Nailing the LEIs – How EMIR Trade Reporting Obligations Will Affect UCITS and Alternative Investment Funds

by Dechert LLP
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The European Market Infrastructure Regulation (Regulation No. 648/2012), known as “EMIR”, requires entities that transact derivatives to report prescribed details of any financial derivative instruments (“FDIs”) they conclude with record keepers known as trade repositories.1The reporting obligation commences on 12 February 2014 (“Reporting Deadline”) and applies to all financial counterparties and non-financial counterparties.

Application to Collective Investment Schemes

UCITS authorised in accordance with the UCITS Directive (Directive 2009/65/EC) and alternative investment funds2 within the scope of the Alternative Investment Fund Managers Directive (Directive 2011/61/EU) are classified as financial counterparties and are subject to the full reporting requirements of EMIR if they transact in FDIs.

What is the Reporting Obligation?

EMIR sets out the minimum details that should be reported to a trade repository in relation to FDIs such as the asset class, notional amount, economic exposure, currency and maturity date of the derivative contract.

The reporting obligations will apply to both exchange traded FDIs and OTC FDIs from the following dates: 

Types of FDIs

Reporting Deadline

new FDIs that are entered into from 12 February 2014

by 12 February 2014 and no later than one business day following the conclusion, modification or termination of the FDI

FDIs outstanding on the Reporting Deadline and that were entered into on or after 16 August 2012

by 12 May 2014

FDIs outstanding on the Reporting Deadline and that were also outstanding on the 16 August 2012

by 12 February 2014

FDIs entered into on or after 16 August 2012

by 12 February 2014

The immediate concern is to report on new transactions or any modifications or terminations to FDIs with effect from the Reporting Deadline.

What’s an LEI?

In order to carry out and report derivative transactions, each counterparty will need a Legal Entity Identity (“LEI”). An LEI is a unique alphanumeric code that is assigned to all entities that are counterparties to financial transactions and any legal entity that enters into a derivative transaction. UCITS and AIFs that are subject to the reporting requirement under EMIR should obtain a unique LEI for each sub-fund of the UCITS or AIF.

LEIs are not currently available, however, counterparties should use an interim entity identifier known as a pre-LEI issued by pre-Local Operating Units (LOU). The Irish Stock Exchange, the London Stock Exchange, the CICI Utility in the US and WM Datenservice in Germany are designated as LOUs with authority to issue pre-LEIs.3

Impact for UCITS and AIFs

UCITS and AIFs may delegate their EMIR reporting obligations to a third party or arrange for a counterparty to report on its behalf. A UCITS or AIF nonetheless remains liable for compliance with the reporting requirements and thus may be liable for the failure of a delegate to report or the misreporting by a delegate of derivative transactions to a trade repository.

If they have not done so, UCITS and AIFs should clarify if they are subject to EMIR reporting requirements and, if so, they should put in place arrangements for the reporting of derivative transactions by the Reporting Deadline of 12 February 2014, which is fast approaching.

Footnotes

1.) To date six trade repositories have been approved by ESMA, namely DTCC Derivatives Repository Ltd. (DDRL); Krajowy Depozyt Papierów Wartosciowych S.A. (KDPW); Regis-TR S.A.; UnaVista Ltd; CME Trade Repository Ltd. (CME TR) and ICE Trade Vault Europe Ltd. (ICE TVEL).

2.) Alternative investment funds (“AIFs”) refer to alternative investment funds managed by an alternative investment fund manager authorised or registered in accordance with the Alternative Investment Fund Managers Directive (Directive 2011/61/EU) and would include Qualifying investor alternative investment funds (“QIAIFs”) authorised by the Central Bank of Ireland and specialised investment funds (“SIFs”) authorised by the CSSF.

3.) For details of other LOUs, please visit http://www.leiroc.org/list/leiroc_gls/tid_162/index.htm

 

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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