation and portability requirements

BME Clearing extends services

The European Securities and Markets Authority (ESMA) has published today an update of its list of central clearinghouses (CCPs) which are authorised under the European Markets Infrastructure Regulation (EMIR) and its Public Register for the Clearing Obligation.

The update concerns BME Clearing which has been authorised on 21 July 2015 to extend its activities and services to clear OTC interest rate derivatives and some cash equities (OTC and Regulated Market).

ESMA publishes responses received to Consultation Paper on clearing obligation

ESMA has published the responses received to Consultation No 4 on clearing obligation under EMIR. The responses can be viewed on the Consultation page.

The following institutions have given their responses to the questions listed in the Consultation Paper on the clearing obligation under EMIR:

• Managed Funds Association;
• Czech Capital Market Association;
• Barclays Bank PLC;
• Czech Banking Association;
• Deutsche Bank;
• European Covered Bond Council (ECBC);
• German Banking Industry Committee;
• ISDA / FIA Europe / Investment Association;
• European Systemic Risk Board;
• Sveriges Riksbank and Swedish National Debt Office; Citadel LLC;
• Swedish Securities Dealers Association and Danish Bankers Association;
• European Association of CCP Clearing Houses (EACH);
• LCH.Clearnet Group Limited;
• Federation of European Securities Exchanges;
• Finance Norway;
• KDPW_CCP;
• Nasdaq.

ESMA updates list of authorised CCP and Public Register

ESMA has published today an update of its list of central clearinghouses (CCPs) which are authorised under the European Markets Infrastructure Regulation (EMIR) and its Public Register for the Clearing Obligation.

The update concerns Eurex Clearing AG which has extended its activities and services, a fact which under EMIR requires a new authorisation by the competent authority.

Eurex Clearing AG was first authorised on 10 April 2014. It has been re-authorised to clear OTC Inflation Swaps.