EMIR

On 4 July 2012 the European Parliament and the Council (EU) adopted regulation No. 648/2012 on over-the counter (OTC) derivatives, central counterparties and trade repositories (hereinafter – EMIR [European Market Infrastructure Regulation]).

Who does EMIR apply to?

EMIR applies to all legal entities which after 16 August 2012 entered into derivative contract or plan to do so in the future.

To which transactions is EMIR applicable?
EMIR applies to transactions with financial derivatives, for example:

  • options
  • forwards
  • swaps
  • marginal trading on FOREX, etc.

 Main EMIR requirements:

  • to report about derivative contracts to newly established specialized institutions – trade repositories;
  • introduce risk mitigation techniques to transactions that are not subject to mandatory clearing with central counterparties; the obligation to clear transactions (netting) through central counterparties, if the clearing threshold limit is exceed;
  • risk mitigation activities.

What risk mitigation techniques are required?
The risk mitigation techniques depend on the scope and amount of transactions. These techniques include timely confirmation of transactions, portfolio reconciliation and dispute resolution. EMIR provides that a portfolio should be reconciled at least once a year; however, the regularity of the reconciliation depends on the amount of open contracts (transactions which date of maturity is not due). In order to meet the requirement, RIB will prepare portfolio reports for Customers.
According to EMIR, the counterparties that trade complex OTC trading contracts are required to agree on the disputes resolution procedure in a situation where controversies arise in regard to a certain transaction. The description of the procedure for settlement of disputes will be included in the Financial Market Transactions Contract and the Customer will be notified of respective modifications through the communication channels chosen by the Customer.

Reporting about transactions with derivatives
Reporting means provision of information on concluded transactions to specialized institutions – trade repositories. Reporting shall be done until the end of the following business day after transaction conclusion or modification of its terms. The obligations to report about contracts with OTC traders become effective on 12 February 2014.

Customer's obligation in connection with EMIR
Since both parties have an obligation to report their transactions, i.e.  Customer and the bank, for the Customer convenience we propose that we will report to the trade repositories on the Customer behalf about respective transactions executed with RIB. In order to report about derivative transactions on the Customer behalf, Customer have to obtain Legal Entity Identifier (LEI) number) and provide it to the bank.
LEI numbers are issued by any endorsed pre-LOU (Local Operating Units). Here is a list of approved organizations: http://www.leiroc.org/publications/gls/lou_20131003_2.pdf

Additional information concerning EMIR:
http://www.esma.europa.eu/page/European-Market-Infrastructure-Regulation-EMIR