On 2 October 2019, the European Securities and Markets Authority (ESMA) published an updated version of its Q&As on the implementation of the Regulation on over-the-counter derivatives, central counterparties and trade repositories (EMIR).
The latest amendments to the Q&As relate to the responsibility for the status of counterparties, status of entities not established in the European Union, transactions within the same legal entity, and position level reporting.
The updated Q&As insert a new question and answer to over-the-counter derivatives (OTC) question 2:
- When do counterparties that start taking positions in OTC derivatives only after the entry into force of REFIT have to calculate the clearing thresholds and notify the relevant National Competent Authorities (NCAs) and the European Securities and Markets Authority (ESMA) that they have exceeded the clearing thresholds the first time?
Counterparties which start taking positions in OTC derivative contracts (because they are newly created entities or because they did not take positions in OTC derivative contracts before) and which choose to calculate their aggregate month-end average position for the previous 12 months, would need to determine the results of that calculation 12 months after they start taking positions in OTC derivative contracts. On that day, these counterparties who exceed the clearing thresholds or who choose not to calculate their positions will have to notify ESMA and the relevant NCAs immediately.
The updated Q&As also insert a new question and answer to trade repository question 53:
- Following to the creation of a new reference rate €STR, it is important to clarify how the counterparties should report derivatives based on this rate, as well as derivatives based on other reference rates that are not included explicitly in the Regulation (EU) 2017/105? In particular:
(a) How the fields related to floating rate should be populated?
(b) How the fields related to underlying should be populated?
(c) Specifically, in the case of outstanding derivative contracts referencing the euro overnight index average (EONIA), should the counterparties report to the TRs when change the reference rate from EONIA to €STR?
At the time the Regulation (EU) 2017/105 was developed, €STR was not yet available, therefore the list of standardised codes for reporting of floating rate specified in this Regulation (for the fields 2.55 Floating rate of leg 1 and 2.58 Floating rate of leg 2) does not provide the code for reporting of this reference rate. Consequently, the counterparties need to use the free-text field to report €STR. In order to ensure consistent reporting and enable the reconciliation of the reports in question, counterparties should report in the free-text field “ESTR”, i.e. the 4-letter code assigned to €STR in the ISO 20022 standard. Similarly, for other reference rates that are not included in the list of standardised codes, counterparties should report in the free-text field the 4-letter code assigned to that reference rate is the ISO 20022 standard, to the extent it is available.
In the case of field 2.8 Underlying identification, counterparties should report ISIN assigned to a given rate, e.g. in the case of €STR it is “EU000A2X2A25”. If ISIN is not available for a given rate, the counterparties should report the full name of that index as assigned by the index provider. It should be noted that the field 2.7 Underlying identification type should be populated with the value “X” standing for “Index”.
Yes. When the counterparties agree to change the reference index of the outstanding derivative contract from EONIA to €STR, they need to send the report with action type “Modify” to the trade repository. Similarly, once EONIA is discontinued, the counterparties that either actively transition to €STR or rely on the contractual fallback, will need to send the modification reports to the TRs.