Most market participants will not have missed the activities around upcoming changes on the regulatory and accounting side. While most are aware, are most also ready? Time is running out with the first change as soon as November 1, and significant other changes effective by January 2018. Revisions to EMIR will be up first. For those in energy and commodity trading, MIFID II Regulatory Technical Change 20 and 21 are important. MIFID II will also activate a few parts of MAR. Finally, IFRS standard 9, which industry watchers expect most companies to fully adopt, has amandatory effective date for annual periods beginning on or after 1 January 2018.
The European Market Infrastructure Regulation (EMIR) is European regulation on over-the-counter derivatives. It is relevant to anyone who trades derivatives, whether on an exchange or otherwise, whether regulated or not and whether within the EU or outside. The aim of the revised Regulatory Technical Standard (RTS) / Implementation Technical Standard (ITS) under EMIR is now to address potential improvements and existing deficiencies that have been identified since the reporting start date of EMIR in February 2014. Both the RTS and the ITS will apply as from 1 November 2017. Main changes imposed by the revised RTS includes new rules regarding reporting of a derivative contract composed of a combination of contracts, of a previously reported contract which is subsequently cleared by a CCP, of collateral exchanged by the counterparties, specifying what exactly should be reported, by whom, and how it should be valued, and of the notional amount for different classes of derivatives. The ITS includes new rules to clearly identifying the buyer and seller to the trade depending on the different asset classes, new criteria for the UTI generation in case of non-agreement between counterparties, identification and classification of derivatives, and the use of ISIN code (‘International Securities Identification Number’) or AII code (‘Alternative Instrument Identifier’) for the identification of derivatives.
The Markets in Financial Instruments Directive (MIFID) has been applicable across the European Union since November 2007 and regulates firms who provide services to clients linked to ‘financial instruments, including derivatives. Following the global financial crisis, the European Commission decided to review the MiFID framework. The resulting revised Markets in Financial Instruments regime (MiFID II/ MiFIR). MiFIR is the actual regulation that enforces the MiFID II directive and it has to be implemented by all EU states as is. Effective from January 2018, MiFID II will introduce significant changes. Transparency reporting: This can be separated into pre-trade and post-trade disclosure of the details of orders submitted to and transactions conducted on a trading venue. If you are in scope for transparency reporting you will need to report post trade details in near real time. Transaction reporting: notifying the competent authority of identifying reference and post-trade data. Transaction reporting is T+1 like EMIR, but includes new criteria for when to report (not all EMIR events) and extends the data that needs to be reported. These new data items need to be captured in your source and reporting system. Position Limits: This requirement of MiFID II is for the quantitative thresholds for position limits to be ‘clear’ and measured as a percentage relationship between a position and some measure of absolute deliverable supply or overall market size measure as well as an amount of lots of a specific contract on a trading venue or a quantity of the underlying in the contract (which may be tonnes, barrels, MWh, etc).
The Market Abuse Regulation (MAR) entered into force in 2016. Certain types of behaviour, such as insider dealing and market manipulation, can amount to market abuse. From January 2018, financial instruments traded on an Organized Trading Facility (OTF) and auctioning of emission allowances or other auctioned products based thereon on an auction platform authorised as a regulated market will be subject to MAR as well. Companies implement safeguards to identify and reduce the risk of market abuse and other financial crime. This may include detection of pre-configured suspicious pattern, support for analysis, and workflow management to enabling the processing of suspicious transactions and the generation of Suspicious Transaction and Order Reports (STOR).
IFRS 9 is an International Financial Reporting Standard (IFRS) issued by the International Accounting Standards Board (IASB). This new standard is endorsed by the European Union in November 2016 and has a mandatory effective date for annual periods beginning on or after 1 January 2018, with earlier adoption permitted. IFRS 9 will replace the accounting for financial instrument under IAS 39, as this was very complicated and difficult for companies to apply correctly. The new requirements include a new approach to hedge accounting and aligns more closely with risk management, and so should help users of financial statement in their decision-making. Although the general accounting mechanisms will largely remain unchanged, the reforms of IFRS 9 encompass an array of changes that will influence your hedge accounting process in different ways.
Not ready yet? Contact Pioneer Solutions to discuss how we can assist with REMIT, EMIR, MIFID2, IFRS-9 reporting.