EMIR Reporting
In 2009, the G20 committed to reforms designed to increase transparency and reduce counterparty risk in the OTC derivatives market, following the 2008 financial crisis. Within the EU, these commitments are implemented primarily through the European Market Infrastructure Regulation (EMIR), which came into force on 16 August 2012.
Through our partner, Interactive Brokers (IB), you can make use of their delegated reporting service to help meet your EMIR reporting obligations.
Financial instruments and asset classes reportable under EMIR
The reporting obligation applies to OTC and exchange-traded derivatives in the following asset classes: credit, interest rate, equity, commodity, and foreign exchange derivatives. It does not apply to exchange-traded warrants.
Entities Subject to EMIR Reporting Obligations
Reporting obligations generally apply to all counterparties established in the EU, with the exception of natural persons. They cover the following categories:
- Financial Counterparties (FC):
Includes banks, investment firms, credit institutions, insurers, UCITS, pension schemes, and Alternative Investment Funds (AIFs) managed by an authorised Alternative Investment Fund Manager (AIFM). An AIF will only be classified as an FC if its manager is authorised under the Alternative Investment Fund Managers Directive (AIFMD). Consequently, a fund outside the EU may still fall under EMIR reporting requirements if it is managed by an EU-authorised AIFM. - Non-Financial Counterparties (NFC):
An NFC is any undertaking established in the EU that is not classified as an FC or a Central Counterparty (CCP, e.g. clearing houses). NFCs are subject to fewer obligations than FCs. However, if an NFC exceeds the EMIR clearing threshold, it becomes an NFC+ and is subject to almost the same obligations as FCs, including collateral and valuation reporting.
NFCs that remain below the clearing threshold are referred to as NFC-. In practice, any undertaking other than a natural person (for example, companies or partnerships) is considered an NFC- and must comply with reporting obligations. - Third-Country Entities (TCE):
Entities established outside the EU may, in certain limited circumstances, become subject to EMIR reporting obligations (e.g. when trading with EU counterparties).
Summary:
In essence, the reporting obligation applies to any entity established in the EU that enters into a derivatives contract, with the sole exception of natural persons.l and valuation reporting). NFCs below the clearing threshold are known as NFC-s. In practice anyone other than a natural individual person (i.e. an individual or individuals operating a joint account) is defined as an NFC- and subject to reporting obligations.
Services offered by IB
As noted above, both Financial Counterparties (FCs) and Non-Financial Counterparties (NFCs) are required to report details of their derivative transactions, whether over-the-counter or exchange-traded, to an authorised Trade Repository. This obligation may be fulfilled directly or by delegating the operational aspects of reporting to a counterparty or to a third party that submits reports on their behalf.
Interactive Brokers intends to facilitate the process by supporting the issuance of Legal Entity Identifiers (LEIs) and by offering delegated reporting for customers for whom it executes and clears trades. These services are provided subject to customer consent and only to the extent that they are operationally, legally and regulatorily permissible. Customers who are subject to EMIR reporting obligations will soon be able to log in to the IB Account Management system to apply for an LEI and delegate their reporting to Interactive Brokers.
IB also intends to include valuation reporting, but only where this is legally and regulatorily permitted and where the counterparty is required to provide such reports (i.e. in cases where it qualifies as an FC or an NFC+). In such cases, Interactive Brokers will rely on its own trade valuations for reporting purposes.
Delegation of EMIR Reporting
EMIR allows either counterparty to delegate its reporting obligation to a third party. However, if a counterparty or central counterparty (CCP) delegates reporting, it remains ultimately responsible for compliance and must ensure that the reports submitted on its behalf are accurate. Brokers and dealers acting purely in an agency capacity do not themselves assume the reporting obligation. If a block trade results in multiple transactions, each of those transactions must be reported individually.
With respect to funds and sub-funds, the reporting obligation lies with the counterparty, which may be either the fund or the sub-fund. The entity that is the principal to the transaction must provide details of its classification as an FC, NFC+ or NFC-, authorise delegated reporting where applicable, and obtain a Legal Entity Identifier (LEI).
Exemptions under Article 1(4) and 1(5) of EMIR
Articles 1(4) and 1(5) of EMIR exempt certain entities from some or all of the obligations set out in EMIR, depending on their classification. Specifically, exempt entities under Article 1(4) are exempt from all obligations set out in EMIR, while exempt entities under Article 1(5) are exempt from all obligations except for the reporting obligation, which still applies.
Entities qualifying under Article 1(4) and 1(5) of EMIR
Article 1(4) initially applied only to EU central banks, Union public bodies involved in the management of public debt, and the Bank for International Settlements. The scope of the Article 1(4) exemption was later extended to include the central banks and debt management offices of the United States and Japan. The European Commission has stated that additional foreign central banks and debt management offices may be included in the future, provided that equivalent regulatory frameworks are in place in those jurisdictions.
Article 1(5) broadly exempts the following categories of entities:
- Multilateral development banks;
- Non-commercial public sector entities owned and guaranteed by central government; and
- The European Financial Stability Facility and the European Stability Mechanism.
OTC and Exchange Traded Derivatives
There is no distinction between the reporting of exchange-traded derivatives (ETDs) and over-the-counter (OTC) contracts in the Level 1 regulations, implementing technical standards, or regulatory technical standards issued by ESMA.
Each contract must be identified using a unique product identifier. Additionally, a unique trade identifier is required for each transaction. If a globally agreed system of product identifiers is not implemented, International Securities Identification Numbers (ISIN), Alternative Instrument Identifiers (AII), or Classification of Financial Instruments (CFI) codes may be used as alternative identifiers.
Issuance of Legal Entity Identifiers (LEI)
All EU counterparties entering into derivative transactions must obtain a Legal Entity Identifier (LEI) in order to comply with the reporting obligation. The LEI is used to identify counterparties in transaction reports submitted to the relevant trade repository.
An LEI is a unique reference code assigned to a legal entity or structure, enabling the clear and consistent identification of parties involved in financial transactions.
More information can be found here: Legal Entitity Identifier.
The information above is not intended to be comprehensive or exhaustive, nor a definitive interpretation of the regulation, but a summary of ESMA’s EMIR regulation and resulting trade repository reporting obligations.
FAQ
Which Trade Repository is used?
Interactive Brokers uses Regis-TR as its designated trade repository for EMIR reporting.
Which are the thresholds which determine whether an NFC is an NFC+ or NFC-?
A non-financial counterparty (NFC) is classified as an NFC+ if it exceeds any of the following clearing thresholds. These positions must be calculated on a gross notional basis, using a 30-day rolling average:
- EUR 1 billion in OTC credit derivative contracts
- EUR 1 billion in OTC equity derivative contracts
- EUR 3 billion in OTC interest rate derivative contracts
- EUR 3 billion in OTC foreign exchange (FX) derivative contracts
- EUR 3 billion in OTC commodity derivative contracts and other OTC derivatives not listed above
To determine whether a threshold has been breached, an NFC must aggregate all relevant positions across non-financial entities within its group, whether located inside or outside the EU. However, transactions entered into for hedging or treasury purposes may be excluded. In this context, “hedging transactions” are defined as transactions that can be objectively measured as reducing risks directly related to the commercial or treasury financing activities of the NFC or its group.
What Exposures must FCs and NFC+s report on?
Financial counterparties (FCs) and non-financial counterparties above the clearing threshold (NFC+s) are required to report the following exposure information:
- The mark-to-market or mark-to-model valuation of each derivative contract
- Details of all collateral posted, either on a transaction basis or on a portfolio basis. Portfolio-level reporting applies when collateral is calculated based on net positions across multiple contracts, rather than individually per transaction.
What is the timetable to report to Trade repositories?
The reporting start date is 12 February 2014:
- New contracts they enter into on or after February 12th, on a trade date +1;
- Positions open from contracts entered into on or after 16 August 2012 and still open on February 12th, 2014 must be reported to a trade repository by February 12th 2014;
- Positions open from contracts entered into before 16th August and still open on February 12th, 2014 must be reported to a trade repository by 13th May 2014;
- Reporting of valuation and collateral must be reported to a trade repository by 12th August 2014;
- Contracts that were either entered before, on or after 16 August 2012 but not open on 12th February 2014 must be reported to a trade repository by February 12th, 2017.
What must be reported and when?
Counterparties must report information on both the counterparties to each trade (counterparty data) and the contracts themselves (common data).
Specifically, 26 data fields must be reported for counterparty data, and 59 fields for common data. These reporting requirements are detailed in Tables 1 and 2 of the Annex to ESMA’s regulatory technical standards on the minimum details to be reported to trade repositories.
A report must be submitted in each of the following cases:
- When a contract is concluded
- When a contract is modified
- When a contract is terminated
The report must be submitted no later than the working day following the conclusion, modification, or termination of the contract.sion, modification or termination of the contract.
What has to be reported and who is responsible for reporting?
The reporting obligation applies to both over-the-counter (OTC) derivatives and exchange-traded derivatives. It applies to all counterparties to a trade, regardless of their classification.
Please note:
- Reporting of valuation and collateral data is required only for financial counterparties (FCs) and non-financial counterparties above the clearing threshold (NFC+s).
- In general, each trade must be reported by both counterparties to the transaction.
Where can I find more information on the LEI?
More information on the Legal Entity Identifier (LEI) is available here.