remit emir 

Are you completely certain on what occasions your energy supply and derivatives contracts must be reported to ACER and not to the trade repository?


Surprised? It may mean you are at risk of non-compliance...


ACER emphasises this issue in its reporting manual (see box). However, a reflection firstly comes to mind in connection with the passage, in which ACER refers to "energy derivatives not traded on Regulated Markets or MTFs" as an example of "supply contracts and derivatives reportable solely under REMIT".


What, specifically, ACER does mean in this significant clarification? What are "energy derivatives not traded on Regulated Markets or MTFs"? There are some possibilities, but, personally, I suppose, what ACER is mindful of, is a REMIT carve-out.



"Market participants shall make sure that supply contracts and derivatives reportable solely under REMIT (e.g. energy derivatives not traded on Regulated Markets or MTFs) are reported to the Agency and not to EMIR Trade Repositories. For example, if a market participant reports all its transactions to a Trade Repository, including spot and physical forward transactions not captured by EMIR, the market participant is not complying with REMIT unless the Trade Repository is a Registered Reporting Mechanism under REMIT and the market participant has given precise instructions to the Trade Repository to report its transaction to the Agency."


Annex III to the Trade Reporting User Manual, version 2.0


In short, REMIT carve-out consists in that electricity and natural gas derivatives that "must be physically settled" and that are traded on an Organised Trading Facility (OTF) are not classed as financial instruments. 


EMIR reporting applies to derivatives, which EMIR defines as financial instruments enumerated in points (4) to (10) of Section C of Annex I of MiFID.


Given that:


- instruments covered by the REMIT carve-out are excluded from point (6) of Section C of Annex I of MiFID,


- admittedly, EMIR refers to MiFID I, but after the MiFID II entry into force all references to MiFID I must be construed as references to MiFID II (see Article 94 MiFID II subparagraphs 1 and 2 - as in the box - and MiFID II Annex III Section B);


it means, after the MiFID II entry into force (3 January 2017) EMIR reporting will apply to financial instruments enumerated in points (4) to (10) of Section C of Annex I to MiFID II and not to the electricity and natural gas derivatives, that must be physically settled and that are traded on an OTF (i.e. instruments covered by the REMIT carve-out).


It follows, instruments traded on regulated markets and multilateral trading facilities (MTF) are excluded from this reasoning.


After these extensive deliberations the conclusion is that instruments covered by the REMIT carve-out must be reported under REMIT and not EMIR ;-)


However, for the time being I have no idea, what ACER is minded of when it comes to the period till 3 January 2017 (since in that period there is no REMIT carve-out, as it is specific to MiFID II and not MiFID I). Maybe somebody else would help or I return thereto after rethinking the issue.



Article 94 subparagraphs 1 and 2 MiFID II 


Directive 2004/39/EC, as amended by the acts listed in Annex III, Part A of this Directive, is repealed with effect from 3 January 2017, without prejudice to the obligations of the Member States relating to the time-limits for transposition into national law of the Directives set out in Annex III, Part B of this Directive.


References to Directive 2004/39/EC or to Directive 93/22/EEC shall be construed as references to this Directive or to Regulation (EU) No 600/2014 and shall be read in accordance with the correlation table set out in Annex IV of this Directive. 


So, having - partially - established what the Agency was likely to be mindful of, when warning the market participants of the risks involved with the reporting of "energy derivatives not traded on regulated markets or MTFs", it's time to return to the main thread of this post.


Overall, the precise and comprehensive REMIT/EMIR reporting delineation seems rather complex task (see here the REMIT/EMIR derivatives reporting overlap), hence misreporting is easy and likely to occur.


That said, using reporting vehicle that combines functionalities and regulatory permissions for trade repository under EMIR and Registered Reporting Mechanism (RRM) under REMIT, seems to be a logical solution.


Such a business model may represent an additional, ultimate backstop when the firm's internal procedures occur not to be sufficiently insightful or happen to be not observed.


However, the proper choice of the reporting service provider does not extinguish the entire risk, since, as ACER in the aforementioned guidance stressed, it is expected of the market participant that "precise instructions" have been given to the trade repository to report transaction to the ACER.


The appropriate medium for such "precise instructions" appears to be a binding agreement between the market participant concerned and the trade repository of its choice.


There is a need, hence, to verify the text of the respective agreement whether relevant provisions are in place, and whether they are properly formulated (to satisfy ACER's requirements and to indemnify the market participant from non-compliance responsibility).


Another, theoretical, alternative is, though, that (the text of the agreement notwithstanding), the service provider will require - in order to report to ACER - the appropriate specifications ("precise instructions") from the market participant concerned in each relevant data submission i.e. on the occasion of each specific report.


However, the latter solution appears dysfunctional from a market participant's risk management perspective, since, in particular, it does not transfer the risk of distinguishing between EMIR/REMIT reporting regimes from the market participant to the service provider.


Assuming, the service providers are professionals, it seems reasonable to expect that transaction data wrongly submitted by the market participant to a trade repository under EMIR reporting scheme would be redirected to a ACER by the trade repository itself on the basis of the general clause in the agreement (save for different reporting formats applicable in each reporting regime). The practice will show whether such arrangements are possible.