What does March 8 mean for UK EMIR and EU EMIR – and for you?

With the Brexit transition period behind us, the path forward for regulatory reporting is now moving at pace for both UK EMIR and EU EMIR. Following ESMA’s statement on changes to the EMIR validation rules in September last year, we were originally due to see these implemented on 1 February. However this was pushed back to 8 March because the industry felt they didn’t have enough time to implement these updates because of the Brexit changes that were also fast approaching.

Couple this with the new UK EMIR validations and the requirements from the FCA’s EMIR Statement in late 2020, and we find ourselves asking what does this all mean for UK EMIR and EU EMIR ahead of 8 March implementation…

So what happens on 8 March?

Apart from being International Women’s Day, it’s also an important day for EMIR Reporting.

On the regulatory reporting front, the trade repositories will implement these new validations to ensure that reporting is performed in line with the respective EMIR regime, and will reject reports received that are not in line with these requirements. This is why firms should ensure that they comply with not only with these validations, but also their ongoing obligations under both UK EMIR and EU EMIR.

Below, we provide a summary of the key changes:

Clearing obligation – Field 2.34: Both EMIR and UK EMIR

UK EMIR

For trades concluded after 31 December 2020 and the field 2.15 (venue of execution) is not populated with a Market Identifier Code (MIC) that was a UK regulated, or a third country market considered equivalent to a UK market at the time of conclusion, the field shall be populated and contain only a “Y” or “N”.
Trades concluded prior to 31 December 2020 (while we were all in transitional pre-Brexit phase), and the Field 2.15 was not populated with a MIC code for a trading venue that was a UK or EEA regulated market, or a third-country market which was considered as equivalent to an EEA market at the time of conclusion – the field shall be populated and shall contain only one of the following values “Y” or “N”.

Now this is interesting for EU firms in particular as our sometimes forgotten EMIR amendment (hidden away as an EMIR amendment within SFTR….Article 2(A)) made third country trading venues where Exchange Traded Derivatives (ETDs) are traded as Over The Counter (OTC) contracts, until (if) equivalence is received, which impacts the UK trading venue.

EU EMIR

‘If Field 2.15 (Venue of Execution) is not populated with a MIC code of a trading venue that was a regulated market or of a third-country market considered as equivalent to a regulated market at the time of conclusion, this field shall be populated and shall contain one of the following values “Y” or “N”.

Given the language here, we can work on the basis that the reference to UK regulated markets refers to those which were in scope at the time. However, and as noted in ESMA’s statement from 10 November 2020, UK counterparties are not expected to report to EU trade repositories any derivative concluded prior to 31 December 2020 that was rejected as of 31 December 2020, nor to report amendments to any derivative concluded prior to 31 December 2020.

Intragroup Field 2.38 – Both EMIR and UK EMIR

EU EMIR – If Field 2.15 (Venue of Execution) is not populated with a MIC code of a trading venue that was a regulated market or of a third-country market considered as equivalent to a regulated market at the time of the conclusion, this field shall be populated and shall contain only one of the following values: “Y” or “N”.
UK EMIR – If the trade was concluded after 11pm on 31 December 2020 and Field 2.15 (Venue of Execution) is not populated with a MIC code of a trading venue that was a UK regulated market or a third-country market considered as equivalent to a UK regulated market at the time of the conclusion of the derivative, this field shall be populated and shall contain only one of the following values “Y” or “N”.
BOTH – If the trade was concluded prior to 11pm on 31 December 2020 and field 2.15 is not populated with a MIC code of a trading venue that was a UK or EEA regulated market or a third-country market which was considered as equivalent to an EEA market at the time the trade was concluded, this field shall be populated and shall contain only one of the following values “Y” or “N”.

Once again, as per our comments above, these provide for some interesting implications given the definition of regulated markets under each reporting regime and specific timings around these dates.

Timestamps – both EMIR and UK EMIR

Both regimes introduce validations to the historical timestamps, which should have very little impact on reporting firms. The key aspects are as follows:

Reporting timestamp (Field 1.1) – the reporting timestamp should be equal or later than the execution timestamp reported in the field 2.25. The reporting timestamp under both regimes should now be equal to or later than 12 February 2014.
Valuation Timestamp (Field 1.19); Maturity date (Field 2.27); Maturity date of the underlying (Field 2.82) – All these fields under both reporting regimes should be should be equal or later than 12 February 2014.

Initial and Variation Margin fields – Both EMIR and UK EMIR

EMIR has taken a leaf out of Kaizen’s book and turned some of our tests into validations! We see these kind of errors quite frequently so if you have not fixed them yet, it’s best to act quickly to avoid getting rejections.

EMIR and UK EMIR Field 1.24 Initial Margin posted – this was previously Optional for Action type “V” and the change impacts both reporting regimes:

If Field 1.21 (Collaterisation) is populated with One-way collateralized (“OC”) or Fully Collateralised (“FC”), field 1.24 shall be populated
If Field 1.21 is populated with Uncollateralised (“U”) or Partially Collateralised (“PC”), then field 1.24 shall be left blank

EMIR and UK EMIR Field 1.28 Initial Margin received – this was previously Optional for Action type “V” and the change impacts both reporting regimes:

If Field 1.21 (Collaterisation) is populated with Fully Collateralised, then this field shall be populated.
If Field 1.21 is populated with “OC” then field this field shall be left blank.

EMIR and UK EMIR Field 1.26 Variation Margin Posted – this was previously Optional for Action type “V” and the change impacts both reporting regimes:

If Field 1.21 (Collateralisation is populated with Partially Collaterarised (“PC”), “OC” or “FC”), one of the fields 1.26 or 1.30 shall be populated (with a positive value or zero) while the other field shall be left blank or populated with zero.
If Field 1.21 is populated with “U” or “PC”, this field shall be left blank.

EMIR and UK EMIR Field 1.30 Variation margin received – this was previously Optional for Action type “V” and the change impacts both reporting regimes:

If Field 1.21 is populated with “PC”, “OC” or “FC”, one of the fields 1.26 or 1.30 shall be populated (with a positive value or zero) while the other field shall be left blank or populated with zero.
If Field 1.21 is populated with “U”, this field shall be left blank.

UK EMIR – don’t forget…

The FCA has conveniently highlighted in yellow certain conditions that will apply to the UK regime to a number of fields. These include references to particular UK legislation and UK markets.

So what now? And what should you be doing…?

Make sure that your systems are prepared for the updated validations. Reports will be rejected from 8 March unless they comply with the new regimes.

And remember – while you’re updating your systems – a report passing trade repository validations doesn’t mean it’s correct! Kaizen has tested over 100 million EMIR records across the industry and we’ve found over 390 million errors across these reports. Moreover, 42% of those passed trade repository validation, but had at least one query. Firms are expected to submit complete and accurate reports – just passing validation is not enough.

Update 18 March: The FCA published a minor amendment to the rules on 18 March – read our blog on this change.

For a discussion on how Kaizen can assist you with the two separate EMIR regimes, please contact us.
Your regulatory reporting has passed validation. But is the data in it correct? Find out more.