Excelian is pleased to announce that it recently partnered with the London Capital Markets arm of a major financial institution to provide a solution to EU trade reporting requirements.

The European Market Infrastructure Regulation (EMIR) defines clearing and reporting standards designed to address both counterparty credit risk and transparency in OTC derivative transactions.

All derivatives (OTC and Exchange traded) entered into by EU counterparties are to be reported to an ESMA registered Trade Repository. Mark to market valuation, collateral type and collateral valuation are to be reported, together with standing data for each trade.

Once reported, standardized OTC derivative transactions entered into by Financial Counterparties are to be cleared by authorized Central Counterparties (CCP). The same requirement is placed upon Non Financial Counterparties should their outstanding notional amounts exceed threshold limits per EMIR asset class - credit, equity, foreign exchange, interest rates and commodities and other derivatives.

OTC derivatives not cleared by a CCP are subject to risk mitigation procedures, such as timely confirmation, reconciliation, mark to market or model and, ultimately, margining.

Meeting EMIR requirements raises a number of key business and technological challenges for the financial institution. Some of these challenges included:

  • Trade reporting that needs to be either direct, delegated to the counterparty, or outsourced to a reporting agent
  • Counterparty clearing status has to be identified and all transactions treated appropriately
  • Clearing can be handled as either a direct member of the CCP, or as a client of a clearing member
  • Transaction pricing and revaluation need to accurately reflect the collateral considerations of each trade
  • Collateral must be available at the CCP to meet initial margin requirements and subsequent intraday variation margin calls
  • The reporting mechanism has to cater for every eligible product traded and for every data field required under EMIR
  • Source data is likely to be aggregated from multiple systems and must be enriched with Unique Identifiers that are assigned to the product, trade, counterparty and to the collateral support
  • Data has to be in a form that facilitates subsequent confirmation, reconciliation and trade compression

Excelian was able to provide a specialist team and technologies to manage the additional complexity of these regulatory requirements. The solution ensured that:

  • EMIR transactions are accurately captured for Trade Repository reporting
  • Trade valuations that reflected the degree to which the deal is collateralized
  • Trade and collateral valuations are automatically delivered to the Trade Repository

This involved managing data from over 15,000 transactions across all EMIR asset classes, and integrating vendor technologies such as Murex, in house valuation platforms and Trade Repository reporting mechanisms.

In order to provide this solution, Excelian had to overcome challenges regarding product scoping within EMIR definitions, connectivity issues with the Trade Repository, and set regulatory deadlines, in addition to wider transparency and a reduction in systematic risk.

Excelian was able to leverage its collective financial and regulatory knowledge to ensure that all the requirements integrated seamlessly and as a result the financial institution has been successful in meeting EMIR milestones and in continuing to provide derivatives coverage for clients at the highest level.