Europe eyes easing of derivatives reporting rules


Ever since the collapse of Lehman Brothers in 2008, the world’s G20 countries have demanded better reporting of derivatives trades to enable regulators to monitor exposures between firms and analyse where points of failure may occur.

In Europe, new reporting obligations took effect at the start of 2014 through the European Market Infrastructure Regulation which overhauls derivatives trading. Emir requires over-the-counter and exchange-traded derivatives to be reported to trade repositories. Both sides of a trade must report transactions, unlike in the US, where only one side must report.

Speaking at the Eurofi financial forum in Bratislava, Slovakia, on September 8, the EU Financial Services Commissioner Valdis Dombrovskis said he was “looking at whether we can reduce the quantity of reporting obligations”.

He added: “The Emir review will look at how to safely reduce burdens from the ‘dual reporting’ obligation – particularly for non-financial firms. We are also taking forward a project on data standardisation to improve reporting with new technology.”

Dombrovski’s comments mirror those of his predecessor, the UK’s Jonathan Hill, who said in May 2016 that it “should be possible” to reduce reporting obligations.

The Emir review is a process whereby the European Commission automatically reviews the effect of new legislation – typically three years after its is implemented. However, the EC is also planning a wider review of all post-financial crisis regulation.

Dombrovskis said: “We need to look at whether we can make legislation more proportionate. And whether the compliance burden can be reduced for businesses.”

He specifically cited the need to review the effect of the Capital Requirements Directive, “to distinguish between large bank-like investment firms and smaller firms, and set capital requirements accordingly”.

That could see smaller organisations such as high-speed trading firms less affected by new capital rules.

The introduction of trade reporting under Emir has proved to be a huge challenge for the industry, but worse may be to come. Reporting requirements are set to be massively enhanced under the revised version of the EU’s Markets in Financial Instruments Directive, coming into force in 2018. There is expected to be some overlap between Mifid II and Emir reporting requirements.

Mifid II will extend the scope of both trade and transaction reports beyond equities to other asset classes – including exchange-traded derivatives – while also putting the obligation to report onto the buyside for the first time in certain circumstances.

Trade reports are submitted in near-real time and include limited details to help to provide indicative prices when investors buy and sell. Transaction reports are more detailed reports that must be provided to regulators – via an approved reporting mechanism – on a T+1 basis. The number of reportable fields in transaction reports will increase from 26 to 65 under Mifid II and will include personal details, such as the date of birth and passport number of the person responsible for originating the trade.

Dombrovskis added on September 8 that the European Commission would close a gap in the regulatory framework by producing a draft proposal on recovery and resolution for clearing houses by the end of this year, which will help provide a model for the risk management facilities should they default. Emir also promotes the role of clearing houses by forcing a wide range of derivatives through central clearing.

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