point nine emir

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Strictly private and confidential

Post Trade Excel lency

Point Nine

I nt roducing Point Nine

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• Founded in 2002, Point Nine is one of the industry leaders in post trade execution, operation, processing and reporting.

• We collaborate with both buy and sell side financial firms and corporates to help them meet the ever-expanding challenges of post-trade processing.

• Circle, our in-house proprietary technology, provides a real-time solution to all our customers and their trading relationships.

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EMIR – What i s i t about? (1)

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• In the wake of the global financial crisis the G20 states agreed to subject the financial markets to extensive regulation serving stabilization and transparency. In particular, it was intended to ensure supervision of over-the-counter (“OTC”) trading of derivatives (“OTC derivatives”) which were considered to have played a central role in causing the financial crisis.

• In order to achieve this objective, the “European Market Infrastructure Regulation“ (“EMIR“) entered into force on 16 August 2012 within the European Union (“EU“). As a regulation, EMIR is directly applicable in all member states.

• However, most of EMIR’s provisions were still inapplicable without the supplementary Regulatory Technical Standards (“RTS“) issued by the EU-Commission in the form of Delegated Regulations. The first RTS entered into force on 15 March 2013, after being adopted by the EU-Commission in December 2012 and being approved by the European Parliament and Council.

• In addition to the RTS the EU-Commission issued the Implementing Technical Standards (“ITS“) in the form of Commission Implementing Regulations, which entered into force on 10 January 2013.

• However, as to now, only a part of the RTS and ITS envisaged for EMIR entered into force.

EMIR, including the corresponding additional regulations and the national provisions, is intended to reduce the risks – in particular, counterparty credit risks and systemic risks – and to increase transparency and security in OTC derivatives markets.

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► When analysing EMIR’s consequences and its implementation, the complicated connections and interactions with other regulations must be considered as well.

► By timely detection of interfaces with other regulations it is possible to raise significant synergetic potentials.

l EMIR is a key element of the European reform-agenda to establish a safe, healthy and transparent as well as responsible financial system, which “serves the real economy and benefits society as a whole”.

l EMIR also implements requirements of the G20 to improve market transparency and stability.

l In order to achieve these objectives, the legislators in the G20 areas issued various regulations, which complement and partially overlap each other.

EMIR EMIR in the context of other regulatory projects

SFASingapore

FIEAJapan

Dodd-FrankAct

EMIRMiFIR

MiFID2

REMIT

CRD IV

MAD/MAR

FInfraGCH

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EMIR

MiFIR MiFID/MiFID2

Derivatives trading

l Reporting obligation for all derivatives

l Clearing obligation for OTC derivatives

l Risk-mitigation techniques for non-cleared OTC derivatives.

l Obligation to use certain trading venues for counterparties subject to the clearing obligation

l Clearing obligation for derivatives traded on regulated markets

In addition and complementary to EMIR, especially the Markets in Financial Instruments Directive (“MiFID“), currently being fundamentally revised (“MiFID2“) andsupplemented by the Markets in Financial Instruments Regulation (“MiFIR“), also serves the objective of an extensive regulation of derivatives trading. Hereby, theEMIR provisions on clearing obligations, in particular for OTC derivatives, are supplemented by, e.g., trading obligations in regulated markets and clearingobligations for derivatives traded on regulated markets.

The complex – and not always unambiguous – connections and interactions between those regulations must also be taken into account.

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Regulatory Technical Standards

(RTS)EMIR

Implementing Technical Standards

(ITS)

Other• FAQ (ESMA/EU-Commission/NCAs)• Basel-/IOSCO-FSB

l EMIR is a regulation, and thus directly applicable in all EU member states. However, with many regulatory issues EMIR confines itself to only laying out general framework principles.

l The Commission Implementing Regulations (ITS) and Regulatory Technical Standards (RTS) which have been or will be adopted serve to further specify and clarify the provisions of EMIR.

l Several other publications by ESMA and other institutions can be used for the further comprehension and interpretation of the provisions of EMIR and the ITS / RTS.

EU Countries National Laws and Regulations

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EMIR – Who i s af fec ted

In general, EMIR affects all market participants involved in derivatives trading (from the firstderivative) and provides extensive requirements for them. Some of the requirements provided byEMIR are applicable to market participants, even if they do not provide financial services. In thisregard the regulation distinguishes between financial and non-financial counterparties.

All other undertakings involved in derivatives trading, e.g.

l Energy suppliersl Industrial undertakingsl Corporates

l Investment firmsl Credit institutionsl Insurance undertakingsl Assurance undertakingsl Reinsurance undertakingsl UCITS and, where relevant, their

management companiesl Institutions for occupational retirement

provisionl Alternative investment funds

Financial Counterparties

With EMIR now even undertakingsoperating in the real economy are directlyaffected by a financial market regulation

Non-financial Counterparties

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EMIR – What has t o be done? (1)

Not or not fully complying with EMIR can result – among other possible sanctions – in substantial fines.

of all derivative contracts (whether traded on regulated markets or OTC) to trade repositories

Reporting

of standardised OTC derivative contracts

through central counterparties

Clearing

for OTC derivative contracts not subject to the clearing obligation

Risk-mitigation

Annual external audit of compliance with the EMIR provisions

EMIR-Audit

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EMIR – What has t o be done? (2)w w w . p 9 f t . c o m

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l The market participants concerned are subject to certain reporting obligations and have to provide comprehensive information on derivative contracts entered into by them, as well as respective modifications, to central trade repositories.

l Compliance with the reporting obligation requires the clarification of the nature and scope of the reporting obligation as well as the processing of the required data.

The reporting obligation entered into force on12 February 2014

Challenge Essential fields of action

Processing and documentation l Documentation of the system’s suitability for complete and correct reports l Documentation of reporting the existing derivativesl Documentation of the reports

Adaption of processes and systems l Adaptation / amendment of the required data in the systemsl Draft of the extraction and format of the reporting datal Coordinating the data with the counterpartyl Testing of reporting with the registerl Implementation of a troubleshooting procedurel Storage of the transaction data

Choice of a trade repository l Analysis of services and costs of different trade repositoriesl Decision and signing of contractl Detailed analysis of required documentationl Coordination of formatting and procedures for the reportingl Clarification of data fields, which need to match (tolerance limit)

Determination of the data subject to the reporting obligationl Analysis of the position-keeping systems l Identification of relevant datal Back-loadingl Compilation of existing derivative contractsl Application for a Legal Entity Identifier (“LEI“) for every unit subject to reportingl Agreement on a Unique Trade Identifier (“UTI“) with the counterparty

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Nature of the reportsl Decision about reporting unit (centralised / decentralised)l Possible delegation of the reporting obligation (analysis of existing master agreements and,

where necessary, adaptation, entering of new contracts).2

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- Purpose: Reducing counterparty credit risk through central clearing of OTC derivatives.

- In general, all OTC derivative contracts where bothparties are subject to a clearing obligation, have to be cleared.

- Financial counterparties have to clear all their standardized OTC derivative contracts through a Central Counterparty (“CCP“).

- Non-financial counterparties are obliged to clear all their standardized OTC derivative contracts through a CCP as soon as their positions in OTC derivative contracts exceed a determined clearing threshold. Furthermore, non-financial counterparties are obliged to monitor their OTC derivative positions with regard to a possible excess of the clearing threshold.

- In order to detect a possible excess of the clearing threshold, all derivative contracts held within the counterparties’ group have to be evaluated.

Clearingl Decision for one (or several) CCP(s)l Direct or indirect membership of a CCPl Drafting of contracts

Exemptionsl EMIR-group / intra-group transactions

o Determination of the groupo Group companies in third countries

l Derivative contracts objectively reducing riskso Determination of risk-reducing derivative contractso Proof of the hedging purpose and the respective suitabilityo Contractual adjustments, where necessaryo Taking EMIR into account, when concluding new derivatives

Clearing thresholdl Status as financial or non-financial counterpartyl Complete, group-wide survey and classification of derivativesl Demarcation between OTC and exchange traded derivatives l Method for determination of the notional amountl Determination of the clearing threshold (optionally based on alternative

scenarios)l Monitoring of the clearing threshold

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All counterparties that enter into OTC derivative contracts not cleared by a CCP, have to ensure that adequate procedures and arrangements are in place to measure, monitor and mitigate operational risk and counterparty credit risk.These risk-mitigation techniques include:

l Timely confirmation of the derivative contracts’ terms;

l Implementation of suitable dispute resolution procedures;

l Valuation of outstanding contracts;

l Timely, accurate and appropriately segregated exchange of collateral;

l Performance of a portfolio reconciliation within certain time frames (depending on the number of OTC derivative contracts); and

l Regular analysis of the possibility to conduct a portfolio compression (starting at a certain number of outstanding contracts).


Processing and documentationl Proof of a risk management for operative and default risks that is appropriate for the volume of

derivative transactionsl Proof of timely and correct confirmationsl Proof of regular and complete portfolio reconciliationl Documentation of explanation for concluding that a portfolio compression exercise is not

appropriate

Adjusting systems and procedures l Risk- and collateral-managementl Implementation of risk measurement, -monitoring and -mitigation techniquesl Implementation of timely confirmation and, where necessary, draw up of confirmation procedurel Implementation of procedures for the valuation of outstanding contracts, maturity control, data

import and routines for the portfolio reconciliationl Definition and implementation of procedures and responsibilities for dispute resolution

Clarification of requirementsl Analysis of the current state of risk managementl Identification of necessary adjustmentsl Assessing the appropriateness of a portfolio compression exercise

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Agreements with the counterpartyl Defining form and procedure of the timely confirmationl Implementation of procedures for dispute resolutionl Agreement on time and procedure of portfolio reconciliationl Clarification of procedures for portfolio compressionl Analysis and, where necessary, adjustment of contracts (i.e., ISDA documentation)

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Certain non-financial counterparties have to obtain certification from an external auditor once a year that

they implemented appropriate systems to ensure compliance with

the EMIR requirements.

When?The audit has to take place within nine months of the end of the fiscal year. The audit obligation enters into force for the fiscal year starting after 16 February 2013.

What?An external auditor has to certify that the counterparty implemented appropriate systems to comply, in particular, with the following obligations

l Clearing obligation;l Reporting obligation; and

l Risk-mitigation techniques.

Who?Non-financial counterparties, which are notsmall capital companies, do not have any personal liable partner and during the past fiscal year entered either:l OTC derivative contracts with a total notional volume of more than

EURO 100 million; or

l more than 100 OTC derivative contracts.

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Transaction Repor ting Diagram

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Trade Repository

Customer

Trading Platform

CRM

Legacy Systems

Central Database

CCP

Trading Repository

ARM

RRM

Circle

Report Generation

Data Mapping

Data Fetching

Data Validation

ControlsNotifications

Reconciliation

G.U.I

Circle

• Data Validation

• Report Generation Automation

• Report Submission Automation

• Download status messages

• Controls to manage reporting activity

• Instrument Identification For EMIR Reporting

• Data Mapping from Platform to Reports

• Data Enrichment

• UTI Generation

• Data Validation

• Pre-matching

• Reconciliation

• Exception Management

• UTI Sharing

• Controls

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Get In Touch

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E [email protected]

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