Implications of the reporting obligation
The reporting obligation (i.e. obligation to report the details of the OTC derivative contract - above the information threshold (to be specified by the European Commission in the delegated act) - to the trade repository) shouldn’t in my opinion have any greater practical effect on tendencies evolving on the market.
According to the Article 67 of the draft EMIR Regulation a trade repository is empowered to make the information gathered in its systems available only to the following entities:
- the competent authorities supervising undertakings subject to the reporting obligation;
- the competent authority supervising CCPs accessing the trade repository;
- the relevant central banks of the ESCB.
All these entities are administrative bodies covered by the confidentiality obligations, hence it could be reasonably implied that no information collected by the trade repository would leak to the market. This conclusion does not concern aggregate data because EMIR Regulation reserves that a trade repository shall publish ‘aggregate positions by class of derivatives’ on the contracts reported to it.
The publication by trade repository of aggregate positions by class of derivatives will undoubtedly increase market transparency and will be one of the main sources of market information on fundamental data.
It may be interesting what does it mean ‘aggregate positions by class of derivatives’ as regards specific details for publication. For the answer to this question we’ll have to wait, because EMIR only gives in that regard powers to the Commission to adopt regulatory technical standards specifying the details of the information at issue. The date by which something could be known on this issue is 30 June 2012 as by that date ESMA is required to submit to the Commission drafts for those regulatory standards.
Finally, the reporting obligation imposed by EMIR would mean in particular the following implications in the sphere of day-to-day activity of emission commodity firms (provided obviously that the information threshold is breached):
- the appearance of trade repositories as the additional market information source for ‘aggregate positions by class of derivatives’,
- the necessity to arrange for adequate transactions monitoring procedures to identify thresholds breaches and initiate reporting when appropriate (with the adequate internal allocation of responsibilities),
- as regards the obligation to provide to the competent authority the ‘justification for taking positions’ it is useful to note the need to align the content of the said formal justification presented to the competent authority with the way the said position is classified and presented in other reports and the accounts.
Editorial note: The text of the legislative proposal for EMIR, originally proposed of the European Commission on 15 September 2010 (COM(2010) 484 final), being analysed in this post, has been substantially changed by the European Parliament on 5 July 2011 (ordinary legislative procedure: first reading). Analysis of the impact of the modifications made by the European Parliament on the position of the commodity firms trading on the emissions market is here.