The European Commission (EC) has launched a public consultation in an attempt to clarify and harmonize the definition and reporting of derivatives contracts falling under the European Market Infrastructure Regulation (EMIR).
The Commission is hoping to narrow the scope of the EMIR reporting rule by providing clear guidelines on currency derivatives, especially on "where the boundary lies between what is a foreign exchange (FX) financial instrument and a spot FX contract."
The European Securities and Markets Authority (ESMA) warned the Commission earlier this year that the lack of clarity has led to uneven national transpositions across EU member states of the Markets in Financial Instruments Directive (Mifid), "preventing the convergent application of EMIR."
The paper states: “Since the definition of a financial instrument in Mifid is used in a wide variety of other legislation, the classification of an FX contract as a financial instrument will bring them within the ambit of this legislation, in particular EMIR and its reporting obligations."
The mandatory reporting of derivatives trades under EMIR came into force on February 12, although market participants continue to face technology problems.
Rob Gray, head of sales for EMEA at Dion Global Solutions, says the reporting of over-the-counter (OTC) currency trades through repositories has triggered new automated trading models to help increase transparency and deliver efficient execution.
“Moving forward, previously manual underlying processes will have to be automated. This means there will be much more emphasis on fully automating platforms, which will drive further changes in the FX market,” he says.
However, as the industry is still missing some essential guidelines, market participants are struggling to fully comply with the reporting rule.
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