The latest EMIR Q&A contains two elements impacting trade reporting. Firstly, there’s clear advice on how to populate the buy/sell indicator in position level reports and then there is altogether more confusing text defining how to delete trades where a counterparty “ceases to exist”.
Populating the buy/sell indicator at position level
There is a small amendment in TR Q&A 3b which provides a clarification on the population of the buy/sell indicator on a position level report when the position is reduced to zero. If a firm reported a ‘sell’ at a trade level which resulted in the position being reduced to zero, then the firm would populate the buy/sell indicator on the position level report with ‘S’ for sell. As this appears entirely logical, I hope that this doesn’t constitute a change for many firms.
Procedure for terminating ‘dead trades’ by Trade Repositories (TRs)
ESMA has included an entirely new question, TR Q&A 57, defining a procedure for the termination of ‘dead’ trades by TRs. Whilst this requirement is largely aimed at the TRs, there is some responsibility on firms as well.
By ‘dead trades’, ESMA means trades that have been reported to a TR, but where one of the counterparties has subsequently “ceased to exist”. Unfortunately, the wording of this new question renders the procedure incomprehensible. It is not helped by an apparent requirement to submit reports with action types (sic) of “ETRM”, which doesn’t actually exist for EMIR.
FCA and the Q&A
UK firms must be wondering how much longer the FCA will continue to support a Q&A that it no longer has the ability to influence. Obviously, it is a massive issue as there is strong pressure to minimise any divergence in the respective reporting regimes even if it only stems from the Q&A. Whilst there is a huge amount of valuable information in the Q&A, there is room for improvement. Anybody doubting this should look at TR Q&A 9 a little closer and see how elements of this actually contradict the RTS. As evidenced by the joint trade associations’ best practices, the industry has highlighted some areas of trade reporting where more clarification is required so that it can submit better quality reports.
Problems following Brexit
EMIR was already a very complex reporting regime, but the impact of Brexit has added to this complexity – particularly for those firms with dual-reporting obligations. Our ReportShield quality assurance testing takes into account the different nuances of reporting to an EU TR or to a UK TR (or both!). If the two regimes continue to diverge, Kaizen’s testing will continue to be updated in line with the latest guidance and we can also provide advice on ensuring your reporting has been updated for both EU and UK obligations.