“Haven’t we finished EMIR?”
“I mean, 2012, that stuff is 3 years old right?”
And so my meaningful conversation in the pub went on, but the truth is, in terms of what’s in place and actually up and running, we’ve really only just scratched the surface and I felt compelled to explain why.
As a Consultant, your high-level analysis doesn’t get much higher than a Road Map (other than your pub analysis of course! 🙂 ) but for EMIR and European OTC derivative reform, we can go one step better and wind back the clock to the September 2009 G20 Summit in Pittsburgh, where one short statement changed the World forever for OTC derivatives:
“All standardized OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements.”
Acres of forests later and we all now know that this condenses down neatly into the following manageable chunks:
- Trade reporting obligation
- Central clearing obligation
- Risk management for non-cleared OTC derivatives
- Margin requirements for non-cleared OTC derivatives
- Exchange/platform trading obligation
And so where are we on all this?
It’s a good question because the perception (that EMIR is pretty much done) most definitely out-trumps the reality (that it’s not).
From where I sit, all that’s really in place and actually up and running is ‘Risk Mitigation Techniques for OTC derivative contracts not cleared by a CCP’ (that’s Part 23 for all you Dodd Frank-ers!) and of course Trade Reporting (again, Parts 43, 45 and 46).
As I continue to track progress and work through all of this, what really stands out to me is the number of compliance dates that are still around the corner and I wonder how many Clients are genuinely focused and on top of these?
Or if they’ve even started at all!
What really bothers me is the complexity of what’s left in store, relative to what’s been done, and how much work will be needed to get through this.
When I think about Risk Mitigation Techniques, I can’t help thinking that as game-changing as it may be that we are now ‘sending confirmations’ and ‘valuing OTC derivatives’ on a daily basis, was this really that difficult? And when I think about Trade Reporting, given that it’s being all but rewritten, I’d feel compelled to put it back in the queue!
For anyone out there that isn’t convinced that we’ve really only just scratched the surface, I’ve put together a high-level road map that you can pin to your wall and plot progress against. Click on the image to download the PDF.
When asked what I would be focusing on, Phase 3 of EMIR Trade Reporting (have you done your gap analysis yet?!), risk-based (HVaR/ES) margining methodologies for calculating initial margin (both cleared and non-cleared), connectivity to electronic trading venues (process engineering) and the substantial revision of the original MiFID transaction reporting regime and subsequent extension to OTC derivatives would definitely be at the top of my list.
And that was pretty much how I left it in the pub.
Does EMIR look finished to you?