EMIR (European Market Infrastructure Regulation or Regulation No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories) stipulates settlement of derivative instruments via central counterparties and the obligation to inform the trade repositories thereof and the new procedures for the management of derivative instrument contracts.
The regulative changes resulting from EMIR have an impact on all counterparties within and outside the financial sector (except private persons) who operate on the market of derivative instruments. This is part of the global effort to increase the transparency of the market and to decrease operational and counterparty credit risks on the markets of derivative instruments.
EMIR contains three main additional requirements compared to the previous provisions:
- Risk management standards must be perfected.
- All transactions with derivative instruments must be reported to trade repositories.
- Transactions with derivative instruments which meet the established criteria must be settled via central counterparties.
All derivative trades must be reported to trade repositories from 12 February 2014. A trade repository is an entity that centrally collects details about derivative trades in a register to which financial regulators have access for supervision purposes.
The reporting obligation covers both over-the-counter (OTC) and exchange-traded derivative instruments. It is important to note that forward currency contracts are also covered by the reporting obligation set forth in EMIR.
The reporting obligation applies to all parties that are registered in an EU/EEA country (except private persons, central banks and some public bodies). Danske Bank also reports transactions on behalf of its Customers if so agreed between the bank and the Customer. Danske Bank reports the transactions of its Customers to DTCC GTR (the Depository Trust & Clearing Corporation – Global Trade Repository).
If the Customer has requested the reporting service and consents to the terms and conditions of the service, the Customer authorises Danske Bank to report transactions with derivative instruments made with the bank to the trade repository on its behalf. In order to do this the Customer must acquire an LEI (Legal Entity Identifier) and inform Danske Bank about this.