This alerter is a reminder that the obligation under Article 9 of EMIR (EU Regulation No. 648/2012, as supplemented by EU Regulation No. 148/2013) to report collateral and valuation comes into force on 12 August 2014, six months after the general obligation to report contracts came into effect. It is worth noting in this context that the obligation to report collateral and valuation applies to FC's and NFC+s, but not to non-financials below the clearing threshold. Additionally
- as before, the reporting obligation may be delegated by a party to its counterparty or a third party;
- where a party does not collateralise on a transaction level basis, reporting is to be effected on a portfolio basis;
- for contracts cleared by a CCP, mark-to-market valuations need only be provided by the CCP; and
- guidance on various technical matters is included in ESMA's Q&A on the implementation of EMIR - see in particular TR question 3 on Article 9 of EMIR, last updated 11 November 2013.
One interesting question is whether, given that significant numbers of market participants were accorded a regulatory grace period after failing to meet the original 12 February deadline, a similar grace period might apply in relation to the 12 August deadline - or whether regulators might adopt a stricter stance this time around.
Furthermore, both buy-side and sell-side clients will need to check whether any existing delegated reporting agreement extends to the reporting of collateral. The key question is whether dealers will be willing to accept the liability for errors, particularly since many use mark-to-model as opposed to mark-to-market valuations, and whether buy-side clients will have access to sufficient information and systems for the purposes of validating any mark-to-model valuations.
It is possible that further guidance will come from ESMA on these and other issues in the intervening weeks. It is also advisable for parties to revisit their delegation agreements to ensure that third party reporting of collateral and valuation is adequately addressed if that is the intention.
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