On 28 May 2020 the ESMA has updated the EMIR Q&As where the newly added Trade Repository (TR) Q&A 54 provides clarifications on reporting of OTC derivatives by a financial counterparty (FC) on behalf of a non-financial counterparty below clearing threshold (NFC-) under EMIR Refit.
In particular, the TR Q&A 54 clarifies:
· What are the reportable details that the NFC- should provide to the FC;
· how the FC should proceed if the NFC- does not renew its LEI;
· how the FC should proceed if an NFC that has been classified as an NFC+ changes its status to NFC- and fails to timely inform the FC of this fact;
· how FC and NFC- should proceed if they report to two different trade repositories.
The text of the clarification is as in the text box below.
TR Question 54 [last update 28 May 2020]
Reporting of OTC derivative contracts by the FC on behalf of the NFC- pursuant to the Article 9(1a) of EMIR as amended by EMIR REFIT
(a) Which of the reportable details specified in the Annex to the Regulation (EU) 2017/104 should be provided by the NFC- (which decides not to report itself) to the FC to enable the latter to report on behalf of the NFC- pursuant to the Article 9(1a) of EMIR as amended by EMIR REFIT?
(b) How should a FC proceed if the NFC- which decides not to report itself does not duly renew its LEI and therefore the reports submitted on its behalf are rejected by a Trade Repository?
(c) How should a FC proceed if an NFC that has been classified as an NFC+ changes its status to NFC- and decides not to report itself, but fails to timely inform the FC of this fact?
(d) How should FC and NFC- proceed if they report to two different TRs? Do they need to onboard to the TR of their counterparty?
TR Answer 54
(a) According to Article 9(1a) of EMIR as amended by EMIR REFIT, the NFC- should provide the FC with the details of the OTC derivative, which the FC cannot be reasonably expected to possess.
It is understood that the FC cannot not be expected to possess the reportable details characterising the NFC- itself (e.g. sector of the counterparty) nor the details of the execution and clearing arrangements entered into by the NFC itself (e.g. identity of the NFC’s broker or of the NFC’s clearing member).
Therefore, having in mind the scope of information required under the Regulation (EU) 2017/104, it is understood that NFC- should provide to the FC the following details:
i. Field 1.2 Reporting counterparty ID
ii. Field 1.6 Corporate sector of the counterparty
iii. Field 1.7 Nature of the counterparty
iv. Field 1.8 Broker ID (if unknown by FC)
v. Field 1.10 Clearing Member (if unknown by FC)
vi. Field 1.11 Type of ID of the beneficiary (if beneficiary is different from the NFC-)
vii. Field 1.12 Beneficiary ID (if beneficiary is different from the NFC-)
viii. Field 1.13 Trading capacity
ix. Field 1.15 Directly linked to commercial activity or treasury financing.
x. Field 1.16 Clearing threshold.
The reportable details in points (i)-(iii) and (x) are static information not related to a specific derivative, meaning that they can be provided by the NFC- on a one-off basis and updated immediately each time when any of such details changes.
Other reportable details specified in the points (iv)-(ix) should be provided for each OTC derivative concluded between the FC and the NFC-.
If the NFC- has not provided to the FC the reportable details specified above, the FC should submit the missing reports without undue delay as soon as it receives all the relevant details.
(b) Financial counterparty should timely liaise with the NFC- so that the latter renews its LEI. It should be noted that in accordance with Article 9(1a) of EMIR as amended by EMIR REFIT, the NFC- is responsible for ensuring that the details of the OTC derivative contracts provided to the FC are correct.
As clarified in point (a), field 1.2 Reporting counterparty ID is one of the details that NFC should provide to the FC.
Therefore, the NFC- should ensure that its LEI is correct (thus also valid and duly renewed as per the TR Q&A 10b and the validation rules) so that FC can perform the reporting of OTC derivatives on its behalf.
If the NFC- has not timely renewed its LEI and therefore FC was not able to successfully report on behalf of NFC-, the FC should submit the missing reports without undue delay as soon as the LEI of the NFC- is renewed.
(c) In accordance with answer (a) above, field 1.16 Clearing threshold is part of the details of the OTC derivative contracts that NFC- should provide to the FC.
To the extent possible, the NFC- should inform the FC of an anticipated change in its status ahead of the date of calculation of its positions pursuant to the Article 10(1) of EMIR as amended by EMIR REFIT to avoid any disruption in the continuity of reporting.
Given that the status of the NFC is known and primarily assessed by the NFC itself, it is thus part of information that the FC cannot be reasonably expected to possess, it is understood that in the case where NFC+ has become an NFC- and does not inform the FC of this change, the FC may not be aware of its obligation to report on behalf of that NFC-.
When FC becomes aware of such change after the calculation date, it should submit the missing reports pertaining to the OTC derivatives that were concluded, modified or terminated after that date without undue delay.
Such submissions should be done, upon having received from the NFC all relevant details (as per (a) above) pertaining to these derivatives.
(d) For any outstanding OTC derivatives where an FC and an NFC- report to two different Trade Repositories, and the NFC- decides not to report itself, the outstanding OTC derivatives of the NFC- should be transferred to the TR of the FC as of 18/06/2020, unless the FC decides to become client of the TR of the NFC- and report the OTC derivatives concluded with the NFC- to that TR.
Each time a NFC changes its status from NFC+ to NFC-and decides not to report itself its OTC derivatives, it should transfer its outstanding OTC derivatives concluded with the FC to the TR of that FC as of the date of its changed status unless the FC decides to become client of the TR of the NFC- and report the OTC derivatives concluded with the NFC- to that TR.
Similarly, each time when NFC changes its status from NFC- to NFC+, the outstanding OTC derivatives concluded with the FC should be transferred back to the TR of the NFC, unless the NFC decides to become client of TR of the FC and report the OTC derivatives concluded with the FC to that TR.
Any such transfer of OTC derivatives between the TRs of any pair of FC-NFC should be performed following the principles of the Guidelines on transfer of data between Trade Repositories 19(in particular, the derivatives subject to transfer should not be cancelled and re-reported by the counterparties, but rather transferred as specified in the Guidelines).
For the performance of data transfer, neither the NFC nor the FC (or any report submitting entity reporting on their behalf) are expected to onboard to the TRs of the other counterparty.
The reference to TR participant in the aforementioned Guidelines should relate to the NFC and FC (or the report submitting entity reporting on their behalf), as appropriate.
For example, in the case of transfer from the TR of the NFC- to the TR of the FC, the reference to the TR participant of the old TR should be read as a reference to the NFC-, whereas the reference to the TR participant of the new TR – as a reference to the FC.
Furthermore, the NFC- should provide to the FC the relevant verifications regarding the outstanding OTC derivatives subject to transfer included in Sections A and C of the Annex I to the Guidelines, when derivatives are transferred to the TR of the FC, and the FC should provide to the NFC+ those verifications, when derivatives are transferred to the TR of the NFC+.