06 February 2018

ESMA publishes the responses to its Consultation on position calculation under EMIR

Deutsche Bundesbank

Aggregated position data might enable regulatory authorities to monitor bilateral open positions of any two counterparties active in the OTC derivative market. Yet, a sufficient level of data granularity is of utmost importance to assess systemic risks within the financial system as well as the stability of individual institutions.

Thus, any discussion of data aggregation should be linked with thoughts about its potential benefits for authorities, taking into account costs and regulatory burden by trade repositories (TRs). In order to minimise TRs’ reporting burden and to enable them to process data only once while maintaining informational content of the data, there is a general need of regulatory authorities to access data at the most granular level.

Any noticeable aggregation of transaction data would impair their informational content necessary to monitor systemic risks from a macroprudential perspective, but also to monitor the viability of single institutions from a microprudential perspective. While position data might reduce the computational burden of building aggregates and trends as well as allow the relevant regulatory authorities to assess the development of general positions of single institutions as well as their activity on a very broad level, these data are not suitable to monitor systemic risks of a financial system or the viability of single institutions. Moreover, aggregating the data on TR level appears of limited use in view of unpaired and unmatched trade data. A dataset catering all these issues requires a multi-dimensional aggregation of data that would result in additional costs and efforts by the respective TRs. Meanwhile the potential gains compared to existing reports appear to be limited.

Against this background, any aggregates by underlying/product for individual counterparties is only second best to granting transaction level data to the relevant authorities including ESCB members (see also ECB opinion in their response to the European Commission’s consultation on the review of EMIR) as set out in further detail in Art. 9 of the delegated Regulation 151/2013. Our view is that ideally relevant authorities including ESCB members even should have access to EMIR transaction level data for all counterparties and denominated in all currencies as far as they are granted access to such data pursuant to Art. 9 of the delegated Regulation 151/2013.

Full Deutsche Bundesbank response

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National Bank of Belgium

The current guidelines leave too much room for interpretation and fall short of providing precise technical details that guarantee that TRs are able to make the position level data available to the relevant authorities in a fully consistent way. As a result, it is likely that the different TRs will apply divergent methodological assumptions when computing the position level data, leading to inconsistencies and lack of comparability of the position reports provided by the TRs. This in turn would reduce the usability of the position level data by authorities, affecting thereby their ability to fulfil their respective mandates.

The relevant authorities should have access to all the derivatives contracts in the currency issued by the ESCB member (e.g. EUR for ESCB members belonging to the Eurosystem). That is, access should be granted at the raw transaction level as well as to any derived data by the trade repositories such as “trade state” type of data. The Commission Delegated Regulation 151/2013 (and its subsequent amendment CDR (EU) 2017/1800) indicate that position data “should regard aggregate position data by underlying/product for individual counterparties”.

Trade state reports provide information on the stock of all outstanding derivatives transactions of the different reporting institutions. As a result, trade state reports are, by definition, an aggregation of the information provided in the trade activity reports - the latter being the flow of derivatives contracts. In other words, trade state reports, in spite of containing individual trade level information, provide aggregated information that is consistent with the definition given in the afore mentioned Delegated Regulation.

The current guidelines implicitly rely on the assumption that the quality of the EMIR data is good, or good enough to allow for a high share of reconciled, paired and matched trades both within and between TRs. To this date however, the quality of the EMIR data is far from perfect and the percentage of matched, paired and reconciled trades across TRs is extremely low. This means that in practice, any aggregation that is higher than that provided by the raw trade state reports would seriously impede any meaningful interpretation and usability of the position level data provided by TRs. To provide an example, the most important measure of exposure between two counterparties is the market value net of collateral. In order to compute this exposure measure, TRs need to identify all the derivative trades that are covered by a collateral pool within one master agreement. As counterparties often use different TRs to report their trades, TRs would need to reconcile the information reported to the different TRs.

The current guidelines provide no details on how this is reconciliation exercise will be performed. Therefore, National Bank of Belgium would welcome that ESMA, the NCAs and the TRs focus their efforts in improving the data quality so as to substantially increase the percentage of reconciled, paired and matched contracts both within and between repositories.

Full National Bank of Belgium response

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ALFI

The objectives and stakes of the guidelines should be developed in order to better understand which precise type of authority needs which kind of new output and for which purposes in 2018.

Guidelines could clarify specific cases for the population of dates so the market uses all dates in a consistent way. This will allow for the creation of consistent data across all market participants in different jurisdictions and for different product types. This will facilitate matching and ensure consistent reporting across the market. For instance regarding certain currency options where the effective payout only takes place after the expiry of the contract, which typically has a lifecycle of a limited number of days only.

Trade state reporting provide the most accurate level of detail at trade level. In their own jurisdiction, NCAs can review the contained data to ensure fields are populated in a consistent way by all eligible counterparties.

Moreover, based on these data, National and European authorities can design aggregation queries under specific dimensions, depending on their respective needs.

National authorities will most likely prefer queries in relation with local business models whereas European authorities will probably prefer consolidated exposures.

The calculation can be performed by the TR based on the foreign exchange rate provided on the ECB website. However, the calculation of the exposure in the different currencies can be relevant in the case the data calculation is not performed on a daily basis (with a daily frequency) because the exposure and collateral can shift a lot from one period to another.

It would be helpful to ensure market standards are used in exchange rates. Differences in exchange rates could lead to incorrect data analysis, especially when there is high volatility in markets, where accurate information will be of the highest importance.

Full ALFI response

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Full consultation paper

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