EMIR: Provisions for Maltese Entities Trading in derivatives

Maria Chetcuti-Cauchi | Published on 21 Aug 2014 | Updated on 18 Feb 2016

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EMIR: Introduction

Following the financial crisis, regulators' attention was drawn to derivative transactions as a main contributing factor and as a result of this regulatioj at EU level was drawn up in the form of Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories, which is commonly referred to as EMIR.

The obligations under EMIR will affect, to different extents, all parties to OTC derivatives, the main obligations being:

  1. Central Clearing for certain classes OTC derivatives
  2. Application of risk mitigation techniques for non-centrally cleared OTC derivatives
  3. Reporting to trade repositories
  4. Application of organisational, conduct of business and prudential requirements for Clearing Counter Parties (CCP)
  5. Applications of requirements for trade repositories, including the duty to make certain data available to the public and relevant authorities.

EMIR: Implementation in Malta

EMIR’s main objective that ofincreasing market and price transparency by making information more readily available through disclosure of OTC derivatives contracts. As a result of the EMIR obligation to report to trade repositories, and with effect from 12th February 2014, all parties subject to EMIR regulations are obliged to submit all derivative trading activity to a registered European Trade Repository by the end of a trade day + 1. This obligation covers all OTC derivatives, exchange-traded derivatives, and FX forwards and FX swaps.  

Malta’s financial services sector, as well as the many non-financial counterparties, needed to ensure that they were prepared to comply with the new reporting requirement as prescribed per EMIR. It became clear that in order to make the reporting process more straightforward, convenient and therefore efficient for the industry, there was a need for a local entity that could either register as a Trade Repository or facilitate the reporting to a Trade Repository.

The Malta Stock Exchange (MSE) has since taken on the responsibility the responsibility to act as a facilitator to trade reporting and therefore assist local and international entities in complying with this EMIR reporting obligation.  This took place through a ‘Reporting Third Party’ agreement entered into with “Regis TR”, a recognised (by the EU Commission) Trade Repository which is based in Madrid. “Regis TR”  is a joint venture between “Iberclear” from Spain and “Clearstream ag” from Luxembourg.  Through the agreement, the MSE became a recognised Member of “Regis TR”, and therefore currently processes trade data submitted by the appointing Counterparties, as they are the parties whom are ultimately responsible for the reporting of the related contractual data, to the Trade Repository.  The system is facilitated by the fact that counterparties to the trades can also delegate their reporting to third parties whilst retaining the legal responsibility for trade reporting.  

The method by which a central clearing counterparty may submit data comprises a “.csv file”, with predefined fields and data completion parameters, which is submitted electronically in the MSE.  Whilst the whole data file contains 139 fields for each trade, only 33 of these fields are mandatory, making the completion of the data file less onerous. The MSE will then process this data onwards to the Trade Repository, informing the CCP of the successful reporting, and therefore compliance with EMIR. It is the CCP who is responsible for the ensuring the data submitted was complete and correct. A factor that also needs to be in place before one can report is the Legal Entity Identifier (LEI), which is a mandatory part of the trade data being reported.

The MSE, through this new role, is acting as an intermediary by delivering the completed application. Thus, if the contents of the data have not been completed correctly, the responsibility will lie with the CCP rather than with the MSE. . In the first 3 months of EMIR reporting, over 275,000 derivative trades were reported through the MSE’s reporting service.  The large volume reports came from entities based in Malta as well as overseas. The high volume clearly demonstrates the significant size of derivative trade operations within the financial services sector.

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Dr Jean-Philippe Chetcuti

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Dr Priscilla Mifsud Parker

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Mr Colin B German

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