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EMIR II: A New Milestone On The Road To Derivatives Market Reform

August 11, 2014

Today marks another important regulatory milestone in delivering the derivatives market reform promised by the G20 Leaders in 2009. Under the second phase of European Market Infrastructure Regulation (EMIR), mandatory daily reporting of derivative contract valuations and associated collateral comes into effect on this date for all entities trading in Europe.

Like its U.S. sibling the Dodd-Frank Act, EMIR is designed to improve stability in the global over-the-counter (OTC) derivatives market. This latest phase of its implementation is intended to improve transparency around counterparty exposures and collateralization practices in derivatives trading, ultimately giving regulators a more accurate means of monitoring counterparty risk exposures and identifying potential market abuse.

As of today, all financial and non-financial counterparties above the clearing threshold, from buy-side institutions to sell-side banks, are required to submit daily reports to trade repositories with mark-to-market valuations of their outstanding derivative exposures to their counterparties. They will also have to report associated collateral that has been exchanged, either for individual contracts or on a portfolio basis.

Firms must collate, reconcile and consolidate an array of disparate information from multiple trading and valuation systems on a daily basis, impacting operational processing on a fundamental level. For smaller financial counterparties in particular, the additional workload associated is considerable; many are undertaking this level and frequency of reporting for the first time.

Back in February, we moved quickly to provide clients with a solution to meet preliminary reporting requirements under the first phase of EMIR. Now, Bloomberg’s updated EMIR reporting solution offers a single, integrated workflow, covering all asset classes, to enable clients to comply with the new and unprecedented reporting requirements while minimizing disruption to their daily operations.

With our transparent, independent valuation service, BVAL Derivatives, Bloomberg is well positioned to execute the complex derivatives valuations and dispute reconciliations required under EMIR on behalf of our customers and integrate these straight into the daily reporting workflow. Any trades executed on the Bloomberg Professional service can be independently valued and seamlessly reported directly to a client’s preferred trade repository.

All of Bloomberg’s proprietary electronic trading platforms are integrated into the EMIR reporting system. We can also report trades from our buy-side order management system, Bloomberg Asset and Investment Manager (AIM).

Those clients opting to delegate trade reporting to sell-side banks are also supported: valuations contributed by third parties or performed by clients themselves can be uploaded and reported. Equally, trades executed outside of the Bloomberg environment can be reported over Bloomberg using simple integration feeds and upload tools.

Bloomberg supports the transition towards a more transparent, stable OTC derivatives market and, with further deadlines and challenges anticipated over the next 18 months, we will continue to innovate in order to ease our clients’ journey along the road to compliance.

Jose Ribas, Global Head of Derivatives & Structured Notes at Bloomberg L.P

Bloomberg BRIEF’s Financial Regulation team has published a special issue offering commentary, data and analysis on the new collateral and valuation reporting requirements under EMIR. Access the full report here.