In this edition of our EMIR REFIT review we focus on the reporting of the direction of the trade.
We note ESMA that has also changed its approach here and replaced the reporting of the counterparty side field with 3 new fields in order to report the direction of the trade.
These include:
| Table and field number | Section | Field | Details to be reported |
| 1.17 | Parties to the derivative | Direction |
Indicator of whether counterparty 1 is the buyer or the seller as determined at the date the derivative was concluded. |
| 1.18 | Parties to the derivative | Direction of leg 1 |
Indicator of whether counterparty 1 is the payer or the receiver of leg 1 as determined at the date the derivative was concluded. |
| 1.19 | Parties to the derivative | Direction of leg 2 |
Indicator of whether counterparty 1 is the payer or the receiver of leg 2 as determined at the date the derivative was concluded. |
As per Article 4 of the ITS on reporting, ESMA provided that the counterparty side to the derivative contract should be determined at the time of the conclusion of the derivative on the basis of the type of contract concluded.
This means for contracts like forwards(except for FX forwards), options, swaptions, CDS, CfDs, spreadbets and variance, volatility and correlation swaps, the counterparties should report buyer and seller as determined at the time of the transaction, while for other contracts, including IRS, TRS, most equity swaps, FX swaps and FX forwards, the counterparties should determine the payer and the receiver of each leg as determined at the time of the transactions.
This is also clarified by Table 14 in the Final Report
| Table 14: Use of Direction fields per product type | |||
| Type of contract | Direction | Direction of leg 1 | Direction of leg 2 |
| Option | Buyer/Seller | – | – |
| Swaption | Buyer/Seller | – | – |
| Currency Forward | – | Payer/Receiver | Receiver/Payer |
| Currency Swap | – | Payer/Receiver | Receiver/Payer |
| Forward | Buyer/Seller | – | – |
| Non-Deliverable Forward (NDF) | – | Payer/Receiver | Receiver/Payer |
| Future | Buyer/Seller | – | – |
| CFD | Buyer/Seller | – | – |
| Spreadbet | Buyer/Seller | – | – |
| Dividends Swap | Buyer/Seller | – | – |
| Securities Swap | – | Payer/Receiver | Receiver/Payer |
| Interest Rate Swap | – | Payer/Receiver | Receiver/Payer |
| Inflation indices Swap | – | Payer/Receiver | Receiver/Payer |
| Cross-currency Swap | – | Payer/Receiver | Receiver/Payer |
| Instrument for the transfer of credit risk (except options and swaptions) | Buyer/Seller | – | – |
| Commodities Swap | – | Payer/Receiver | Receiver/Payer |
| Forward Rate Agreement | – | Payer/Receiver | Receiver/Payer |
| Derivatives related to variance, volatility and correlation | Buyer/Seller | – | – |
In the Final report ESMA also advised that it will be looking to the TRs to reconcile derivatives with two legs by reconciling each of the legs as reported by the counterparties. The TR should match the two legs irrespective of the sequence, taking into account the values reported by the two counterparties.
Additionally, when an outstanding position is the result of netting of a position to zero (Level = P and Quantity=0), TR should exclude from the reconciliation the fields ‘Direction’, ‘Direction of leg 1’ and ‘Direction of leg 2’.
Further to the counterparty side field, we note ESMA has also removed the fields ‘Beneficiary ID’ and ‘Trading Capacity’ from the reporting requirements under EMIR REFIT.
REFERENCES:
Final Report, Guidelines for reporting under EMIR
