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Contents
Introduction ....................................................................................................................................................5 Big Compliance comes to Energy Trading.......................................................................................................6 Background .....................................................................................................................................................7 The Banking crisis of 2007/2008.................................................................................................................7 MiFID II........................................................................................................................................................7 Basle III/CRD IV ...........................................................................................................................................8 The EU Third Package and REMIT............................................................................................................8 Key Themes .....................................................................................................................................................8 EMIR Rules Overview ....................................................................................................................................10 Different types of party under EMIR ........................................................................................................10 REMIT Rules Overview ..................................................................................................................................11 Timings ..........................................................................................................................................................12 The EMIR Threshold for Non-Financial Counterparties ................................................................................13 Threshold calculation................................................................................................................................13 Trade Reporting ............................................................................................................................................15 Trade Reporting for EMIR .........................................................................................................................15 What must be reported? ......................................................................................................................15 Where data should be reported? .........................................................................................................15 Which data must be reported? ............................................................................................................15 When should data be reported? ..........................................................................................................16 Backloading ..........................................................................................................................................16 Trade Reporting for REMIT .......................................................................................................................16 Which data must be reported? ............................................................................................................16 Where should data be reported to? .....................................................................................................17 What data types must be reported? ....................................................................................................17 Non Standard Trades ............................................................................................................................19 Data Destinations .....................................................................................................................................19 Implementing a trade reporting solution .................................................................................................20 Solution types .......................................................................................................................................20 Required Solution Activities......................................................................................................................21 Data sourcing and gap analysis ............................................................................................................21 Data mapping and capture ...................................................................................................................21 Configuration choice and connection mechanism ...............................................................................21 Data enrichment ...................................................................................................................................21
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Pre trade data .......................................................................................................................................21 Issues being encountered .........................................................................................................................22 LEIs (Legal Entity Identifiers) ................................................................................................................22 The UTI (Unique Trade Identifier).........................................................................................................22 Which rules apply to a trade?...............................................................................................................22 Changing requirements ........................................................................................................................23 Risk Management .........................................................................................................................................24 Timely confirmation..................................................................................................................................25 Portfolio Reconciliation and Dispute Resolution ......................................................................................25 The reconciliation process ........................................................................................................................25 Typical modes of operation ..................................................................................................................25 Bilateral reconciliation..........................................................................................................................26 Outsourced Reconciliation ...................................................................... Error! Bookmark not defined. Contractual Changes required for Portfolio Reconciliation and dispute resolution ............................26 Portfolio Compression ..........................................................................................................................27 Bilateral Compression...........................................................................................................................27 Multilateral Compression .....................................................................................................................27 Is it worth compressing if it is not mandatory? ....................................................................................28 Daily mark to market/model ................................................................................................................28 European Regulatory Solutions Directory ....................................................................................................29 Types of service and software ..................................................................................................................29 Trade Repositories ................................................................................................................................29 Reporting Services ................................................................................................................................34 NASDAQ OMV.......................................................................................................................................34 Specialist Reporting and aggregation software ....................................................................................36 The solution includes;...........................................................................................................................38 E/CTRM offerings..................................................................................................................................42 Portfolio Reconciliation/Dispute Resolution ........................................................................................45 Portfolio Compression ..........................................................................................................................46 TriOptima triReduce .............................................................................................................................46 Trade Surveillance ................................................................................................................................47 About The Authors........................................................................................................................................50 Aviv Handler..............................................................................................................................................50 Dr. Gary M. Vasey .....................................................................................................................................50 ComTech Advisory ....................................................................................................................................51 ETR Advisory .............................................................................................................................................51
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Introduction
Increased regulation and oversight of European energy and commodity trading has commenced as various aspects of the EMIR (European Market Infrastructure Regulation), REMIT (Regulation on wholesale Energy Market Integrity and Transparency), and other regulations start to bite. These regulations are already having an impact on trading and risk management business practices and may have far reaching and as yet, even un-thought of consequences for the industry. Unfortunately, the authorities have yet to define some of the detail and clarity needed to be able to determine this. This research, conducted jointly by industry leading analysts and experts, Commodity Technology Advisory and ETR Advisory, aims to help to clarify the issues and to examine the impact of regulation on software requirements in the trading and risk management business function. It looks at the current implementation schedule of the regulations and examines some of the implementation impacts of the yet to be defined details of the regulations. It also reviews the software, services and platforms available in the market to support aspects of the European regulatory environment and establish the readiness of European traders for operating under the regulations. The research is focused on understanding: Implementation time frames and what this means to traders The unknowns and yet to be defined details and their implications A review of solutions, services and platforms in the market designed to support these regulations Readiness of trading organizations from a business process, technology and holistic standpoint This will be a separate report issued as Part 2B Upon completion of data gathering and interviews, we will draft a follow up report including detailed survey results and analysts conclusions. That report will also be available for download to industry professionals via our various websites. Less than a week after releasing this report on 13th September 2013 there were already several changes in dates and rules. The report is therefore updated as of 16th September 2013
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Background
The upcoming rule sets stem initially from two sources: 1) Reactions to the Banking crisis of 2007/2008 2) The EU 3rd Package - which further aims to create a single European gas and power market.
These have led to a variety of pillars including reporting of trades to repositories, a move to OTC Clearing, several risk reduction techniques and the desired imposition of mandatory position limits on commodities.
MiFID II
In addition to EMIR, other initiatives were created in order to address the issues. In Europe, this includes MiFID II. The Markets in Financial Instruments Directive (MiFID) came into force in 2007 and introduced several new concepts for financial companies, such as passporting i.e. the requirement to be able to execute equally in any European location, and a requirement to provide best execution. It introduced the concept of a Multilateral Trading Facility (MTF) to which certain transparency and operation rules apply. However, the majority of commodity traders received an exemption from these rules. MiFID II extends the original initiative in many ways, including a wider ranging Organized Trading Facility (OTF). Of particular interest to our market are two items: 1) The potential removal of the commodity trader exemption , in many cases, 2) Mandatory Position Limits (which in the US are being implemented within Dodd Frank).
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Basle III/CRD IV
The Basle III accords modify the Basle II accords targeted at the banking industry. These outline how banks should calculate their capital requirements, for credit, market and operational risk, amongst other things. Basle III moves to a more prudent capital calculation methodology and capital ratios for banks. This includes the use of Credit Value Adjustment (CVA) and similar measures. In Europe, the rules are being implemented as the fourth Capital Requirements Directive (CRD). Some of the new capital calculation rules could well apply to energy traders, although probably not until 2017. However, these are yet another set of rules that should be on Energy Traders radars.
Key Themes
There are four key themes identifiable across all of these new initiatives and these are explored in the body of this report: Trade and Position Reporting reporting of trades under EMIR and REMIT and also position reporting under MiFID II Clearing - OTC Clearing as mandated under EMIR Risk Management Rules such as Portfolio reconciliation and compression under EMIR as well as CRD IV rules Trade Monitoring and Surveillance Under REMIT as well as MAD II
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Risk Management Timely Confirmation Portfolio, Reconciliation, Dispute Resolution, Portfolio Compression, Daily mark to market (FC, NFC+)
Trade Monitoring
REMIT
Power and gas physical and financial to RRMs Fundamental data to RISs Real time position reporting and limits various
None manipulation rules apply to physical and financial gas and power
MiFID II
MAD II The table above summarizes the regulations and the four key themes.
Extends MAD
Although linked, each stream requires a different set of process and IT changes. We will be addressing them separately, with this particular report focused on trade reporting and risk management.
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The numbers above refer to annual gross notional numbers. Only unhedged trades are to be included in this number. Only one of these numbers must be breached in order for the trading entity to be considered over the threshold. It has been obligatory to report being over the threshold since 15th March 2013. All market participants are obligated to be calculating their totals on a daily basis, using a 30-day average. Those under the threshold have a more lenient interpretation of the rules, as will be outlined below.
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Timings
This diagram summarizes the various timings of EMIR and REMIT:15th March 2013 Daily Threshold Calculation Confirms T+7/5 Portfolio Reconciliation Dispute Resolution Compression REMIT "Implemented" EMIR OTC Derivative Trade Reporting EMIR Backloading (Trades after 16th August 2012) OTC Clearing for FCs
The timetable above shows a summary of the dates as at the time of writing. However, it is worth noting that many of these dates, particularly for trade reporting, have slipped and some could slip again. For example, originally, EMIR trade reporting was planned to go live in two batches: 1) Interest rate Swaps and Credit Default Swaps July 2013 2) All other derivatives January 2014 Over the course of the first half of 2013, the first date slipped, so that it became the same as the second date, i.e. 1st January 2014. However, since the dates merged the date for exchange-traded derivatives has moved out by a year to 1st January 2015 Less than a week after publishing the original report both OTC dates were moved out from 1st January to 12th February 2014. It will be interesting to see if these dates split again or are moved again. However it is prudent to assume that the go live will be as planned. In order for the dates to hold, Trade Repositories must be Approved by ESMA by the 7th November 2013. Similarly, the REMIT dates have slipped. Originally, the rules were to have been implemented by the European parliament by 29th June 2013. However this has not occurred. It is expected that they will be implemented by year-end. Reporting is to start 6 months after implementation. However, this would require that the infrastructure is ready. We recommend that participants keep a close eye on developments.
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Portfolio Reconciliation
OTC Clearing not mandatory Currently must confirm within T+7 going to down T+2 in August 2014 Must reconcile either quarterly or annually depending on size of portfolio Must compress trades for portfolios with over 500 trades Not required
The requirement to clear, when it comes in, could require a great deal of extra capital from the market participants, Therefore, many market participants consider it to be desirable to be under the threshold.
Threshold calculation
Since 15th March 2013, it has been obligatory for NFCs to calculate their threshold values on a daily basis using a 30-day average, and to report to the NCA if over. In order to be considered to be over the threshold, a market participant needs to be over one of the following: Credit - 1bn Equity - 1bn Interest Rates - 3bn FX - 3bn Commodities 3bn
The gross notional value of the balance of each number is taken. There are however, some important considerations: Group level calculation The value to be used is the total for all entities in the group, no matter where they are. Therefore, a small subsidiary of a large non-EU group could find itself over the threshold. The participant must calculate each number for each group member and sum those on a gross basis to see if they are over. If the group company is in a third country which is a recognised regime, that total may not need to be included.
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Hedges Hedged trades do not contribute to the threshold. Hedges under EMIR are defined as a trade being one of the following: a) The trade is already defined as a hedge under hedge accounting rules (e.g. IAS 39) b) It is designed to objectively reduce risk of assets, services, inputs, products, commodities or liabilities that the NFC owns c) It is designed to reduce the risk of a hedge instrument as defined above It is important to record the hedge status of each trade to determine if it is a hedge or not. NCAs are already auditing NFCs that are not over the threshold and so it is important to record the hedge reason. What is a derivative? When calculating the threshold it is important to consider which trades are considered derivatives under EMIR. This definition is not simple but is generally defined as a trade that is settled for cash, but also as a trade that is transacted via a multilateral trading facility (MTF), which is particularly important for physical forwards which could otherwise not be considered thus. This was confirmed by the FCA on 12th September 2013. Different execution venues, platforms and brokers may or may not be MTFs, and there is a current trend for certain platforms to delist themselves from the MTF list. Since the list will be dynamic, any solution to calculate threshold values will need to be able to cope with such changes. The FCA have announced their intention to say which platforms are to be considered MTFs on 16th December 2013. If an intra-group trade is not a hedge (although it often will be), then both sides of the trade count towards the threshold i.e. double the notional.
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Trade Reporting
EMIR and REMIT each have trade reporting requirements: EMIR for OTC and Exchange Traded Derivatives, and REMIT for physical wholesale gas power, LNG and emissions trades as well as their derivatives. At the time of writing, EMIR OTC trade reporting is due in February 2014, with REMIT due in July 2014. REMIT specifically has a goal of avoidance of double reporting which is intended to remove the need to send any data twice under both EMIR and REMIT. This is turning out to be difficult in practice. In this section, we will first examine the trade reporting requirements of each rule set and then bring them together.
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Transaction Information Trade level details such as quantity, notional etc., requires the Unique Trade Identifier. Trade Type Specific Information - Different sets of fields for IR, FX, and Commodity etc. Commodity profiles are multi record. Option Information - Strike, call or put, etc. Confirm Information About the trade confirmation. Clearing Information Including the Clearer ID and time of clearing. Status New/modify/cancel/termination/compression/valuation update/other. Each time a trade changes it must be resent with a new status. In addition to the above, FCs and NFC+s must report collateral and valuation information on a daily basis. However, this reporting will only start 6-months after the initial reporting. Some details of this data are examined in the realities of implementation section below. When should data be reported? Data typically should be reported to a repository by the end of the next working day. This includes when some of the data, such as the confirmation data, is missing. It should be sent later in an update. Trades executed after 4pm count as the next days trades in terms of measuring T+1. Backloading EMIR came into force on 16th August 2012. This means that any data on trades in existence then must also be reported or backloaded to repositories. By implication, it is important to locate this data as soon as possible. Backloading is required in several stages: Trades still open on the first reporting date (i.e. February 12th 2014) 3 months later (i.e. May 12th 2014) Trades executed after August 16th 2012 but that matured before the first reporting date- 3 years after reporting date Trade executed before August 16th 2012 but that were still open on 16th August 2012 3 years after reporting.
Here we focus on trade data. REMIT covers Physical Power, Gas, LNG and Emissions, as well as their related derivatives. Technically, therefore some of the derivatives will fall under both REMIT and EMIR. However, ACER has put forth a principle of the avoidance of double reporting. In theory, this means that if you report data under EMIR you do not have to report it again under REMIT. However, since REMIT requires additional data elements to EMIR, it is not yet clear how and if this will work in practice.
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Where should data be reported to? ACER will be collecting all of the reported data and using it to monitor the market for abuse. A system called ARIS (ACERs Regulatory Information System) is being built for this purpose. Because of the large number of market participants, ACER do not wish for data to be sent to them directly, instead, they need to be sent via intermediaries called Registered Reporting Mechanisms (RRMs). These third party facilities will each have their own way of collecting the data and forwarding it to ACER. An EMIR TR could also be an RRM, or it may not be one. An RRM that is not a TR could forward the data to the TR as well, or they may not. This is discussed in the Data Destinations section. What data types must be reported? REMIT requires pre trade data, i.e. order information, to be reported as well as trade data through the lifecycle. The order information includes orders for unexecuted deals. REMIT defines four Data Views which different data elements required within each view. These are: Order view Elements required to be sent when an order record is sent Execution view Elements required to be sent when a trade is executed Confirmation/Clearing Elements required to be sent when a trade is confirmed and/or cleared Non Standard View Elements required for a complex nonstandard trade (see below)
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The data elements can be summarized by this table: Order Execution Clearing /Confirm x Non Standard x
Identification
Of the various parties, including broker etc. Likely to require LEIs. Includes market place ID
Contract
Info about the deal and contract, including where it was executed. UPIs preferred, Could require a complex taxonomy Order Type (Market, Limit etc.,) Trade level details such as quantity, notional etc. + UTI Different sets of fields for IR, FX, and Commodity etc. For commodity profiles are multi record. Includes physical data Strike etc. When confirmed, details to be filled in When confirmed, details to be filled in New/Split/Modify/Cancel/ Terminate/Other
Order Transaction
x p x x p+ PDF
Clearing Info
Status
The full field list is found in the document on the ACER website at http://www.acer.europa.eu/remit/Documents/Recommendations%20on%20REMIT%20Records%20 of%20transactions.pdf
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Non Standard Trades For trades that are considered complex, it is only necessary to send a subset of 23 data elements. In addition, there is a requirement to send a PDF scan of the contract to ACER. Details about how this will work, and also about which trades are defined as non-standard are not yet known.
Data Destinations
Ultimately, EMIR data must reach a Trade Repository, and REMIT data must reach an RRM. However, there are several different combinations and services available: 1) TR Only Some EMIR TRs will only accept EMIR data. If choosing one of these, it will also be necessary to send data to an RRM separately 2) RRM Only Similarly some RRMs will only accept REMIT data 3) TRs that are also RRMs some TRs have committed to becoming RRMs 4) RRMs that forward to TRs some prospective RRMs will accept all data and forward the data to an EMIR RRM 5) Reporting services Some third party services are planned that will take in all of the data and report it to both TRs and RRMs TRs will not be approved by ESMA before November 9th 2013, and the upcoming RRMs are also yet to be announced therefore when choosing it is important to note that not all services advertised may go live and contingency plans should be made.
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Manual
Small participant with few trades or as a partial solution for larger participants
Outsourced
Duty of reporting outsourced to another party. The party will either have the most of data already, or provide a simple mechanism to take the data The provider will perform some tasks such as data enrichment. Sending the data directly to a repository. RRM and/or a reporting service.
Direct
Smaller traders that already execute most of their trades outside of their own environment. Medium and larger participants
It is also possible to use a combination of these methods. For example, exchange traded deals could be sent by an exchange, and OTC ones via another route.
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The UTI (Unique Trade Identifier) Trades sent to EMIR repositories need to contain a 52 character UTI. Under EMIR, both sides of the trade must send in a deal with the same UTI. The generation of this ID and the workflow around are leading to a great deal of uncertainty at the time of writing. In particular: Generation of the UTI There is no mandatory mechanism for the generation of the UTI, which has been left by ESMA to the industry. An ISDA working group is currently attempting to provide for a recommended solution although this is not yet final or accepted by all in industry. The commonly accepted approach depends on whether the trade is executed on a platform or not. If it is, then the platform should generate the ID for both parties. For bilateral trades, the consensus is that the seller should generate the ID and provide it to the buyer. However until this is agreed, the resolution is as yet unknown. Workflow around the UTI However the UTI is generated, it needs to somehow make it into one or both partys ETRM systems, and be sent to a repository. If the trade is executed on a trading platform, it will be necessary to extend the interface between the platform and the ETRM to capture the UTI before the trade is sent to ESMA. For bilateral trades, the capture of the ID is harder: the generating party must find a way of providing it to the other side, and this will need to be electronic since manual entry of a 52 character code is not an option. The obvious place for the code to come in is on the trade confirmation. However, that may not arrive until after the trade must be reported to ESMA. The solution to the issue will need to evolve over the next months. Which rules apply to a trade? It is important to have a granular and flexible mechanism to ensure that trades get routed to the correct place under the right rules. Firstly, the definition of a derivative under EMIR is not always straightforward and subject to change. The rules as outlined in the threshold calculation section require:
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A hedge marker to be placed on all trades in the source system. In some cases, a rule could be used to derive this, for example if all hedges are in specific portfolios. In other cases, they will need to be marked manually. It is import to have mechanism in place that can deduce whether a trade has been executed on an MTF. The list of MTFs keeps changing, and this must be factored into the solution Furthermore for some trades executed via brokers it may be difficult to determine the place of execution in the first place. Expect the recent FCA ruling to be modified as well.
Similarly, with REMIT, it will be necessary to have a flexible mechanism in place in order to determine which trades to cover. Changing requirements As market participants get closer to go live and further into their projects, more detailed issues are emerging. At the same time, messages from regulators repositories and others give rise to changes and intricacies. It is important to keep a close eye on developments. This can be accomplished over various forums including the website www.enegrytradingregulation.com and via updates to this report through time.
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Risk Management
EMIR specifies five different measures that must be adopted by market participants: Timely confirmations All trades must be confirmed (matched) within a certain timeframe Portfolio reconciliation- Uncleared bilateral trades must be reconciled between each set of parties at pre-defined intervals Dispute resolution Dispute resolution procedures to be put in place for trades in dispute for more than 5 days Portfolio Compression Certain parties must perform mandatory compression on OTC deals Daily mark to market/model Trades to be marked to market or model by certain parties. The requirement and timeline can be summarised by this chart: Rule Timely Confirmation Summary Bilateral Trades to be confirmed (and matched) within the given timetable. FC NFC+ T+1 NFCT+2 Timing Requirement for T+7/5 came in on 15th March 2013. Window narrows every few months until August 2014 when the timings shown here will be required. Starts on15th September 2013.
Portfolio Reconciliation
Dispute Resolution
All to have processes in place to identify, track and monitor disputes. Formal procedure if more than 5 days. OTC trades to be compressed periodically. All trades to be either marked to market or model on a daily basis.
Daily for portfolios Quarterly for greater than 500 portfolios of trades. more than 100 Weekly for portfolios trades. with between 51 and Annually 499 trades. otherwise. Quarterly otherwise. Report Procedures must be in place. all disputes over 15 days and 15M EUR Twice a year for portfolios with more than 500 trades. All trades that are sufficiently liquid to be marked to market daily and the values sent as part of trade reporting. Otherwise they must be marked to model and values sent. Not required.
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Timely confirmation
The timely confirmation requirement of EMIR is intended to reduce risk and encourage a move to electronic confirmations. The confirmation deadline refers to the time the trade is confirmed as matched, rather than when it is sent.
Bilateral where counterparties exchange files (either one or both ways). Third Party Service provider Where a third party is involved in the reconciliation, to organise it as a central service. Agent Where another party performs the reconciliation on the counterpartys behalf.
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Bilateral reconciliation Before reconciliation starts, counterparties will need to establish procedures/systems to monitor how often they must reconcile with each entity. This may vary over time. Once established, a reconciliation schedule needs to be agreed with the other party (except for daily reconciliation). On the day of the reconciliation, the parties exchange data files. In some cases, only one party sends the file for the other to check. The fields contain the data in the key terms as well as position data. They then run matching processes, using the key terms and tolerances. If there are breaks, the parties communicate and fix them, or if necessary initiate the dispute resolution procedure. The matching itself can be performed by specialist software, or using a spreadsheet. Spreadsheets can be complex in this area, although the introduction of the UTI will make this task easier. The benefit of the bilateral approach is that it is simple to use, especially for those with a small number of reconciliations to perform The drawback is that any counterparty with more than a handful of reconciliations to perform will need to send a large number of files to different counterparties on the correct dates. This can become logistically complex and lead to operational risk, and the wrong fields being sent to the wrong places, risking a breach of confidentiality. Third Party Service Provider An alternative of bilateral reconciliation is to use a third party to assist in the process. Using this method a third party service such as the triResolve service provided by TriOptima is used centrally to organise reconciliation. They do not however, perform the reconciliation from a legal perspective. They simply organise the process and make it easier than a bilateral reconciliation. When using the service provider model, each subscriber sends a file on a regular basis to the service provider, containing data regarding other subscribers. The service then calculates how often reconciliation is necessary and performs the appropriate scheduling. It then performs the matches and informs the subscribers of any disputes, after following a prescribed process. There are several benefits to this approach: Firstly, only one set of data needs to be sent for all of the subscribing counterparties. This greatly reduces operational risk and the logistical overhead. The second benefit is that the service will provide scheduling services on behalf of the client. This removes the scheduling overhead of the bilateral approach. A service provider will be able to optimise the schedule whilst taking into consideration all of the subscribers simultaneously. Agent Using this paradigm a third party performs the reconciliation on the participants behalf. The entire process is outsourced to another party, who perform the reconciliation on their behalf. They will be given the portfolio to reconcile and advise of disputes if they arise and cannot be resolved by the agent themselves. Contractual Changes required for Portfolio Reconciliation and dispute resolution Market participants are required to amend their ISDA and other contracts in order to accommodate these changes, the contract should encompass the new protocols that permit information sharing for the appropriate key terms in order to reconcile, as well as requiring the reconciliation to take place. See the ISDA website for more details.
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Portfolio Compression Portfolio Compression is the process of reducing the number of trades in a portfolio whilst maintaining a risk equivalent position. Reducing unnecessary trades with a counterparty reduces credit risk and settlement risk. EMIR mandates compression for FCs and NFCs every six months for counterparty portfolios with more than 500 trades. EMIR also encourages compression wherever possible. Compression is not always easy or desired by all in an organisation, although it is desired by the credit department and has many benefits once in place in terms of risk management. Compression can be performed either bilaterally or multilaterally. Bilateral Compression When one counterparty attempts compression directly with another, there are several steps: 1- Identify counterparties It is necessary firstly to identify which counterparties are being compressed with and when to schedule them for. 2- Identify areas for compression An analysis of the portfolio must be carried out in order to determine which trades may be compressed, if any. 3- Agreement of compression the two entities must then agree the set of trades 4- Execute compression execution of a compression involves terminating the deals being compressed, and replacing them with new ones. 5- Mark trades- The new trades must be marked as resulting from compression in EMIR trade reporting. The ETRM system will need to record this as a reason for the trade. Multilateral Compression Compression involving several parties can be a great deal more effective than bilateral compression. Multilateral compression involves viewing the trades between all of the counterparties in a group, and then reducing them down as much as possible using a combination of trades and closures. The more parties involved in a compression, the more benefit it will have. TriOptimas triReduce service offers such a service, both within the energy industry and within banking. Multilateral compression involves the following steps; 1- Set calendar multilateral compressions take place periodically (typically quarterly depending on market characteristics). 2- Send in trade portfolio each party sends in candidate trades with the other entities in the group to the service. Nominate trades each party agrees to the compressions from the suggestion list 3- Dress rehearsal on a specific day, the compression is simulated by all parties 4- Execution On a nominated day, all of the agreed trades are closed out and new ones created. Service suggests trades the service will suggest which trades can be compressed, which trades will need to be closed out and which new ones created
A typical cycle lasts two weeks, with trade submission and matching in the first week, and dress rehearsal and live execution the second week. As with bilateral compression, all trades resulting from a compression must be marked and reported.
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Is it worth compressing if it is not mandatory? As outlined above there are many benefits to compression, in particular credit risk reduction. One other benefit that applies in particular to non-financial counterparties, is the reduction in total Gross Notional Value. By compressing enough trades, an NFC- may be taking them further away from the threshold, which could be considered a great advantage. Other benefits include: o o o Capital cost: With the Basel III leverage ratios it is quite beneficial to reduce gross notional Balance sheet: Compression also reduces gross mark-to-market, which under IFRS accounting will decrease your balance sheet Operational costs and risks: Compression leads to fewer trades that needs to be processed through its lifecycle, i.e. fewer lifecycle events like scheduling, settlements, payments, etc. to process, where each step has a cost and risk associated
Daily mark to market/model All FCs and NFC+s are required to mark all trades to market daily. If this is not possible then trades must be marked to an approved model. It is also necessary to report these valuations daily, as part of trade reporting, six months after the initial reporting date.
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It is interesting to note the provenance of several of these applicants as some already act as Swap Data Repositories in the USA and others as approved reporting mechanisms under MiFID. All of these entities plainly have some degree of experience in collecting and storing trade data. In the USA, Swap data repositories (SDRs) were new entities created by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in order to provide a central facility for swap data reporting and recordkeeping. Some seven entities applied to become SDRs but two applications were later withdrawn and a third does not cover commodities as an asset class. The four remaining include BSDR LLC, CME, DTCC and ICE where BSDR LLC is a new entity specifically created for the purposes of becoming an SDR. CME, DTCC and ICE are all applying for registration under EMIR too.
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LSE has some experience as regional trade repositories for MiFID. Only REGIS TR and the Independent Trade Repository Ltd. have no real prior track record having been specifically set up for EMIR, although with a test system having been live already for several months; REGIS TR is proving to be popular. KDPW-TR is the central securities depository of Poland and has some experience of working with large amounts of trade data as a result.
CME Group
The CME's Swap Data Repository Service already provides public data on swap transactions and stores confidential trade and position data for regulatory purposes, in accordance with the DoddFrank Act. The CFTC approved its repository service as a swap data repository (SDR) for credit default swaps, interest rate swaps, commodities and foreign exchange asset classes. CME Europe's cross-asset trade repository solution is to launch on 1st January 2014 in line with the first reporting requirements, In addition to operating for CME's global clearing and execution facilities, it will accept non-cleared bilateral OTC and exchange trades executed anywhere in the market. The CME Repository Service leverages the CME ClearPort front-end, a gateway to CME reporting and clearing post-trade services. This common point of connectivity offers messaging efficiency and lower maintenance costs.
LSE
The London Stock Exchange Group also has applied to ESMA for its UnaVista platform to be a trade repository across all asset classes for both exchange traded derivatives and OTC derivatives. UnaVista currently operates as a European Approved Reporting Mechanism (ARM) under the MiFID regime for all asset classes and markets. LSE believes that by becoming a trade repository for all asset classes across all venues, its customers will only need to connect once to meet both their EMIR and MiFID reporting requirements. As a MiFID Approved Reporting Mechanism (ARM), UnaVista already reports c1 billion multi-asset transactions annually to multiple regulators, including over 300 million derivatives on behalf over 600 clients. As a hosted central utility, UnaVista will utilize its inbuilt reconciliation engine to facilitate the ESMA requirement for contract details to be reconciled before reporting to the various different trade repositories
ICE
ICE has decided to establish ICE Trade Vault Europe Limited (ICE Trade Vault Europe) as a Trade Repository (TR) for the reporting of derivatives trade data to meet requirements of the European Market Infrastructure Regulation (EMIR). It plans to serve the commodities, credit, interest rate and foreign exchange asset classes. In June 2012, ICE Trade Vault, LLC (ICE Trade Vault US) became the first Swap Data Repository (SDR) in the U.S. to receive provisional regulatory approval from the CFTC and the Vault began accepting credit default swaps trade data in October 2012 followed by commodities trade data in February 2013. Since its inception, ICE Trade Vault US has already accepted around fifteen million trades. Since ICE provides direct access to the core energy and commodity market infrastructure, it believes itself to be a qualified trade repository for those markets. Through the ICE trading platform and clearing houses, as well as ICE eConfirm, ICE sees an opportunity to simplify workflows and trade data reporting requirements for market participants, helping its customers achieve efficient and cost-effective compliance with evolving regulations.
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Utilizes ICE eConfirm as the front-end application for counterparties to submit data to ICE Trade Vault, thereby enabling market participants to use their long-established connectivity solutions with fewest modifications possible Distributes real-time trade data to market participants and provides historical data for online viewing and access. Participants will control permissions for regulatory reporting purposes as well Features a high-performance, scalable data warehouse and reporting platform
REGIS-TR
REGIS-TR is a European trade repository created as a joint venture by Clearstream Banking S.A. (Deutsche Brse Group) and Iberclear (Bolsas y Mercardos Espaoles). Its services have been operating live since 2010. Derivatives based on interest rates, foreign exchange, commodities and equities are currently eligible for registration at REGIS-TR, which will enable full compliance with EMIR for all asset classes and listed derivatives before the reporting obligation comes into places. Key characteristics of REGIS-TR are as follows;
European provider, fully compliant with EMIR, with a Financial Market Infrastructure (FMI) license Co-owned by two neutral securities services infrastructures, providing services from Luxembourg, holding data exclusively in the EU One-stop-shop for the registration of all types of derivatives on all asset classes Flexible access for all types of counterparties (financial and non-financial entities) Competitive price list allowing full price transparency and predictability. Fee caps for all users Commitment to be a REMIT RRM Flexible trade delivery mechanism spanning simple upload of csv files to a web services based XML sending mechanism.
REGIS-TR will enable full compliance with EMIRs derivatives reporting requirements. However, it also allow customers to meet their obligations for transaction reporting under the Markets in Financial Instruments Directive (MiFID), the Regulation on Energy Market Integrity and Transparency (REMIT) and repo agreements and securities lending reporting under the Capital Requirements Directive (CRD IV). In addition to its statutory trade repository activities, REGIS-TR may also offer its clients extra services such as electronic matching and confirmation services, independent valuation services and exposure management.
REGIS-TR and TriOptima have also recently announced that they will provide portfolio reconciliation of REGIS-TRs trade repository data with data in TriOptimas triResolve reconciliation service for OTC derivatives as requested by their clients.
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DTCC
DTCCs Global Trade Repository (GTR) Service provides full coverage of all cleared and uncleared OTC derivatives products within each major asset class. Trade submissions will be supported for 100% of products traded in each asset class regardless of whether trade is electronically processed or bespoke paper confirmed. A customer of a Repository may selectively elect to enable reporting for one or more jurisdiction/regulation that is supported by that Repository. For example, a member of the DDRL legal entity may elect to report to any combination of ODRF, HKMA, CSA, and ESMA. The above TR entities can also be registered as foreign TR in other jurisdictions, e.g. Canada and Australia. The GTR service supports a multitude of data submissions including real-time price reporting, transaction details, confirmation records, and valuation data. The GTR service provides open access to third-party providers to promote efficient reporting processes this includes:
Electronic Execution Platforms Confirmation Providers Clearing Houses (CCPs) Inter-dealer brokers Custodians Any other middleware providers
The GTR is brought to the energy industry by EFETNet who have partnered with DTCC in the US and will offering forwarding of trades under EMIR to the repository via the eRR service.
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KDPW-TR
On 2 November, the Central Securities Depository of Poland (KDPW) launched the trade repository service (KDPW_TR) in response to Regulation No. 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (EMIR). According to Article 48.5a of the Act on Trading in Financial Instruments of 29 July 2005 as amended by adding provisions concerning novation, the Central Securities Depository of Poland (KDPW) may under the rules set out in separate rules collect and store information concerning trade in financial instruments and information concerning such instruments. The detailed operating rules of KDPW_TR are set out in the Trade Repository Rules.
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Reporting Services
NASDAQ OMV
NASDAQ OMX already provides a service for Nordic Market Participants for MiFID trade reporting (TRS) to local Financial Supervisory Authorities (FSA) and will extend this reporting service to cover EMIR derivative reporting to Trade Repositories. It offers its members reporting services regarding:
Establishing connectivity with relevant Trade Repositories Reporting of derivatives contracts traded and cleared on NASDAQ OMXs markets Reporting of OTC derivatives transactions that are not traded or cleared by NASDAQ OMX Ability for members to append required data to derivatives transactions for reporting Daily updates to the Trade Repository of collateral and mark-to-market valuations Reporting feedback of submitted reports
NASDAQ OMX further aims to extend its service to include reporting obligations under REMIT for the energy market. It provides the option of full service reporting of all required data and a complimentary reporting service where NASDAQ OMX and the Customer jointly complete the reports. For derivatives cleared with NASDAQ OMX where the Market Participant keeps position-segregated accounts per beneficial owner, NASDAQ OMX can complete the Trade Repository report with all required data without the need for interaction from the Customer. For Customers with a setup where NASDAQ OMX does not have access to all required data or where the Customer selects to submit its own reports to a Trade Repository but need NASDAQ OMX to complement their reports with some data, it will offer a partial reporting service according to the alternatives described below:
For Customers that connects to a Trade Repository themselves for reporting, NASDAQ OMX will duplicate the missing data at the Trade Repository to the report created by the Customer. Alternatively, the Customer can complete partial reports created by NASDAQ OMX and submit the reports to the Trade Repository through NASDAQ OMX. This option does not require direct connectivity to a Trade Repository for the Customer. OTC derivatives transactions that are not traded or cleared by NASDAQ OMX may also be submitted via the service interface. This option, also, does not require direct connectivity to a Trade Repository for the Customer.
The service is provided with a flexible interface where the Customer can select to interact with the service via a provided application or by uploading fixed formatted files. The Trade Repository application is a desktop application that enables the Customer to perform the following activities:
View status of submitted reports View status of individual reported transactions Search for historical reports
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Review and confirm NASDAQ OMX generated reports Complement partial NASDAQ OMX generated reports with additional data before submission Create new transactions for reporting Export data to external systems
EFETnet eRR
EFETnets electronic Regulatory Reporting (eRR), is an industry wide solution to an industry wide problem; implementation of regulatory reporting requirements is having a significant impact on the wholesale European energy market. Operational processess and systems are under pressure because of the changing regulation and investments in IT are inevitable to comply with all regulatory reporting obligations. EFETnet developed eRR, a single standardized interface for regulatory reporting, delivering reporting compliance for REMIT, EMIR, MIFID, CRD IV etc. eRR operates through a single open industry standard interface providing connectivity to the different regulatory repositories. eRR will be offered as an add on to EFETNet s confirmation matching service, which is already used widely in the industry. Trade information will be sent using the same protocol and format and for confirmation matching. Trade information will only need to be sent once for both confirmation and regulatory reporting. EFETNet uses the CpML format to represent trades. In order to encourage that use of this format as a standard, its management is now being given to an independent body run by EFET and the CIO Council. This will permit other vendors to use CpML in order to encourage interoperability. The initiative to carry this out has already begun. Vendor EFETnet http://www.efetnet.org
TrayPort Complete
Trayport Complete is designed to reduce the operational costs and delays associated with trading energy commodities. The Complete suite of real-time solutions will provide market participants with transparency and control over their post-trade activity. With Complete, users will be able to accurately manage and monitor their post-trade workflows across the 160+ markets accessible through Trayport's platform immediately following the trade. Complete will be seamlessly integrated with existing Trayport products and will enable users to:
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Clear Users can see the status of trades in real-time across all clearing houses and counterparties on the Trayport network through one screen. Complete Clear is live and available for CME ClearPort, LCH, MEFF, NOS and SGX. Connectivity to European Commodity Clearing AG (ECC) and OMIClear will be announced in the coming weeks Confirm Users will be able to confirm standardized terms of a trade immediately post execution with up to 400 counterparties and 17 brokers on the Trayport network. Complete Confirm will enable users to define their own confirmation processes and workflows to meet their internal requirements. This will improve efficiency, optimize workflows and reduce operational risk and the processing costs associated with energy trading. Report Users will be able to report as close to real time as they choose to European regulatory authorities and trade repositories. Complete Report will be designed to satisfy REMIT and EMIR regulatory reporting obligations at the point of execution. Further reporting obligations and jurisdictions will be added in the future. Control With Complete Control, users will be able to manage post-trade execution with transparency and control. The real-time monitoring application will allow all counterparties to the trade to track the progress of their trade and immediately identify and resolve any questionable trades at the point of execution, significantly reducing operating risk and cost.
EMIR-ate.com
emir-ate.com is a service provided by Treamo Business Consulting GmbH. and is a cloud-based SaaSsolution that helps corporates comply with the reporting requirements of EMIR. It interacts with existing systems and tools (TMS, spreadsheets, trading platform) as well as with the Trade Repository. It is a service that ensures EMIR compliance at the press of a button. The trades will be reported via XML files. At the moment, the Trade Repository requires approx. five minutes for the return message that either confirms the correctness of data or contains a list of errors. EMIRate will convert these status messages in an understandable format and will present the result of the return message in the list of trades, where users can, for example, filter all those transactions, which have been sent but not yet acknowledged. The same also applies to messages regarding the reconciliation status. Vendor Treamo Business Consulting GmbH http://www.emir-ate.com
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DeltaconX/Tradelogic
DeltaconX Captures the compliance data held in your trading, financial, and logistical systems, transforms them into the correct message structures, and routes them to the appropriate regulatory reporting destination such as Trade Repositories, CCPs, RRMs, ARMs, and ACER. Response and status messages are captured as part of the submission process and relayed back to the source systems. A full audit trail of data processing and transfers is maintained. There is no need to upgrade your trading system as all the required and missing data can be added directly in DeltaconX. DeltaConx is being offered to the market together with TradeLogic as implementation partners. Vendor: CH Consult GmbH http://www.deltaconx.com
Finalyse
FINALYSE offers an automated solution for the new European Market Infrastructure Regulation (EMIR). This solution can be easily implemented on site or externalized towards Finalyse (Third Party). The goal of this solution is to allow customers to be EMIR compliant with a minimum of investment costs and to benefit from our expertise in terms of European regulation and implementation solutions. The main advantages of the solution are:
EMIR Compliant Data Model Our EMIR data model is compliant with the new regulatory standards of the European Securities and Markets Authority (ESMA) and is built according to the most modern and advanced data model design techniques (full auditable, security and normalization). Furthermore, it will store a complete history of all transactions. Automated Data Quality Checks Our EMIR data model is verifying the data for completeness and is transforming the clients specific naming conventions into the EMIR required taxonomy. Specific data quality errors are monitored and reported for improvement. Automated Reporting to Trade Repository Our solution is an automated process flow for the reporting of modifications, valuations and trade terminations towards one of the major trade repository systems. Furthermore, the process reports information coming back from the TR (e.g. uncommitted trade reports). Easy Implementation or Full Outsourcing Finalyses solution for EMIR consists of a data model concept and process flow which can be easily implemented on site. The remaining workload is to build a bridge between our readyto-use solution and the clients internal data system(s). Furthermore, customers can delegate the reporting as well towards Finalyse, which will act as Third Party. Vendor Finalyse http://www.finalyse.com
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Seven2one
Steria Mummert Consulting AG and Seven2one Informations systeme GmbH offer companies subject to reporting requirements a mature, holistic solution for secure, transparent and cost efficient reporting that is fully compliant with the EMIR and REMIT regulations. The solution includes;
EMIR/REMIT compliant data model Automated collection of data from upstream systems and reporting: any data format possible, no adaptation required Stable, automated and auditable reporting processes Integrated data quality checks ensure highest data quality Simple and transparent monitoring of data, processes and reports Easy implementation in your own company, full outsourcing or SaaS Can be expanded to comply with future reporting requirements (e.g. MiFID, Bafin) Secure investment with added value and full cost control (fixed price offer) Wide variety of functions (portfolio comparison, risk cockpit, compliance relevant evaluations, e.g. market manipulation, market abuse) High professional utility, e.g. mapping of electricity products with complex profiles, mapping of orders for REMIT, serves all asset classes (FX, IR, commodities) Immediate implementation, project can be started immediately Full control over reportable data, data streams and generated reports Reporting with added value: expandable without programming to comply with further reporting obligations (e.g. MiFID, BAfin) even up to the production of an internal reporting tool for trading and risk management Tried and tested standard software solution offers a high degree of reliability Rapid integration of new reporting obligations through modular updates Strong partners offer extensive experience with both the technology and sector A broad range of services provide optimum support - from professional consulting on the regulatory framework to the implementation of an automated solution to operation of the software Vendor Seven2One http://www.seven2one.de
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Impendium Elements
Impendium Systems Elements is a Private Cloud Platform that enables you to be compliant with multiple regulations throughout the world using a single solution. Unlike traditional approaches and vendors we incorporate the technical elements of common global regulations onto the Platform enabling you to be compliant sooner. Report to regulators, central banks or even internal departments using Elements in a timely and cost efficient manner whilst having a complete single view of your regulatory data. Elements is a specifically engineered regulatory platform. Impendium Systems Regulatory Advisory Board made up of industry and regulatory experts continuously studies the global regulatory roadmap and ensures that key regulatory components are incorporated directly into the Platform. Elements services many current financial regulations including as Dodd-Frank, EMIR, REMIT and MiFID and work is underway on future regulations such as MiFID II and MAD II.
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OpenLink RegCube
The EMIR and REMIT business intelligence solution is an extension of OpenLink's CubeIntelligence portfolio. The new online analytical processing (OLAP) based cube offering provides financial institutions and organizations in other verticals, particularly energy firms, participating in energy and financial trading a speedy and cost-effective way to comply with the new reporting and reconciliation requirements. The CubeIntelligence team has developed the OpenLink REG Cube to ensure clients continue to have access to the market while remaining compliant with the new regulations set to come into force this year. The OpenLink RegCube offers firms the ability to:
Generate the regulatory reports that firms must provide daily to trade repositories and registered reporting mechanisms Send the data to EMIR TRs and REMIT RRMs Calculate and record the gross notional values in line with EMIR View the EMIR and REMIT values for the entire firm and also drill down, by all categories into trade level detail if required Easy integration of multiple source systems (whether produced by Openlink or not) using a simple interface which offers trade enrichment with reference date and other complex rule based transformations Specify which trades, books or products are in scope of the regulations so users can filter on these criteria to calculate the EMIR and REMIT values for the in-scope trades only Enrich and transform data before sending to the Repository using a complex transformation engine Perform bilateral portfolio reconciliation using the data already in the cube combined with file production and matching facilities
The cube is integrated with other cubes such as the Risk Cube. It can be used as the basis of a cross company business intelligence solution. Openlink also supply an accelerator from Endur and IRM so that those systems can be connected to the cube with a short implementation time. Vendor - OpenLink Financial http://www.olf.com
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E/CTRM offerings It is anticipated that most of the E/CTRM vendors will be involved with initiatives to ensure that they too are ready for the new regulations and many are particularly in the energy side of the business. Mostly, this involves insuring that their offerings include the ability to capture all of the data items required for trade reporting both in terms of the database and screens to enter the data. Some may go beyond this fairly minimal requirement such as OLF and Pioneer who have both announced other initiatives (see the listings elsewhere in this directory). Other vendors that have been proactive in marketing their capabilities to date have included Allegro and Contigo while Triple Point has been actively involved as well. These vendors have various connectivity tools as well that might well play a role in communicating or reporting to trade repositories or reporting services. Many of the E/CTRM vendors will also be keen to emphasize their reporting, audit trailing and workflow capabilities with regard to REMIT and trade monitoring. Only SunGard can boast a true trade surveillance product (see entry in this directory) but many others will feel that they can offer a number of tools to inspect and analyze trade data.
Allegro
Allegro Derivative Regulation provides a transparent and structured process to manage the transformation of trade execution and valuation data into required regulatory standards for EMIR/REMIT and directly transmits this data to registered trade repositories and reporting mechanisms. Allegro also provides monitoring against clearing thresholds and facilitation of portfolio reconciliation and compression requirements.
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Contigo
Contigos enTrader is a sophisticated multi commodity energy trading and compliance platform. enTrader has been designed to be easy to use, easy to implement and delivers client benefit quickly, without an extended implementation and configuration period. enTrader provides a scalable platform, and is currently being used by energy companies ranging from new market entrants through to some of the largest European utilities. It is equally suitable for small trading houses, brokers and market makers with no physical assets and a tight commodity coverage through to the largest financial and physical trading asset heavy organisations. This includes companies operating in multiple markets with multiple currencies and with international fuel logistics chains. enTrader has been designed to handle all of the data required by EMIR and REMIT in accordance with the current specifications. All of the fields required by the regulations are stored as per the rules, and the system is capable of handling the different aspects of rules, such as EMIR trade statuses, LEIs, product identifiers etc. Contigo is working with its clients in order to be able to send data to EMIR Trade Repositories by the end of 2013. The system will also handle REMIT reporting, from both a trade data and fundamental data perspective. Vendor: Contigo http://www.contigoenergy.com
Triple Point
Commodity XL is being enhanced to support the key requirements of the REMIT and EMIR regulations in the area of transaction reporting, mitigation of operational risk, clearing threshold monitoring, and trade life-cycle auditing. For these and related financial regulation (e.g. Dodd-Frank), the underlying business logic is modelled in Commodity XL so transactions are monitored, processed and reported according to the governing regulations. Users need to choose their preferred Trade Repository, CCP, and Electronic Confirmations service providers so that appropriate communications channels may be configured within Commodity XL.
For EMIR Timely Confirmation, EFET eCM and ICE E-Confirm standards for electronic confirmations are supported. For EMIR and REMIT transaction reporting, connections to RegisTR and ICE Trade Vault trade repositories are offered, and will be completed in time for the commencement of EMIR transaction reporting, based on the current ESMA ITS RTS documents and timelines. Connectivity to other services such as EFET eRR and ACER ARIS can be configured.
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For REMIT requirements regarding anti-market abuse, and transparency, Commodity XL provides a full log of all user interactions with the database regarding the trading life-cycle. This audit log can be inspected by external authorities in the event of an investigation into suspicious trading activity as defined under REMIT, MAD/MAR, and MiFID.
SunGard
SunGard are delivering an EMIR/REMIT solution to Aligne clients through the implementation of a standard adaptor. This adaptor utilises the flexible Aligne 3.0 AUX fields to allow clients to augment native Aligne data through the Importer and then store this on the Aligne database before communicating an EMIR file to accredited Trade Repositories using standard Aligne ReportServer functionality. For those clients who wish to create datastores outside Aligne, standard Aligne reporting functionality can be used to create exports of Aligne-held data. By leveraging off the knowledge gleaned by successfully providing SunGard clients with a solution the US Dodd-Frank, SunGard are confident that the EMIR/REMIT Adaptor will be delivered in time for the commencement of EMIR reporting in early 2014
OpenLink
See entry above for the RegCube.
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Portfolio Reconciliation/Dispute Resolution In the area of portfolio reconciliation, we are currently aware of only one third party service (there are bilateral solutions and agents available)although we understand that others maybe planned by EFET, for example. Additionally, some of the data repositories such as REGIS-TR will perform portfolio reconciliation as a part of their activities and it is conceivable that they may offer such a service in the future. Otherwise, portfolio reconciliation will be a largely manual process.
TriOptima triResolve
triResolve is designed to help manage counterparty exposures and provides portfolio reconciliation, margin call management and dispute resolution. triResolve highlights any areas of dispute from the individual transaction level up to the margin call. Users have access to a web-based, flexible platform that enables communications between counterparties and even internally to provide detailed information to resolve differences. In the proactive reconciliation process, differences are researched immediately and resolved so they dont persist contributing to disputed collateral calls. However, if a collateral dispute does arise, the triResolve communications capability enables counterparties to research and resolve the problems in real time. triResolve is an alternative to bilateral portfolio reconciliation, which can quickly evolve into a messy process, which involves sending around a great deal of files and is very prone to error. triResolve has applied its expertise to the range of challenges in the bilateral collateralization process introducing margin call calculation and administration functionality as well as reconciliation of key ISDA CSA terms. Margin calls can be issued, accepted or disputed on triResolve in a manner that complies with the ISDA standard for electronic margin calls. By identifying trade mismatches with counterparties, CCPs, DTCC, and/or custodians through an automated reconciliation of OTC derivatives and securities financing portfolios, this daily independent verification of books and records ensures that users can: Identify discrepancies in trade valuations by trade, portfolio, or underlier Increase transparency of operational issues by identifying systemic booking and valuation issues Resolve identified issues by communicating with internal departments or with counterparties through triResolves centralized web service triResolve is a web-based solution into which users upload their portfolios. Currently the service has over 7 million trades being reconciled regularly through triResolve. A web-based community network with around 300 institutions is using the service. triResolve performs over 24,000 group reconciliations (or 106,000 legal entity level reconciliations) per week.
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Portfolio Compression For portfolio compression, we are only aware of one multilateral service at this time although other solutions are being discussed, such as EFET, for example.
TriOptima triReduce
Multilateral termination removes transactions and consequently reduces the need for collateral requirements by keeping portfolios trimmed down. Participating in triReduce cycles reduces both the regulatory and economic capital costs associated with OTC derivatives, especially for capital-intensive emerging market transactions. Periodic compression will eliminate capital charges for risk-weighted assets appearing on the balance sheet. With fewer outstanding OTC derivative trades, a firm can manage its current exposures more effectively by reducing collateral management costs and minimizing balance sheet growth. Compression will also facilitate managing potential future exposure for transactions that cannot be collateralized. When trades are eliminated, they no longer require periodic payments to be calculated and settled, reducing operational costs. In addition, potential errors and the costs associated with resolving errors, including operational risk capital charges, are eliminated. Using a multilateral system offers a great advantage over bilateral compression since the amount compressed can be a lot higher. A multilateral system is only useful if it has critical mass, which is an advantage of TriReduce. By August 2013, TriOptimas 230 triReduce participants (including major energy houses and dealer banks), have eliminated $354 trillion in notional principal outstanding in IRS, CDS and Commodities.. The impact on the interdealer notional outstandings as reported in the DTCC Trade Information Warehouse and the BIS statistical surveys has been significant. triReduce is a web-based service that does not require any software installation or elaborate preparation. The service is accessible to institutions with a qualifying portfolio.
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Trade Surveillance We are aware of three trade surveillance solutions for commodities but there are many more for other asset classes that most likely will be made available for commodity market players use in time.
SunGard Protegent
Protegent Surveillance helps market participants mitigate reputational, internal and regulatory risks. With Protegent Surveillance, firms can detect suspicious trading activity and address supervision and suitability requirements. The solution helps firms identify questionable transactions and high-risk positions, streamline review processes, support audits and respond quickly to regulatory and legal inquires. Protegent Surveillance helps firms detect a broad range of issues including commissions, concentration, suitability, licensing, breakpoints, market manipulation, AML, restricted holdings and insider trading activity. Deployment options include a full in-house implementation or a SunGard hosted ASP service module. Features
Identifies questionable transactions and positions Provides alert scoring with justification and auto escalation Supports issue resolution workflow using a robust alert management functionality Easily accessible web-based user interface Allows personal and shared watch lists Provides historical data snapshots and statistical reporting
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Flexibility and Configurability users can readily tailor the application to meet any specific needs of the firm Expedited Implementation Processes provides multiple approaches to data acquisition that can get you up and running quickly and efficiently Automated Alert Correlation automatically searches across all alerts to identify potentially undiscovered relationships Integrated Case Management users can generate new cases or promote existing alerts to cases enabling a more holistic and enterprise approach to compliance risk management Highly Configurable Scenarios Comprehensive Instrument Coverage
NICE ACTIMIZE
The Actimize Energy Trading Compliance solution provides automated trade surveillance and detection capabilities targeted specifically for institutions that must comply with regulatory requirements associated with energy trading standards set by the CFTC, FERC, FTC, European Commission, and ACER. Automated surveillance of internal policies/risk limits and external regulatory issues, with capabilities to correlate business communication, market news, and trading activity Multi-dimensional coverage for compliance oversight across affiliates, markets, products, and instrument types
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Established out-of-the-box detection scenarios to support business and regulatory needs unique to energy trading markets Built upon a proven core risk platform, enabling end-to-end case and workflow management, investigation, audit, and reporting capabilities New regulatory standards associated with energy trading set by the CFTC, FERC, FTC, and ACER are placing increased pressure on energy trading firms to demonstrate adequate procedures, processes, and controls to detect and prevent prohibited activities. Actimize helps firms efficiently meet the needs of regulators, avoid fines, disgorgement, and civil penalties Vendor NICE Systems http://www.niceactimize.com
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Aviv Handler
Mr. Handler is the Managing Director of ETR Advisory, a specialist consulting company focused entirely on Energy Trading regulation. He specializes in energy regulation and the IT systems and platforms required for compliance. He gained this after spending several years in the field, setting up the European Compliance Centre of Excellence at SunGard prior to founding ETR. He has also been involved in banking regulation. He has 20 years of experience in energy trading, credit, risk and financial technology. He has delivered a series of trading, credit and risk solutions to a wide variety of oil majors, power and gas companies and investment banks. The last 12 years have been focused on the commodity trading markets, the majority of which was spent running Coherence Consulting, which specialized in credit risk within the energy markets as well as CTRM systems and implementations and compliance. Coherences team delivered a number of solutions to a variety of global and local clients under his leadership, spanning oil majors, gas and power trading companies and CTRM software houses. Coherence was ultimately absorbed by Sirius Solutions, where he ran the European region. Prior to forming his business, Mr. Handler led product strategy for KWI, an ETRM vendor whose system, KW 3000, was widely used in Europe and North America. Mr. Handler also spent several years in capital markets technology, specializing in compliance, risk and financial messaging. He was one of the original members of the FpML initiative, a standard that is now in scope for Energy regulation alongside others such as CpML. Mr. Handler speaks regularly at conferences, and has written a large number of articles on regulation, credit and commodity trading, as well as financial messaging. His blog at http://www.energytradingregulation.com is being increasingly used as a primary resource for information about the state of the regulation space. Mr. Handler holds a degree in computer science from Imperial College, University of London.
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Energy Trading, Transaction and Risk Management Software A Primer and Selecting and Implementing ETRM Software A Primer (with Patrick Reames). He also contributed two chapters to The Professional Risk Managers Guide to Energy and Environmental Markets published by PRMIA and two chapters, co-written with Peter C. Fusaro, to Weather, Energy and Environmental Hedging An Introduction (ICFAI University Press, 2007) edited by Amando F C Da Silva. Gary is also the co-author of Energy & Environmental Hedge Funds The New Investment Paradigm (Wiley, 2006) with Peter C. Fusaro, and of many trade press articles on hedge funds in the energy, commodities and environmental industry. Gary holds a B.Sc. (Hons.) degree in Geological Sciences from the University of Aston in Birmingham, England and a Ph.D. in Geology from the University of Strathclyde, Scotland.
ComTech Advisory
Commodity Technology Advisory is the leading analyst organization covering the ETRM and CTRM markets. We provide the invaluable insights into the issues and trends affecting the users and providers of the technologies that are crucial for success in the constantly evolving global commodities markets. Patrick Reames and Gary Vasey head our team, whos combined 60-plus years in the energy and commodities markets, provides depth of understanding of the market and its issues that is unmatched and unrivaled by any analyst group. For more information, please visit http://www.comtechadvisory.com. ComTech Advisory also hosts the CTRMCenter, your online portal with news and views about commodity markets and technology as well as a comprehensive online directory of software and services. Please visit the CTRMCenter at http://www.ctrmcenter.com.
ETR Advisory
ETR (Energy Trading Regulation) Advisory Ltd is a specialized, expert resource, which explains, and helps apply the complex labyrinth of European Energy and Commodity Market regulations, including EMIR, REMIT and MiFID II. Our detailed knowledge of the rules and the technology platforms and solutions around them permits us to help our clients navigate and implement the best solutions while being ready for future rules. Since being founded in May 2013, ETR has already advised several Market Participants, ETRM companies and trading platforms. ETR has also provided training to several companies. ETR also runs the blog at www.energytradingregulation.com, which provides news and thoughts about developments in the regulatory field in one place.
Commodity Technology Advisory LLC and ETR Advisory Ltd, 2013, All Rights Reserved.
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Commodity Technology Advisory LLC and ETR Advisory Ltd, 2013, All Rights Reserved.
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triResolve is a network service that does not involve any software installation or updates. In fact, triResolve revolutionized reconciliation practice from a reactive, spreadsheet-based internal operation to a proactive, secure web service. Clients upload their data against their counterparties onto the triResolve website, and the results of the reconciliation are available on the website. All types of OTC derivative transactions (IRS, equity, CDS, FX, Commodities, etc.) and all product structures (plain vanilla to bespoke) are accommodated in triResolve. There are no data format requirements; triResolve normalizes the data that each institution submits. Matching information is available to users at the portfolio level or at the individual transaction level. Users can communicate on the triResolve platform both internally with other departments in their institution or externally with their counterparties to investigate differences. triResolves advanced analytics and reporting functionality allow users to drill down to any level of the data in multiple dimensions and produce reports targeted to the needs of any audience from the most senior credit officer to the head of collateral management. During the last year, triResolve users have expanded the application of triResolves reconciliation functionality to trades beyond the collateralized OTC derivative transactions initially included. Uncollateralized OTC trades, cleared transactions, exchange-traded transactions, securities lending trades and repo trades are also reconciled on triResolve in response to the need for greater precision in counterparty credit risk management. Emphasizing the versatility and adaptability of the service, triResolve clients also reconcile their collateral positions. Most recently (June 2013), TriOptima and DTCC announced the DTCC trade repository will make client data available to TriOptima to support data verification and portfolio reconciliation of trade repository data. TriOptima will be the first service provider to directly receive DTCC repository data for this purpose underscoring TriOptimas commitment to interoperability and innovation in a changing marketplace. Interested in establishing connectivity to additional repositories, TriOptima also announced that it will connect to REGIS-TR when it goes live in January 2014 under EMIR rules for transaction reporting. TriOptima, an ICAP Group company, maintains offices in London, New York, Singapore, Stockholm, and Tokyo.
Commodity Technology Advisory LLC and ETR Advisory Ltd, 2013, All Rights Reserved.
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