Trésorier/Treasurer magazine - N°83 — Oct/Nov/Dec 2013 - (Page 8)

INTERVIEW Mr. David White, Head of Product Marketing of TriOptima in London. LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE — N°83 — OCT / NOV / DEC 2013 - The regulations for OTC derivative portfolio reconciliation will soon come to effect. What are the last developments? 8 New regulations for OTC derivative portfolio reconciliation will come into effect in the EU on September 15, 2013. Under the ESMA rule, both financial and non-financial counterparties will have reconciliation, dispute resolution and subsequent reporting obligations. Both collateralized and uncollateralized transactions will be subject to the standards of the new regulations. Even with standardized credit and interest rate swaps going into clearing, things seem to be getting more complicated rather than simpler. First, clearing does not eliminate the need for independent reconciliation and verification of transactions so there is a fiduciary (if not mandated) need to reconcile cleared trades as reported to clearinghouses by various intermediaries. Next, according to the new regulations, uncleared trades, whether legacy or new, collateralized or uncollateralized, must be reconciled and valuation methods must be agreed between the counterparties along with the reconciliation parameters and procedures. While most large financial institutions have already put systems in place to address the regulations, smaller financial institutions and non-financial counterparties (e.g., corporates hedging their interest rate, currency, commodity exposures) are still in the process of implementing procedures and processes. Reconciliation: Complying with new portfolio reconciliation regulations is also the foundation for effective collateral management - Which are the requirements for new portfolio Reconciliation and dispute resolution ? For OTC derivative portfolios with more than 500 transactions, reconciliation is mandated daily; for portfolios between 51 and 499 transactions, reconciliation is weekly; and for portfolios with less than 50 transactions, reconciliation is quarterly. If a non-financial counterparty has a portfolio below designated clearing thresholds of gross notional exposure, trades need to be reconciled quarterly for portfolios with more than 100 trades and annually for portfolios below 100 trades. In addition, counterpparties must agree the reconciliaton procedures between them. - From your point of view, are these requirements easy to implement? Particularly burdensome is the requirement to implement procedures for identifying, recording and monitoring disputes that arise during the reconciliation process related to the terms of the contract, the valuation of the transaction and the exchange of collateral. Disputes must be resolved in a timely manner (within 5 days), and any dispute that extends for more than 15 days with a value greater than EUR 15 million must be reported to the local competent authority. Even for those firms outside of the scope of EMIR and Dodd Frank, dealer counterparts are increasing their demands for regular reconciliations in order to meet the new regulatory standards. And with dealers submitting trades to the swap data repositories for regulatory reporting purposes, their counterparties are eager to validate the information that has been sent to regulators on their behalf or to reconcile trades they have submitted themselves with the data in other systems. - Which challenges will then face the firms seeking to comply? As firms move to comply with the regulations or accommodate their counterparties who are complying, they will face significant challenges. These challenges are made even more complex by the range of solutions available. Any opportunity to centralize and standardize methodology will help to simplify the implementation of new systems and workflow. Under the rules, each covered entity will have to agree portfolio reconciliation terms with each one of its trading counterparties and document the agreement in writing or electronically. ISDA is offering the 2013 EMIR Reconciliation, Resolution and Disclosure Protocol to facilitate the market in this process but the terms of the protocol might not necessarily be a good fit for all firms. What is certain is that even for market participants with relatively few trading relationships, initiating bilateral discussions with each counterparty and then formalizing the output through documentation will be time consuming and prone to error. The next challenge is the broad product scope of the EMIR rules. Both collateralized and uncollateralized OTC derivatives have to be reconciled according to the requirements. These trades usually reside in different systems within an institution making it difficult for institutions to source these trades and ensure the data is of sufficient quality. But the greater challenge will lie in the portfolio reconciliation

Table des matières de la publication Trésorier/Treasurer magazine - N°83 — Oct/Nov/Dec 2013

Couverture
SOMMAIRE
EDITORIAL
FINANCIAL HIGHLIGHTS Luxembourg Tax News
INTERVIEW David White - TriOptima
FOCUS
FORUM
CORPORATE FINANCE
15 MINUTES WITH Capita Asset Services - Luxembourg
NEWS
THE FINANCIAL RISK OBSERVATORY

Trésorier/Treasurer magazine - N°83 — Oct/Nov/Dec 2013

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