Anyone who trades in derivatives – anything from currency to oil – has only 12 working days left in which to prepare for new regulations which mean that every single agreement or modification has to be registered within 24 hours.
And since there are as many as 139 fields to fill for each report, the amount of time this will take should not be underestimated. And although some companies might only do a number of trades every year, others do them on a daily basis.
There are around 300 entities in Malta that fall under the scope of the European Market Infrastructure Regulation (EMIR).
There are only five trade depositories in the world but the Malta Stock Exchange is an agent for Regis TR in Spain so local companies, including banks and insurers, shipping companies, airlines, Enemalta and even importers, will be able to register their trades locally.
Since derivatives extend a number of years in the future, any derivative contracts made since August 2012 that are still in force will also need to be inputted within 90 days of the February 12 deadline. And within three years, even those contracts made since August 2012 which have now closed will also have to be registered.
To add to the woe of companies, even those who may one day decide to trade in derivatives should have everything in place – just in case – as if they do need to register, they will have to do so by the following day. There are hefty fines of up to €150,000 for non-compliance.
Cliff Pace, the MSE’s business and product development manager, said that some banks are already preparing test files but that if there is any inputting error, these are rejected.
“Since the system is fully automated, the test files are rejected even if there is a minor error in a single field,” he said.
“And we are finding that it can take up to a week to sort out the teething troubles.”
The Malta Financial Services Authority was designated as the competent authority in Malta for the EMIR provisions. It has set up a dedicated section on its website, issued circulars and organised seminar. It also contacted licensed entities requesting feedback on whether they had compliant procedures in place. However, over 100 queries were sent to the MFSA about interpretation of EMIR, and an FAQ is also planned to cover.
It has been meeting a number of entities, starting with the most active and said “a notable effort was being made to bring in line their operations”.
“However, since the main business of a large proportion of those falling under EMIR’s ‘Non-financial counterparties’ category is not finance-related we are concerned that such businesses which use derivatives (such as when hedging their risks) actually understand that they fall within the scope of EMIR and the related obligations,” the MFSA spokesman said.
“For instance, as a bare minimum, EMIR would require such entities to obtain a Legal Entity Identifier (LEI) and to report transactions in any derivative contract to a trade repository. Although we are aware that certain licence holders have undertaken an exercise to inform their clients about their obligations in terms of EMIR, the Authority is concerned that these entities may not be taking the implementation of EMIR seriously. It is imperative to note that should these entities fail to come in-line with the EMIR requirements, they may no longer be in a position to enter into derivative contracts.”
EMIR was introduced in July 2012 and entered into force in August 2012. The European Parliament and the Council adopted the EMIR that requires OTC derivative contracts to be cleared, derivative contracts to be reported and sets a framework to enhance the safety of central clearing counterparties (CCP) and for Trade Repositories (TR).
On Thursday, February 20, Finance Malta will be holding an educational clinic on EMIR in collaboration with the MFSA.
Those requiring more information may contact EMIR@mfsa.com.mt or Mr Pace on cpace@borzamalta.com.mt.