Latest EMIR Q&A update looks like a major headache for Trade Repositories…

ESMA’s latest update of its EMIR Q&A document requires reporting entities (or the party to which they have delegated reporting) to notify their trade repository when there is a change in their identifier.

This means either:

  • A change in their Legal Entity Identifier (LEI) due to a merger or acquisition, or
  • Where the entity obtains an LEI when they previously reported another code (BIC or internal code).

Once notified of the change, the Trade Repository is to notify the other repositories and update all open trades with the new value by replacing the old value in all the identifier fields where it had previously been used.  The Trade Repository is then to notify all the counterparties to the modified trades, as well as regulators.

Why is this being introduced now?

Level 2 validations take effect from November. The validations will affect updates to any open trades in the repositories where a BIC or internal code has been used to identify the reporting entity. Furthermore, there will always be corporate activity resulting in a need to change identifiers.

The guidance provided is not as clear as it should be. On my reading, the Trade Repositories are to update all the open trades where the party changing the LEI is the ‘counterparty’ or ‘other counterparty’. I could be wrong on this but if so, the guidance needs to be updated.

Major headache

I am not sure how the Trade Repositories will like this change as they are required to amend client records quite substantially which introduces processing risk. Further, it is highly likely that client records will get out of synch with those at the Trade Repositories. I can’t see it as being anything other than a major headache for them particularly if they are to contact all the counterparties to trades where the reporting entity’s identifier has changed.