AxiomSL: Leveraging experience implementing EMIR to be compliant with derivatives trade reporting in South Africa
Posted: 5 September 2017 | Author: Gaurav Chandra | Source: AxiomSL
In just a few months South African entities will be required to begin reporting all in scope over-the-counter (OTC) transactions following the enactment of the Financial Markets Act 2013 by the South African administration. The obligation to report derivatives transactions will bring the country in line with other OTC derivative markets regulations such as the European Market Infrastructure Regulation (EMIR), thus preventing duplicative reporting processes for those South African OTC derivative dealers that are also required to report in multiple jurisdictions.
What will need to be reported?
Similar to EMIR, market participants will be required to report all of their derivatives trades including commodity, credit, foreign exchange and interest rate derivatives. Participants will be required to report on the execution, modification, and termination of each contract on a T+1 basis, and they will also be required to make daily reports of mark-to-market and mark-to-model valuations of contracts, and provide details of collateral arrangements. This is in line with existing requirements under EMIR.
Who will need to report and how?
Similar to derivatives reporting requirements in other jurisdictions, such as the US, under the Financial Markets Act firms will be required to use the single reporting model.
There are three ways in which derivatives transactions can be reported: both counterparties to the trade can report; the clearing counterparty can report on behalf of those two counterparties or, the clearing counterparty can delegate their responsibility to report to a third party. However there will be a number of legal barriers; for example, the reporting counterparty will need to obtain consent from their trading counterparties to report their data to trade repositories. These are issues that will need to be resolved, particularly for larger institutions that may be required to report for a significant number of counterparties.
Additionally, the Financial Markets Act replicates EMIR requirements as it mandates that historic trades will need to be reported to trade repositories. Our experience in other jurisdictions such as Europe shows that firms may choose to upload live historic trades ahead of the reporting deadline. This will make reporting of new live trades easier if historic live trades are already reported, in addition to making the reconciliation process more efficient.
While there are similarities among the various reporting regimes around the world, South Africa included, compliance with trade reporting rules in multiple jurisdictions has required a large amount of preparation. This is especially the case for the dealer community whose derivatives trading activities often spread beyond their domestic markets due to the global nature of the derivatives marketplace.
Other considerations for trade reporting
Furthermore, reporting is more than just a technology process; it will require entities to ensure they have the right data in place to report; it will necessitate appropriate data governance procedures; and firms will need to observe and adhere to regulatory amends and updates.
Lastly, it is important that firms that have experience of reporting in other jurisdictions as well as those that find themselves with a reporting obligation for the very first time, take into account the specific reporting requirements under the Financial Markets Act and make provisions now in preparation for trade reporting which is due to go live before the end of this year.