ESMA Clarifies No-Deal Derivatives Reporting
The European Securities and Markets Authority (ESMA) has issued today a public statement on how derivatives data reported under the European Market Infrastructure Regulation (EMIR), should be handled in the event of the United Kingdom (UK) leaving the European Union (EU) without a withdrawal agreement, the no-deal Brexit scenario.
EMIR mandates the reporting of all derivatives to ESMA supervised Trade Repositories (TRs), who centrally collect and maintain the records of all derivative contracts. EMIR requires both counterparties to a derivative contract to report its details to TRs.
However, UK counterparties would not be mandated to report under EMIR to EU27 TRs following a no-deal Brexit. Therefore, the statement clarifies the following aspects for different reporting scenarios, namely where both counterparties are from the EU27, both are from the UK, and where one is from EU27 and the other from the UK. The statement clarifies:
- Reporting by CCPs and counterparties;
- Reconciliation and recordkeeping by TRs;
- Access by EU27 authorities;
- Portability and aggregation by TRs.
- The statement also sets out the timeline for completion of the relevant adjustments by the EU27 TRs
Regulators need new tools as financial market activity moves from London to EU27.
EU counterparties have to wait until closer to exit date to novate contracts.
As market infrastructure is sticky, trading will stay in London -- at least for now.
Under a no-deal Brexit, no new UK-related data will be received and processed by ESMA.
The deals come into force if the UK leaves the EU without a withdrawal agreement.