Issuu on Google+

   

   

Research  Report  –  2014/001.1a   Updated  23rd  April  2014  

European  Commodity  Market  Regulations   Implementation,  Impacts  and  Solutions   Part  1  of  2    

   

    Sponsored  by  

 

 


European  Energy  Market  Regulations  

 

Contents   Introduction  ...................................................................................................................................................  5   Big  Compliance  comes  to  Energy  Trading  .....................................................................................................  6   Background  ....................................................................................................................................................  7   The  Banking  crisis  of  2007/2008  ...............................................................................................................  7   MiFID  II  ......................................................................................................................................................  7   Basle  III/CRD  IV  ..........................................................................................................................................  8   The  EU  “Third  Package”  and  REMIT  ..........................................................................................................  8   Key  Themes  ...................................................................................................................................................  8   EMIR  Rules  Overview  ...................................................................................................................................  10   Different  types  of  party  under  EMIR  .......................................................................................................  10   REMIT  Rules  Overview  .................................................................................................................................  11   Timings  ........................................................................................................................................................  12   The  EMIR  Threshold  for  Non-­‐Financial  Counterparties  ...............................................................................  13   Threshold  calculation  ..............................................................................................................................  13   Trade  Reporting  ...........................................................................................................................................  15   Trade  Reporting  for  EMIR  ........................................................................................................................  15   What  must  be  reported?  .....................................................................................................................  15   Where  data  should  be  reported?  ........................................................................................................  15   Which  data  must  be  reported?  ...........................................................................................................  15   When  should  data  be  reported?  .........................................................................................................  16   Backloading  .........................................................................................................................................  16   Trade  Reporting  for  REMIT  ......................................................................................................................  16   Which  data  must  be  reported?  ...........................................................................................................  16   Where  should  data  be  reported?  ........................................................................................................  17   What  data  types  must  be  reported?  ...................................................................................................  17   Non  Standard  Trades  ...........................................................................................................................  18   Data  Destinations  ....................................................................................................................................  18   Implementing  a  trade  reporting  solution  ................................................................................................  20   Solution  types  ......................................................................................................................................  20   Required  Solution  Activities  ....................................................................................................................  21   Data  sourcing  and  gap  analysis  ...........................................................................................................  21   Data  mapping  and  capture  ..................................................................................................................  21   Configuration  choice  and  connection  mechanism  ..............................................................................  21   Data  enrichment  .................................................................................................................................  21  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

 

 

       

 

       2  


European  Energy  Market  Regulations  

 

Pre  trade  data  .....................................................................................................................................  21   Issues  being  encountered  ........................................................................................................................  22   LEIs  (Legal  Entity  Identifiers)  ...............................................................................................................  22   The  UTI  (Unique  Trade  Identifier)  .......................................................................................................  22   Which  rules  apply  to  a  trade?  .............................................................................................................  23   Changing  requirements  .......................................................................................................................  23   Risk  Management  ........................................................................................................................................  24   Timely  confirmation  ................................................................................................................................  25   Portfolio  Reconciliation  and  Dispute  Resolution  .....................................................................................  25   The  reconciliation  process  .......................................................................................................................  25   Typical  modes  of  operation  .................................................................................................................  25   Bilateral  reconciliation  ........................................................................................................................  26   Third  Party  Service  Provider  ................................................................................................................  26   Agent  ...................................................................................................................................................  26   Contractual  Changes  required  for  Portfolio  Reconciliation  and  dispute  resolution  ...........................  26   Portfolio  Compression  .........................................................................................................................  27   Bilateral  Compression  .........................................................................................................................  27   Multilateral  Compression  ....................................................................................................................  27   Is  it  worth  compressing  if  it  is  not  mandatory?  ...................................................................................  28   Daily  mark  to  market/model  ...............................................................................................................  28   European  Regulatory  Solutions  Directory  ...................................................................................................  29   Types  of  service  and  software  .................................................................................................................  29   Trade  Repositories  ..............................................................................................................................  29   Reporting  Services  ...............................................................................................................................  34   Specialist  Reporting  and  aggregation  software  ...................................................................................  36   E/CTRM  offerings  ................................................................................................................................  43   Portfolio  Reconciliation/Dispute  Resolution  .......................................................................................  46   Portfolio  Compression  .........................................................................................................................  46   Trade  Surveillance  ...............................................................................................................................  48   About  The  Authors  ......................................................................................................................................  51   Aviv  Handler  ............................................................................................................................................  51   Dr.  Gary  M.  Vasey  ....................................................................................................................................  51   ComTech  Advisory  ...................................................................................................................................  52   ETR  Advisory  ............................................................................................................................................  52   About  the  Sponsor  .......................................................................................................................................  53   TriOptima  ................................................................................................................................................  53  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

 

 

       

 

       3  


European  Energy  Market  Regulations  

 

 

               

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

 

 

       

 

       4  


European  Energy  Market  Regulations  

 

Introduction   Increased  regulation  and  oversight  of  European  energy  and  commodity  trading  has  commenced  as   various   aspects   of   the   EMIR   (European   Market   Infrastructure   Regulation),   REMIT   (Regulation   on   wholesale  Energy  Market  Integrity  and  Transparency),  and  other  regulations  start  to  bite,  with  Trade   Reporting  under  EMIR  going  live  on  February  12th  2014.  The  regulations  are  already  having  an  impact   on  trading  and  risk  management  business  practices  and  may  have  far  reaching  and  as  yet,  even  un-­‐ thought  of  consequences  for  the  industry.  Despite  several  go  live  dates  having  passed,  there  is  still  a   lack  of  clarity  over  many  of  the  details.  This  has  left  a  trail  of  confusion  in  the  wake  of  the  rule  roll   out.   The   Trade   Reporting   go   live   was   but   one   milestone   in   the   many   that   await   the   energy   and   commodity   trading   industry.   REMIT,   mandatory   clearing,   MiFID   II   and   others   will   follow   in   the   not   too   distant   future.   And   as   with   the   rules   we   have   already   seen   there   is   a   great   deal   of   confusion   about  scope,  applicability  and  detail.   This   research,   conducted   jointly   by   industry   leading   analysts   and   experts,   Commodity   Technology   Advisory  and  ETR  Advisory,  aims  to  help  to  clarify  the  issues  and  to  examine  the  impact  of  regulation   on   software   requirements   in   the   trading   and   risk   management   business   function.   It   looks   at   the   current   implementation   schedule   of   the   regulations   and   examines   some   of   the   implementation   impacts   of   the   yet   to   be   defined   details   of   the   regulations.   It   also   reviews   the   software,   services   and   platforms   available   in   the   market   to   support   aspects   of   the   European   regulatory   environment   and   establish  the  readiness  of  European  traders  for  operating  under  the  regulations.   The  research  is  focused  on  understanding:   • Implementation  time  frames  and  what  this  means  to  traders   • The  unknowns  and  yet  to  be  defined  details  and  their  implications  as  the  rules  are  rolled  out   • A   review   of   solutions,   services   and   platforms   in   the   market   designed   to   support   these   regulations,  including  how  the  solutions  offered  for  EMIR  reporting  fared  during  the  go  live   • Readiness   of   trading   organizations   from   a   business   process,   technology   and   holistic   standpoint  –  This  is  a  separate  report.   This  report  is  an  updated  version  of  the  original  written  in  the  second  half  of  2013.  It  adds  notes  of   post  go  live  reality,  and  also  updates  on  the  next  regulations  to  be  implemented.  

 

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

 

 

       

 

       5  


European  Energy  Market  Regulations  

 

Big  Compliance  comes  to  Energy  Trading   The   energy   and   broader  commodity-­‐trading   world   is   in   the   process   of   its   latest   stage   in   its   maturity:   That  of  “Big  Compliance”.     The  rules  that  most  energy  traders  will  have  to  implement  not  only  require  a  great  deal  of  IT  work,   but  also  some  process  re-­‐engineering  and  an  acceptance  of  the  fact  that  compliance  will  occupy  a   significantly  larger  component  of  overall  activities  and  budgets  on  an  on-­‐going  basis.  One  can  argue   as  to  whether  this  is  appropriate  for  an  industry  that  many  feel  is  “non-­‐systemic”,  but  as  things  stand   most   of   these   changes   will   happen   with   the   result   that   industry   business   processes,   practices,   the   IT   landscape  and  possibly  even  the  players,  will  change.   The   Trade   Reporting   go   live   underlines   this   point.   While   the   “big   bang”   IT   project   could   be   considered  to  be  heading  towards  the  “stabilization”  phase,  it  is  expected  that  many  more  changes   will   come.   And   after   that,   we   expect   the   Financial   Stability   Board   (FSB)   review   of   Trade   reporting   implementation  to  require  more  re  work.   This  is  clearly  therefore  simply  the  start  of  an  ongoing  stream  of  work.               Advertisement  

 

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

 

 

       

 

       6  


European  Energy  Market  Regulations  

 

Background   The  upcoming  rule  sets  stem  initially  from  two  sources:   1) Reactions  to  the  Banking  crisis  of  2007/2008   2) The   EU   “3rd   Package”   -­‐   which   further   aims   to   create   a   single   European   gas   and   power   market.    

The  Banking  crisis  of  2007/2008   Following   the   crisis,   several   initiatives   kicked   off   in   order   to   attempt   prevention   of   a   repeat.   Key   amongst  these  was  the  declaration  that  arose  out  of  the  2009  G20  Pittsburgh  Summit,  which  stated:   “All   standardized   OTC   derivative   contracts   should   be   traded   on   exchanges   or   electronic   trading   platforms,   where   appropriate,   and   cleared   through   central   counterparties   by   end-­‐ 2012   at   the   latest.   OTC   derivative   contracts   should   be   reported   to   trade   repositories.   Non-­‐ centrally  cleared  contracts  should  be  subject  to  higher  capital  requirements.”   In  essence,  the  objective  of  this  declaration  was  a  reduction  in  the  “systemic  risk”  that  brought  the   crisis  about.     Each   G20   country   undertook   to   conform   to   the   declaration,   and   this   has   resulted   in   several   initiatives   including   Dodd   Frank   in   the   US,   and   EMIR   (European   Marketing   Infrastructure   Regulation)   in  the  EU.  Other  G20  countries  are  also  in  the  process  of  implementing  their  versions.   Amongst  the  principles  encompassed  in  the  declaration,  were:   -­‐ -­‐ -­‐

Transparency   Move  to  standardized  exchanges   Risk  reduction  

These   have   led   to   a   variety   of   pillars   including   reporting   of   trades   to   repositories,   a   move   to   OTC   Clearing,  several  risk  reduction  techniques  and  the  desired  imposition  of  mandatory  position  limits   on  commodities.  

MiFID  II   In   addition   to   EMIR,   other   initiatives   were   created   in   order   to   address   the   issues.   In   Europe,   this   includes  MiFID  II.  The  Markets  in  Financial  Instruments  Directive  (MiFID)  came  into  force  in  2007  and   introduced  several  new  concepts  for  financial  companies,  such  as  “passporting”  i.e.  the  requirement   to  be  able  to  execute  equally  in  any  European  location,  and  a  requirement  to  provide  best  execution.   It  introduced  the  concept  of  a  Multilateral  Trading  Facility  (MTF)  to  which  certain  transparency  and   operation  rules  apply.   However,  the  majority  of  commodity  traders  received  an  exemption  from  these  rules.   MiFID   II   extends   the   original   initiative   in   many   ways,   including   a   wider   ranging   Organized   Trading   Facility  (OTF).  Of  particular  interest  to  our  market  are  three  items:   1) The  potential  narrowing  of  the  commodity  trader  exemption,  in  many  cases,   2) The   widening   of   the   scope   of   what   a   derivative   is,   bringing   more   physical   trades   into   the   threshold  calculation     3) Mandatory  Position  Limits  (which  in  the  US  are  being  implemented  within  Dodd  Frank).  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

 

 

       

 

       7  


European  Energy  Market  Regulations  

 

The   result   of   some   of   the   above   will   mean   that   more   energy   traders   will   find   themselves   either   needing  to  or  wanting  to  obtain  MiFID  licenses,  thereby  turning  them  into  Financial  Counterparties.   That  in  itself  has  consequences  including  the  introduction  of  mandatory  clearing.  

Basle  III/CRD  IV   The   Basle   III   accords   modify   the   Basle   II   accords   targeted   at   the   banking   industry.   These   outline   how   banks  should  calculate  their  capital  requirements,  for  credit,  market  and  operational  risk,  amongst   other  things.  Basle  III  moves  to  a  more  prudent  capital  calculation  methodology  and  capital  ratios  for   banks.  This  includes  the  use  of  Credit  Value  Adjustment  (CVA)  and  similar  measures.  In  Europe,  the   rules   are   being   implemented   as   the   fourth   Capital   Requirements   Directive   (CRD).   It   also   requires   extra  reporting  such  as  COREP.   Some  of  the  new  capital  calculation  rules  could  well  apply  to  energy  traders,  although  probably  not   until   2017.   However,   these   are   yet   another   set   of   rules   that   should   be   on   Energy   Traders’   radars,   especially  if  they  obtain  MiFID  licenses,  which  brings  CRD  IV  straight  into  scope.  

The  EU  “Third  Package”  and  REMIT   The  European  Union  third  package  was  adopted  in  2009.  It  aimed  to  further  open  up  Europe’s  gas   and   power   markets   using   several   means   including   unbundling   previously   vertically   integrated   gas   and  power  companies,  the  move  to  standardize  TSOs,  and  the  creation  of  a  single  market.   As  part  of  this  framework,  the  Regulation  of  Wholesale  Markets  Transparency  and  Integrity  (REMIT)   aims  to  increase  transparency  within  the  market,  by  the  prohibition  of  insider  trading,  and  aims  to   further  limit  market  abuse.   The   prohibition   of   market   abuse   involves   not   only   avoiding   attempted   and   actual   market   manipulation,  but  also  reporting  trade  and  “fundamental”  data  to  the  authorities.     REMIT  applies  to  all  wholesale  physical  Gas,  Power,  LNG  and  Emission  trading  in  Europe  as  well  as  to   connected  derivatives.  

Key  Themes   There   are   four   key   “themes”   identifiable   across   all   of   these   new   initiatives   and   these   are   explored   in   the  body  of  this  report:   -­‐ -­‐ -­‐ -­‐  

Trade  and  Position  Reporting  –  reporting  of  trades  under  EMIR  and  REMIT  and  also  position   reporting  under  MiFID  II   Clearing    -­‐  OTC  Clearing  as  mandated  under  EMIR   Risk   Management   –   Rules   such   as   Portfolio   reconciliation   and   compression   under   EMIR   as   well  as  CRD  IV  rules   Trade  Monitoring  and  Surveillance  –  Under  REMIT  as  well  as  MAD  II    

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

 

 

       

 

       8  


European  Energy  Market  Regulations  

 

 

Reporting  

Clearing  

EMIR  

To  Trade   Repositories  

To  applicable  OTC   derivatives  for  FC   and  NFC+  

REMIT  

Power  and  gas   physical  and   financial  to  RRMs   Fundamental  data   to  RISs  

 

MiFID  II  

Risk  Management  

Trade   Monitoring   Timely  Confirmation     Portfolio,   Reconciliation,   Dispute  Resolution,   Portfolio   Compression,     Daily  mark  to   market  (FC,  NFC+)       None   manipulation   rules  apply  to   physical  and   financial  gas   and  power   various    

Real  time  position     reporting  and   limits   MAD  II         The  table  above  summarizes  the  regulations  and  the  four  key  themes.  

Extends  MAD  

  Although   linked,   each   stream   requires   a   different   set   of   process   and   IT   changes.   We   will   be   addressing   them   separately,   with   this   particular   report   focused   on   trade   reporting   and   risk   management.               Advertisement  

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

 

 

       

 

       9  


European  Energy  Market  Regulations  

 

EMIR  Rules  Overview   As   outlined   above,   EMIR   is   based   on   the   declaration   at   the   G20   Summit   in   Pittsburgh   in   2009.   It   entered   into   force   on   16   August   2012.   The   European   Securities   Market   Authority   (ESMA)   implements   EMIR,   and   the   local   National   Compliance   Authorities   (NCAs),   such   as   the   UK   FCA,   enforce   it.   The   Regulatory   Technical   Standards   to   implement   many   of   the   rules   were   proposed   in   December  2012  and  subsequently  approved  by  the  European  parliament  in  February  2013.   EMIR  has  four  key  themes:   Trade   Reporting   –   This   requires   all   derivatives   (OTC   and   Exchange   Traded)   to   be   reported   to   third  party  “Trade  Repositories”  (TR).  Both  sides  of  the  deal  must  report  the  trade  using  the   same  identifier,  within  T+1.    This  requirement  commenced  on  12th  February  2014  for  all  OTC   derivatives.   Clearing   of   OTC   Derivatives   –   It   is   desired   that   as   many   OTC   derivatives   as   possible   are   cleared  via  CCPs.  This  will  generally  apply  to  more  standardized  derivatives.  There  will  also   be  new  rules  about  the  margin  requirements  of  uncleared  derivatives  but  these  are  not  yet   finalized.   Risk  Mitigation   –  Five  sets  of  rules  designed  to  mitigate  risk:  Timely  Confirmations,  Portfolio   Reconciliation,  Dispute  Resolution,  Portfolio  Compression,  and  Daily  Mark  to  Market/Model.   These  rules  are  explained  in  more  detail  in  the  section  below.   CCPs   (Central   Clearing   Counterparties)   –   Rules   about   the   running   and   funding   of   CCPs   that   are  not  relevant  to  the  Energy  Trading  business.  However  as  Energy  and  Commodity  Traders   get  pulled  into  the  world  of  clearing  it  will  be  important  for  all  to  be  familiar  with  how  CCPs   operate.  

Different  types  of  party  under  EMIR   EMIR  defines  four  types  of  party:   1) Financial  Counterparties  (FC)  such  as  banks  and  other  financial  institutions   2) Non-­‐Financial  Counterparties  (NFC)  –  all  other  EU-­‐based  entities.  These  are  divided  into:   a. Over  the  “threshold”  (NFC+)    -­‐  those  who  trade  over  a  certain  amount  per  year   b. Under  the  “threshold”  (NFC-­‐)   3) Third  country  –  those  outside  the  EU   NFCs   must   determine   their   status   by   using   a   different   threshold   number   for   each   asset   class   as   follows:   • • • • •

Credit  -­‐  €1bn   Equity  -­‐  €1bn   Interest  Rates  -­‐  €3bn   FX  -­‐  €3bn   Commodities  €3bn  

The   numbers   above   refer   to   annual   gross   notional   numbers.   Only   “unhedged”   trades   are   to   be   included  in  this  number.  Only  one  of  these  numbers  must  be  breached  in  order  for  the  trading  entity   to  be  considered  “over  the  threshold”.   It   has   been   obligatory   to   report   being   over   the   threshold   since   15th   March   2013.   All   market   participants  are  obligated  to  be  calculating  their  totals  on  a  daily  basis,  using  a  30-­‐day  average.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

10    

 

       

 

       


European  Energy  Market  Regulations  

 

Those  under  the  threshold  have  a  more  lenient  interpretation  of  the  rules,  as  will  be  outlined  below.   The   way   that   thresholds   have   been   calculated   across   the   industry   seems   to   vary.   Not   only   have   ESMA   issued   new   advise   several   time   over   the   last   few   months,   in   the   form   of   Questions   and   Answers  documents,  but  there  appears  to  still  be  room  for  a  great  deal  of  interpretation,  especially   in  commodities  and  energy.  Until  clarity  is  obtained  it  is  expected  that  there  will  be  a  great  deal  of   confusion  in  this  area.  

REMIT  Rules  Overview   The   objective   of   REMIT   is   to   promote   market   integrity   and   transparency   in   the   European   gas   and   power   markets,   and   it   entered   into   force   in   December   2011.     The   EU-­‐level   Agency   for   the   Cooperation   of   Energy   Regulators   (ACER)   are   responsible   for   implementing   the   rules   with   local   National  Regulatory  Authorities  (NRAs)  enforcing  them  by  implementing  national  laws.  It  applies  to   all   physical   wholesale   gas,   power,   LNG   and   emission   trading   in   Europe,   and   derivatives   based   on   them.   REMIT   is   an   EU   level   “Regulation”,   which   each   country   must   implement.   ACER   publishes   “guidance”  on  how  it  thinks  the  rules  should  be  implemented  but  these  are  non-­‐binding.   REMIT  has  two  pillars:   Inside  Information  –  From  December  2011  it  was  prohibited  to  trade  using  inside  information.  The   information   in   scope   relates   to   physical   information   that   could   be   used   to   the   receiving   party's   advantage,   such   as   knowledge   of   an   unplanned   outage.   If   in   possession   of   such   information,   market   participants  may  only  trade  under  very  limited  circumstances.  The  approach  to  compliance  so  far  has   been   to   publish   the   information   as   soon   as   possible   usually   on   a   company   website   (known   as   the   “REMIT   Page”).   The   information   can   also   be   published   to   transparency   platforms   managed   by   certain  parties,  such  as  the  National  Grid  in  the  UK.   Prohibition  of  Market  Manipulation  -­‐  Once  REMIT  is  “implemented”  by  the  European  parliament,  it   will   be   prohibited   to   attempt   to   or   actually   manipulate   the   markets.   The   ACER   guidance   contains   many   details   of   what   comprises   market   manipulation,   divided   into:   a)   false   or   misleading   transactions,   b)   price   positioning   c)   transactions   involving   deception   and,   d)   dissemination   of   misleading  information.   In   addition   to   prohibiting   this   activity,   REMIT   requires   that   all   trade   and   fundamental   data   be   reported   to   ACER   6   months   after   the   rules   come   in.   This   gives   rise   to   the   second   trade-­‐reporting   requirement,  which  is  outlined  in  the  section  below.        

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

11    

 

       

 

       


European  Energy  Market  Regulations  

 

Timings   This  diagram  summarizes  the  various  timings  of  EMIR,  REMIT  and  MiFID  II:-­‐   15th  March  2013           15th  Sept  2013                     12th  February  2014       12th  May  2014       Q3  to  Q1  2015       15th  September   2014     Q2       Q4     Jan  2016  

Daily  Threshold  Calculation   Confirms  T+7/5       Portfolio  Reconciliation   Dispute  Resolution   Compression             EMIR  Trade  Reporting       EMIR  Backloading  (Trades  after  16th  August   2012)       OTC  Clearing  for  FCs       Remaining  EMIR  Risk  Management     REMIT  “Implemented       REMIT  Reporting  (Standard  Trades)     Beginning  of  MiFID  II  implementation.  

 

The  timetable  above  shows  a  summary  of  the  dates  as  at  the  time  of  writing.  However,  it  is  worth   noting  that  many  of  these  dates,  particularly  for  trade  reporting,  have  slipped  and  some  could  slip   again.   For   example,   REMIT   was   originally   to   be   implemented   in   June   2013.   However   this   has   not   yet   occurred  at  the  time  of  writing.  Implementation  is  now  expected  in  Q2  2014.   Reporting   is   to   start   6   months   after   implementation.   However,   this   would   require   that   the   infrastructure  is  ready.  We  recommend  that  participants  keep  a  close  eye  on  developments.

 

 

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

12    

 

       

 

       


European  Energy  Market  Regulations  

 

The  EMIR  Threshold  for  Non-­‐Financial  Counterparties   Non-­‐financial  counterparties  that  are  over  the  threshold  must  bear  more  onerous  requirements  than   those  that  are  under,  as  summarized  in  this  chart:     Trade  Reporting  

NFC-­‐   All  trades  to  be  reported  

Clearing   Timely  Trade  Confirmations  

OTC  Clearing  not  mandatory   Currently  must  confirm  within   T+4  going  to  down  T+2  in   August  2014   Must  reconcile  either  quarterly   or  annually  depending  on  size   of  portfolio   Must  compress  trades  for   portfolios  with  over  500  trades   Not  required  

Portfolio  Reconciliation  

Portfolio  Compression   Daily  Mark  to  market  

NFC+-­‐   All  trades  to  be  reported   including  daily  market  to  mark   information  and  collateral   information   OTC  Clearing  Mandatory   Currently  must  confirm  within   T+2  going  to  down  T+1  in   August  2014   Must  reconcile  daily,  weekly  or   quarterly  depending  on  size  of   portfolio   Must  compress  trades  for   portfolios  with  over  500  trades   Must  mark  to  market  or  model   daily.  

  The   requirement   to   clear,   when   it   comes   in,   could   require   a   great   deal   of   extra   capital   from   the   market  participants,  Therefore,  many  market  participants  consider  it  to  be  desirable  to  be  under  the   threshold.  

Threshold  calculation  

Since  15th  March  2013,  it  has  been  obligatory  for  NFCs  to  calculate  their  threshold  values  on  a  daily   basis  using  a  30-­‐day  average,  and  to  report  to  the  NCA  if  over.   In  order  to  be  considered  to  be  over  the  threshold,  a  market  participant  needs  to  be  over  one  of  the   following:   • • • • •

Credit  -­‐  €1bn   Equity  -­‐  €1bn   Interest  Rates  -­‐  €3bn   FX  -­‐  €3bn   Commodities  €3bn  

The   gross   notional   value   of   the   balance   of   each   number   is   taken.   There   are   however,   some   important  considerations:   Group   level   calculation   –   The   value   to   be   used   is   the   total   for   all   entities   in   the   group,   no   matter   where   they   are.     Therefore,   a   small   subsidiary   of   a   large   non-­‐EU   group   could   find   itself   over   the   threshold.   The   participant   must   calculate   each   number   for   each   group   member  and  sum  those  on  a  gross  basis  to  see  if  they  are  over.   If  the  group  company  is  in  a   third  country,  which  is  a  “recognised  regime”,  that  total  may  not  need  to  be  included.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

13    

 

       

 

       


European  Energy  Market  Regulations  

 

Hedges  –  Hedged  trades  do  not  contribute  to  the  threshold.  Hedges  under  EMIR  are  defined   as  a  trade  being  one  of  the  following:   a) The  trade  is  already  defined  as  a  hedge  under  hedge  accounting  rules  (e.g.  IAS  39)   b)  It   is   designed   to   objectively   “reduce   risk”   of   assets,   services,   inputs,   products,   commodities  or  liabilities  that  the  NFC  owns   c) It  is  designed  to  reduce  the  risk  of  a  hedge  instrument  as  defined  above   It  is  important  to  record  the  hedge  status  of  each  trade  to  determine  if  it  is  a  hedge  or  not.   NCAs   are   already   auditing   NFCs   that   are   not   over   the   threshold   and   so   it   is   important   to   record  the  hedge  reason.   What   is   a   derivative?   –   When   calculating   the   threshold   it   is   important   to   consider   which   trades  are  considered  “derivatives”  under  EMIR.  A  derivative  under  EMIR  is  in  fact  defined   under  MiFID  Annex  C.   This  definition  is  not  simple  but  is  generally  defined  as  a  trade  that  is  settled  for  cash,  but   also  as  a  trade  that  is  transacted  via  a  multilateral  trading  facility  (MTF),  which  is  particularly   important  for  physical  forwards,  which  could  otherwise  not  be  considered  thus.     Different  execution  venues,  platforms  and  brokers  may  or  may  not  be  MTFs,  and  there  is  a   current  trend  for  certain  platforms  to  delist  themselves  from  the  MTF  list.  Since  the  list  will   be  dynamic,  any  solution  to  calculate  threshold  values  will  need  to  be  able  to  cope  with  such   changes  It  is  also  worth  noting  that  many  brokers  are  offering  both  “MTF”  and  “Non”  MTF     execution  paths,  with  trading  gateways  often  offering  routes  to  brokers  via  both  methods.     There  is  also  confusion  over  what  a  “physical”  trade  is  –  must  it  be  physically  settled,  or  does   it  count  if  it  could   be  physically  settled?  The  different  clauses  of  MIFID  Annex  C  have  different   wordings.   Because   of   all   of   this   confusion,   on   February   14th   ESMA   wrote   to   the   European   Commission   asking  for  clarification  on  this  topic  (as  well  as  FX  Forwards).  Until  then,  ESMA  have  been  heard   to  say  that  they  will  not  be  enforcing  the  reporting  of  physical  trades  under  EMIR.  

If   an   intra-­‐group   trade   is   not   a   hedge   (although   it   often   will   be),   then   both   sides   of   the   trade   count  towards  the  threshold  i.e.  double  the  notional.  

 

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

14    

 

       

 

       


European  Energy  Market  Regulations  

 

Trade  Reporting   EMIR   and   REMIT   each   have   trade   reporting   requirements:   EMIR   for   OTC   and   Exchange   Traded   Derivatives,  and  REMIT  for  physical  wholesale  gas  power,  LNG  and  emissions  trades  as  well  as  their   derivatives.   EMIR  Trade  reporting  started  in  February  2014,  with  REMIT  due  in  Q4  2014.   REMIT   specifically   has   a   goal   of   “avoidance   of   double   reporting”   which   is   intended   to   remove   the   need   to   send   any   data   twice   under   both   EMIR   and   REMIT.   This   is   turning   out   to   be   difficult   in   practice.   In  this  section,  we  will  first  examine  the  trade  reporting  requirements  of  each  rule  set  and  then  bring   them  together.  

Trade  Reporting  for  EMIR     What  must  be  reported?   EMIR  requires  all  derivatives  trades  to  be  reported,  by  any  party  transacting  them.  This  is  in  contrast   with  Dodd  Frank  in  two  key  ways:   1) Dodd  Frank  only  requires  OTC  trades  to  be  reported,  EMIR  requires  Exchange  Traded  deals   (ETD)  as  well   2) Both  sides  of  the  trade  must  report,  using  the  same  Unique  Trade  Identifier  (UTI).   In  some  cases  exchange  traded  deals  can  be  reported  by  the  exchanges  themselves,  or  by  clearing   brokers  (for  a  fee).  However,  the  obligation  to  report  remains  with  the  market  participant.  Lack  of   clarity   about   this   issue,   and   about   which   Entity   IDs   to   put   into   certain   fields,   led   to   a   request   by   ESMA  to  delay  reporting  until  2015.  However,  this  was  denied  by  the  European  Commission.  The  last   minute  introduction  of  such  reporting  has  led  to  a  great  deal  of  confusion,  which  has  still  not  been   resolved.   When  deciding  what  a  derivative  is,  careful  consideration  must  be  given  to  the  type  of  instrument   and  where  it  is  executed.  This  is  discussed  in  more  detail  in  the  “calculating  the  threshold  “section.   Where  data  should  be  reported?   EMIR   trade   data   must   be   reported   to   a   registered   “Trade   Repository”   (TR),   a   third   party   who   will   make  the  data  available  to  ESMA  runs  a  trade  repository.  Several  entities  are  approved  as  TRs  at  the   time  of  writing  and  most  are  detailed  in  the  services  catalogue  at  the  end  of  this  report.     When  reporting,  market  participants  can  either  send  data  straight  to  TRs,  get  someone  else  to  do  it   on  their  behalf,  or  send  the  data  via  “Reporting  Services”.  All  of  these  options  are  considered  in  the   services  directory  at  the  end  of  this  report.   Which  data  must  be  reported?   Detailed  data  differs  per  asset  class.  However,  the  data  can  be  divided  into  the  following  categories:   Entity  Identification  –  Of  the  parties  involved  in  the  trade.  Will  include  the  reporting  entity,   counterparty  and  others  such  as  the  beneficiary  (if  not  the  counterparty)  broker  etc.     Contract   Information   -­‐   Information   about   the   deal   and   contract,   including   where   it   was   executed.  UPIs  preferred.  Could  require  a  complex  product  type  derivation.   Transaction   Information   –   Trade   level   details   such   as   quantity,   notional   etc.,   requires   the   Unique  Trade  Identifier.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

15    

 

       

 

       


European  Energy  Market  Regulations  

 

Trade   Type   Specific   Information   -­‐   Different   sets   of   fields   for   IR,   FX,   and   Commodity   etc.   Commodity  profiles  are  multi  record.   Option  Information  -­‐  Strike,  call  or  put,  etc.   Confirm  Information  –  About  the  trade  confirmation.   Clearing  Information  –  Including  the  Clearer  ID  and  time  of  clearing.   Status   –   “New/modify/cancel/termination/compression/valuation   update/other.”   –   Each   time  a  trade  changes  it  must  be  resent  with  a  new  status.   In  addition  to  the  above,  FCs  and  NFC+s  must  report  collateral  and  valuation  information  on  a  daily   basis.  However,  this  reporting  will  only  start  6-­‐months  after  the  initial  reporting  i.e.  on  12th  August   2014.   Some  details  of  this  data  are  examined  in  the  “realities  of  implementation”  section  below.   When  should  data  be  reported?   Data  typically  should  be  reported  to  a  repository  by  the  end  of  the  next  working  day.  This  includes   when   some   of   the   data,   such   as   the   confirmation   data,   is   missing.   It   should   be   sent   later   in   an   update.  Trades  executed  after  4pm  count  as  the  next  day’s  trades  in  terms  of  measuring  T+1.   Backloading   EMIR   came   into   force   on   16th   August   2012.   This   means   that   any   data   on   trades   in   existence   then   must  also  be  reported  or  “backloaded”  to  repositories.  By  implication,  it  is  important  to  locate  this   data  as  soon  as  possible.   Backloading  is  required  in  several  stages:   Trades   still   open   on   the   first   reporting   date   (i.e.   February   12th   2014)   executed   after   16th   August,  2012  –  upon  go  live  (12th  February  2014)   Trades   still   open   on   the   first   reporting   date   (i.e.   February   12th   2014)   executed   before   16th   August,  2012      –  3  months  later  (i.e.  May  12th    2014)    -­‐  although  most  backloaded  these  on   go  live   Trades  executed  after  August  16th  2012  but  that  matured  before  the  first  reporting  date-­‐  3   years  after  reporting  date   Trade   executed   before   August   16th   2012   but   that   were   still   open   on   16th   August   2012   –   3   years  after  reporting.  

Trade  Reporting  for  REMIT   Which  data  must  be  reported?   REMIT  reporting  falls  into  the  following  two  categories  at  the  highest  level:   • •

Trade  Data  –  Data  related  to  trades  and  orders   Fundamental  Data  –  Data  related  to  the  physical  state  of  the  grid,  e.g.  outages,  loads,  etc.  

Here  we  focus  on  trade  data.   REMIT   covers   Physical   Power,   Gas,   LNG   and   Emissions,   as   well   as   their   related   derivatives.   Technically,  therefore  some  of  the  derivatives  will  fall  under  both  REMIT  and  EMIR.  However,  ACER   has   put   forth   a   principle   of   the   “avoidance   of   double   reporting”.   In   theory,   this   means   that   if   you   report   data   under   EMIR   you   do   not   have   to   report   it   again   under   REMIT.   However,   since   REMIT   requires   additional   data   elements   to   EMIR,   it   is   not   yet   clear   how   and   if   this   will   work   in   practice.   ©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

16    

 

       

 

       


European  Energy  Market  Regulations  

 

Each   version   of   the   draft   implementing   Act   has   seen   a   different   approach   proposed   and   so   the   market  will  need  to  wait  for  a  final  version  in  order  to  work  out  how  to  address  this.   Where  should  data  be  reported?   ACER   will   be   collecting   all   of   the   reported   data   and   using   it   to   monitor   the   market   for   abuse.   A   system  called  “ARIS”  (ACER’s  Regulatory  Information  System)  is  being  built  for  this  purpose.   Because  of  the  large  number  of  market  participants,  ACER  do  not  wish  for  data  to  be  sent  to  them   directly,  instead,  they  need  to  be  sent  via  intermediaries  called  “Registered  Reporting  Mechanisms   (RRMs).   These   third   party   facilities   will   each   have   their   own   way   of   collecting   the   data   and   forwarding  it  to  ACER.   An  EMIR  TR  could  also  be  an  RRM,  or  it  may  not  be  one.  An  RRM  that  is  not  a  TR  could  forward  the   data  to  the  TR  as  well,  or  they  may  not.  This  is  discussed  in  the  “Data  Destinations”  section.   What  data  types  must  be  reported?   REMIT  requires  pre  trade  data,  i.e.  order  information,  to  be  reported  as  well  as  trade  data  through   the  lifecycle.  The  order  information  includes  orders  for  unexecuted  deals.   REMIT   defines   four   “Data   Views”   which   different   data   elements   required   within   each   view.   These   are:   -­‐ -­‐ -­‐ -­‐

Order  view  –  Elements  required  to  be  sent  when  an  order  record  is  sent   Execution  view  –  Elements  required  to  be  sent  when  a  trade  is  executed   Confirmation/Clearing   –   Elements   required   to   be   sent   when   a   trade   is   confirmed   and/or   cleared   Non  Standard  View  –  Elements  required  for  a  complex  “nonstandard”  trade  (see  below)  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

17    

 

       

 

       


European  Energy  Market  Regulations  

 

The  data  elements  can  be  summarized  by  this  table:    

 

Order  

Execution  

Clearing   /Confirm  

Non   Standard  

Identification    

Of   the   various   parties,   including   broker   etc.   Likely   to   require   LEIs.   Includes  market  place  ID    

P  

x  

x  

x  

Contract  

Info   about   the   deal   and   contract,   including   where   it   was   executed.   UPIs   preferred,   Could   require   a   complex  taxonomy  

p  

x  

x  

 

Order  

Order  Type  (Market,  Limit  etc.,)    

x  

 

 

 

Transaction  

Trade  level  details  such  as  quantity,   notional  etc.  +  UTI  

p  

x  

x  

p+  PDF    

Trade   type   specific  info  

Different  sets  of  fields  for  IR,  FX,  and   Commodity   etc.   For   commodity   profiles   are   multi   record.   Includes   physical  data  

 

x  

x  

 

Option  Info  

Strike  etc.  

 

x  

x  

 

Confirm  Info  

When  confirmed,  details  to  be  filled   in  

 

 

 

 

Clearing  Info  

When  confirmed,  details  to  be  filled   in  

 

 

x  

 

Status  

New/Split/Modify/Cancel/   Terminate/Other    

x  

x  

x  

x  

  The   full   field   list   is   found   in   the   document   on   the   ACER   website   at   http://www.acer.europa.eu/remit/Documents/Recommendations%20on%20REMIT%20Records%20 of%20transactions.pdf   Non  Standard  Trades   For  trades  that  are  considered  “complex”,  it  is  only  necessary  to  send  a  subset  of  23  data  elements.   In  addition,  there  is  a  requirement  to  send  a  PDF  scan  of  the  contract  to  ACER.  Details  about  how   this  will  work,  and  also  about  which  trades  are  defined  as  non-­‐standard  are  not  yet  known.  

Data  Destinations     Ultimately,  EMIR  data  must  reach  a  Trade  Repository,  and  REMIT  data  must  reach  an  RRM.  However,   there  are  several  different  combinations  and  services  available:  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

18    

 

       

 

       


European  Energy  Market  Regulations  

 

1) TR   Only   –   Some   EMIR   TRs   will   only   accept   EMIR   data.   If   choosing   one   of   these,   it   will   also   be   necessary  to  send  data  to  an  RRM  separately   2) RRM  Only  –  Similarly  some  RRMs  will  only  accept  REMIT  data   3) TRs  that  are  also  RRMs  –  some  TRs  have  committed  to  becoming  RRMs   4) RRMs  that  forward  to  TRs  –  some  prospective  RRMs  will  accept  all  data  and  forward  the  data   to  an  EMIR  RRM   5) Reporting   services   –   Some   third   party   services   are   planned   that   will   take   in   all   of   the   data   and  report  it  to  both  TRs  and  RRMs                         Advertisement  

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

19    

 

       

 

       


European  Energy  Market  Regulations  

 

Implementing  a  trade  reporting  solution   Solution  types   Every  market  participant  is  required  to  implement  a  trade  reporting  solution  in  some  form.  This  may   be  very  simple,  for  example  uploading  a  trade  spreadsheet  to  a  repository,  or  it  may  require  a  large   amount   of   engineering,   for   example   for   a   multi-­‐site   market   participant   with   several   ETRMs.   It   is   also   possible  to  delegate  the  reporting  to  another  party,  or  several  parties.   There   are   several   different   types   of   configuration   available,   which   can   be   summarized   by   these   levels:   Level  

Key  features  

Pros  and  cons  

Delegated  

Another  party  reports  on  the  market   participant’s  behalf,  This  can  either   be  as  a  specialized  service  or  in  some   cases  for  a  set  of  deals,  for  example,   an  exchange  reporting  all  trades   executed  there,  or  pre  trades  for   REMIT.   A  manual  spreadsheet/csv  upload  to   a  repository  or  reporting  service.   Some  repositories  will  offer  on   screen  trade  entry.  

+  Less  work  for  participant   +  Less  prone  to  error   -­‐No  audit  log  for   participant   -­‐  Could  be  expensive.   -­‐  Participant  is  still  liable   for  errors   +Easy  to  use  for  smaller   traders   +Good  way  to  send  trades   already  in  spreadsheets   even  for  larger  players   -­‐Lack  of  auditability   -­‐Prone  to  error   +Less  work  for  participant   +  Less  prone  to  error   -­‐  No  audit  log  for   participant   -­‐  Could  be  expensive.   -­‐  Participant  is  still  liable   for  errors   +  More  control   +  Lower  running  cost   -­‐  Could  require  a  large   project  to  set  up   -­‐  Requires  in  house   expertise  

Manual  

Outsourced  

Duty  of  reporting  outsourced  to   another  party.  The  party  will  either   have  the  most  of  data  already,  or   provide  a  simple  mechanism  to  take   the  data  The  provider  will  perform   some  tasks  such  as  data  enrichment.  

Direct  

Sending  the  data  directly  to  a   repository.  RRM  and/or  a  reporting   service.  

Typical   participant  type   Small  traders,  or   as  a  partial   solution  for  any   type  

Small  participant   with  few  trades   or  as  a  partial   solution  for  larger   participants  

Smaller  traders   that  already   execute  most  of   their  trades   outside  of  their   own   environment.   Medium  and   larger   participants  

  It   is   also   possible   to   use   a   combination   of   these   methods.   For   example,   exchange   traded   deals   could   be  sent  by  an  exchange,  and  OTC  ones  via  another  route.      

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

20    

 

       

 

       


European  Energy  Market  Regulations  

 

Required  Solution  Activities   While  this  document  is  not  intended  to  be  a  comprehensive  guide  to  building  a  reporting  solution,   here  we  identify  some  key  tasks  that  the  majority  of  participants  will  need  to  undertake  to  have  a   working  solution:   Data  sourcing  and  gap  analysis   Before   data   can   be   provided   to   any   destination,   it   must   be   sourced   from   somewhere,   be   it   the   E/CTRM(s),  trading  platform  or  spreadsheet.    It  is  important  to  perform  a  data  gap  analysis  as  early  as  possible  to  ensure  that  you  have  all  of  the   required   data   from   each   product   type   traded.   This   will   involve   going   through   each   product   type   traded,   and   for   each   field   required   (under   EMIR   or   REMIT)   ensuring   that   you   know   here   it   can   be   found.   It   is   not   sufficient   to   simply   map   to   the   source   field   in   an   E/CTRM,   It   is   also   necessary   to   ensure  that  the  business  process  in  place  updates  this  field.   Data  mapping  and  capture   There   must   be   a   mechanism   in   place   that   can   rapidly   identify   all   qualifying   trades   (new,   modified,   voided  etc.),  extract  the  required  data  items  for  reporting  purposes  from  possibly  multiple  systems,   and  format  the  data  appropriately  for  transmission  to  the  trade  repositories.  Furthermore,  the  data   must   be   validated   for   missing   items,   correct   formats   and   codes,   and   corrections   must   be   made   manually  or  automatically  prior  to  transmission.   Whatever   systems   are   in   use   to   capture   and   process   trades   including   vendor   provided,   home   grown   or   even   spreadsheet-­‐based   solutions,   they   must   contain   all   of   the   required   data   items   that   are   to   be   reported.   Furthermore,   there   must   be   processes   in   place   to   ensure   the   capture   these   data   items   for   reporting  purposes.   Configuration  choice  and  connection  mechanism   It   will   be   necessary   to   select   the   “shape”   of   configuration   choice.   It   is   possible   to   select   several   configurations;  for  example,  a  large  participant  could  report  most  OTC  and  physical  trades  directly,   but  chose  to  use  the  exchange’s  facilities  to  report  ETD,  and  to  upload  some  rarely  traded  physical   deals  manually.   If  not  outsourcing  completely  and  building  an  internal  solution,  it  will  also  be  necessary  to  select  a   connection   mechanism.   This   could   involve   either   building   one   internally,   or   purchasing   reporting   software  that  has  adapters  built  in.  The  incumbent  E/CTRM  system  may  also  have  built  in  adapters   to  one  or  more  destinations.   Data  enrichment   The  various  reporting  destinations  require  entities  and  product  to  use  standard  identifiers,  such  as   LEIs,  EICs,  UPIs,  and  ISINs  etc.  There  are  several  entity  records  for  most  deal  types,  and  each  requires   different   product   information.   In   addition,   some   other   information,   such   as   “Counterparty   status”   flags  are  required.     As   a   result,   each   trade   must   be   “enriched”   with   appropriate   standard   data.   The   difficulty   of   this   task   varies  by  number  of  trades,  trade  types  and  source  system.     Reporting  software  will  usually  offer  a  solution  to  the  issue,  which  will  be  particularly  useful  to  those   with  multiple  E/CTRMs.  In  addition,  many  of  the  outsourced  services  offer  a  partial  solution.   Pre  trade  data   REMIT   requires   that   pre   trade   information   such   as   order   information   be   forwarded   to   ACER.   The   arrangements   for   this   forwarding   are   not   yet   clear.   However,   it   is   likely   that   execution   venues   will   provide   facilities   (at   a   cost)   for   delivery   of   such   data.   Participants   should   monitor   market   developments  to  see  how  this  will  be  handled.  We  will  also  be  covering  it  in  a  later  report.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

21    

 

       

 

       


European  Energy  Market  Regulations  

 

Issues  being  encountered   This   section   outlines   some   issues   being   encountered   in   the   market   by   those   implementing   trade   reporting  solutions.  Updates  will  be  issued  regularly.   LEIs  (Legal  Entity  Identifiers)   An  LEI  is  a  globally  unique  identifier  for  counterparty.  The  LEI  initiative  also  arose  from  G20  desires   after  the  banking  crisis,  to  create  a  globally  uniform  mechanism  to  identify  an  entity  in  a  transaction.   This  eventually  led  to  the  Financial  Stability  Board  (FSB)  issuing  a  paper  and  outline  for  how  such  a   database  could  be  constructed  and  governed.  The  global  database  is  not  yet  ready,  but  a  “pre  LEI”   database  is  being  formed,  and  others  already  exists  in  the  absence  of  a  final  global  version.   EMIR  will  require  the  use  of  LEIs,  or  pre  LEIs  upon  go  live,  although  they  have  not  yet  been  defined   for  all  entities.   Market  participants  will  need  to:   -­‐ -­‐  

Add  facilities  in  place  to  map  their  existing  entity  Ids  to  LEIs   Add  facilities  so  that  it  is  possible  to  store  an  LEI  for  each  entity  going  forward.  

It   is   interesting   to   note   that   there   was   a   distinct   lack   of   LEI   registrations   on   Feb   12th,   with   a   surge   of   registrations  occurring  later.  Clearly  the  LEI  rollout  is  not  yet  complete.   The  UTI  (Unique  Trade  Identifier)   Trades  sent  to  EMIR  repositories  need  to  contain  a  52  character  UTI.  Under  EMIR,  both  sides  of  the   trade   must   send   in   a   deal   with   the   same   UTI.   The   generation   of   this   ID   and   the   workflow   around   are   leading  to  a  great  deal  of  uncertainty  at  the  time  of  writing.  In  particular:   Generation  of  the  UTI  –  There  is  no  mandatory  mechanism  for  the  generation  of  the  UTI,  which  has   been   left   by   ESMA   to   “the   industry”.   An   ISDA   working   group   is   currently   attempting   to   provide   for   a   recommended  solution  although  this  is  not  yet  final  or  accepted  by  all  in  industry. ��   The  commonly  accepted  approach  depends  on  whether  the  trade  is  executed  on  a  platform  or  not.  If   it  is,  then  the  platform  should  generate  the  ID  for  both  parties.   For   bilateral   trades,   the   consensus   is   that   the   seller   should   generate   the   ID   and   provide   it   to   the   buyer.  However  until  this  is  agreed,  the  resolution  is  as  yet  unknown.   Workflow  around  the  UTI  –  However  the  UTI  is  generated,  it  needs  to  somehow  make  it  into  one  or   both  party’s  ETRM  systems,  and  be  sent  to  a  repository.   If  the  trade  is  executed  on  a  trading  platform,  it  will  be  necessary  to  extend  the  interface  between   the  platform  and  the  ETRM  to  capture  the  UTI  before  the  trade  is  sent  to  ESMA.   For   bilateral   trades,   the   capture   of   the   ID   is   harder:   the   generating   party   must   find   a   way   of   providing  it  to  the  other  side,  and  this  will  need  to  be  electronic  since  manual  entry  of  a  52  character   code   is   not   an   option.   It   is   worth   noting   the   triOptima,   EFETNet   and   Trayport   all   have   useful   UTI   generation  tools.   The   obvious   place   for   the   code   to   come   in   is   on   the   trade   confirmation.   However,   that   may   not   arrive  until  after  the  trade  must  be  reported  to  ESMA.   In  an  update  to  the  Questions  and  Answers  on  EMIR,  that  was  issued  by  ESMA  the  night  before  go   live,   some   new   guidance   was   given   on   the   format   of   UTIs.   However   this   format   is   also   not   mandatory.   The  solution  to  the  issue  will  need  to  evolve  over  the  next  months.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

22    

 

       

 

       


European  Energy  Market  Regulations  

 

Which  rules  apply  to  a  trade?   It  is  important  to  have  a  granular  and  flexible  mechanism  to  ensure  that  trades  get  “routed”  to  the   correct  place  under  the  right  rules.   Firstly,  the  definition  of  a  derivative  under  EMIR  is  not  always  straightforward  and  subject  to  change.   The  rules  as  outlined  in  the  “threshold  calculation”  section  require:   -­‐

-­‐

A  “hedge  marker”  to  be  placed  on  all  trades  in  the  source  system.  In  some  cases,  a  rule  could   be  used  to  derive  this,  for  example  if  all  hedges  are  in  specific  portfolios.  In  other  cases,  they   will  need  to  be  marked  manually.   It  is  import  to  have  mechanism  in  place  that  can  deduce  whether  a  trade  has  been  executed   on   an   MTF.   The   list   of   MTFs   keeps   changing,   and   this   must   be   factored   into   the   solution   Furthermore   for   some   trades   executed   via   brokers   it   may   be   difficult   to   determine   the   place   of  execution  in  the  first  place.  Expect  the  recent  FCA  ruling  to  be  modified  as  well.  

  Similarly,   with   REMIT,   it   will   be   necessary   to   have   a   flexible   mechanism   in   place   in   order   to   determine  which  trades  to  cover.   Changing  requirements   As  market  participants  get  closer  to  go  live  and  further  into  their  projects,  more  detailed  issues  are   emerging.  At  the  same  time,  messages  from  regulators  repositories  and  others  give  rise  to  changes   and  intricacies.   It  is  important  to  keep  a  close  eye  on  developments.  This  can  be  accomplished  over  various  forums   including   the   website   www.enegrytradingregulation.com   and   via   updates   to   this   report   through   time.                   Advertisement  

 

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

23    

 

       

 

       


European  Energy  Market  Regulations  

 

Risk  Management   EMIR  specifies  five  different  measures  that  must  be  adopted  by  market  participants:   Timely  confirmations  –  All  trades  must  be  confirmed  (matched)  within  a  certain  timeframe   Portfolio  reconciliation-­‐  Uncleared  bilateral  trades  must  be  reconciled  between  each  set  of   parties  at  pre-­‐defined  intervals   Dispute   resolution   –   Dispute   resolution   procedures   to   be   put   in   place   for   trades   in   dispute   for  more  than  5  days   Portfolio  Compression  –  Certain  parties  must  perform  mandatory  compression  on  OTC  deals   Daily  mark  to  market/model  –  Trades  to  be  marked  to  market  or  model  by  certain  parties.   The  requirement  and  timeline  can  be  summarised  by  this  chart:   Rule   Timely   Confirmation  

Summary   Bilateral  Trades   to  be  confirmed   (and  matched)   within  the  given   timetable.    

Portfolio   Reconciliation  

Uncleared  trades   to  be  matched   periodically   between   counterparties.  

FC  

NFC+   T+1  

NFC-­‐   T+2  

Daily  for  portfolios   Quarterly  for   greater  than  500   portfolios  of   trades.     more  than  100   Weekly  for  portfolios   trades.   with  between  51  and   Annually   499  trades.   otherwise.   Quarterly  otherwise.   Dispute   All  to  have   Report   Procedures  must  be  in  place.   Resolution   processes  in  place   all   to  identify,  track   disputes   and  monitor   over  15   disputes.  Formal   days   procedure  if  more   and   than  5  days.   15M   EUR   Portfolio   OTC  trades  to  be   Twice  a  year  for  portfolios  with  more   Compression   “compressed”   than  500  trades.   periodically.     Daily  mark  to   All  trades  to  be   All  trades  that  are   Not  required.   market/model   either  marked  to   sufficiently  liquid  to  be   market  or  model   marked  to  market   on  a  daily  basis.   daily  and  the  values   sent  as  part  of  trade   reporting.  Otherwise   they  must  be  marked   to  model  and  values   sent.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

24    

 

Timing   Requirement  for  T+7/5   came  in  on  15th  March   2013.  Window  narrows   every  few  months  until   August  2014  when  the   timings  shown  here  will   be  required.   Starts  on15th  September     2013.  

Starts  on15th  September     2013.  

Starts  on15th  September     2013.    

       

 

       


European  Energy  Market  Regulations  

 

Timely  confirmation   The  timely  confirmation  requirement  of  EMIR  is  intended  to  reduce  risk  and  encourage  a  move  to   electronic  confirmations.     The  confirmation  deadline  refers  to  the  time  the  trade  is  confirmed  as  matched,  rather  than  when  it   is  sent.    

Portfolio  Reconciliation  and  Dispute  Resolution  

EMIR  requires  that  counterparties  reconcile  their  portfolios  of  uncleared  trades  from  15th  September   2013  onwards,  as  follows:   FC  and  NFC+:   More  than  500  trades:  Daily   Between  50  and  499  trades:  Weekly   49  or  less:  Quarterly   NFC-­‐:   More  than  100  trades:  Quarterly   Less  than  100  trades:  Annually.   Where  an  NFC-­‐  is  the  counterparty  of  an  NFC+  or  FC,  the  NFC-­‐  timings  apply.   Generally,  for  those  with  many  reconciliations  to  perform,  there  is  a  good  case  for  automation,  if  it   does   not   already   exist.   There   is   clearly   far   less   work   to   perform   for   an   NFC-­‐,   which   reduces   that   case   and  will  give  rise  to  the  reconciliations  being  performed  manually.   However,   NFC-­‐‘s   are   advised   to   calculate   exactly   how   long   this   will   take.   A   medium   sized   utility   with   20  counterparties  with  over  100  trades  will  still  need  to  do  20  of  these  per  quarter,  i.e.  one  every  3   working   days,   and   also   have   the   overhead   of   the   annual   reconciliations,   which   may   be   numerous.   Consideration  should  therefore  be  given  to  at  least  a  “semi-­‐automatic”  solution.  

The  reconciliation  process   In  order  to  reconcile  trades,  the  two  parties  must  exchange  the  position  each  thinks  it  has  with  the   other.   In   order   to   do   this   each   party   must   provide   data   to   the   other   so   that   it   will   be   “matched”.   (Usually   via   a   file).   The   file   will   contain   a   pre   agreed   set   of   fields,   known   as   the   “key   terms”   that   can   be   used   to   identify   a   specific   trade.   In   addition,   fields   such   as   price   and   notional   and   sometimes   mark  to  market  will  be  sent.   The  parties  then  take  each  file  and  compare  them  using  the  key  terms.  Those  where  the  key  terms   and  positions  are  the  same  are  declared  a  “match”.  If  there  is  no  match  or  a  large  difference  in  views   are   marked   in   dispute.   In   reality,   not   all   fields   will   always   match,   and   so   the   parties   declare   a   “tolerance”  for  the  key  terms.   Those   that   are   in   dispute   then   are   checked   and   if   that   cannot   be   resolved,   the   dispute   resolution   procedure  commences.  There  are  various  ways  in  which  this  may  happen:   Typical  modes  of  operation   In  general,  there  are  three  usual  modes  of  operation:   • • •

Bilateral  –  where  counterparties  exchange  files  (either  one  or  both  ways).   Third   Party   Service   provider   –   Where   a   third   party   is   involved   in   the   reconciliation,   to   organise  it  as  a  central  service.   Agent  –  Where  another  party  performs  the  reconciliation  on  the  counterparty’s  behalf.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

25    

 

       

 

       


European  Energy  Market  Regulations  

 

Bilateral  reconciliation   Before   reconciliation   starts,   counterparties   will   need   to   establish   procedures/systems   to   monitor   how  often  they  must  reconcile  with  each  entity.  This  may  vary  over  time.   Once  established,  a  reconciliation  schedule  needs  to  be  agreed  with  the  other  party  (except  for  daily   reconciliation).   On  the  day  of  the  reconciliation,  the  parties  exchange  data  files.  In  some  cases,  only  one  party  sends   the  file  for  the  other  to  check.  The  fields  contain  the  data  in  the  key  terms  as  well  as  position  data.   They   then   run   matching   processes,   using   the   key   terms   and   tolerances.   If   there   are   “breaks”,   the   parties  communicate  and  fix  them,  or  if  necessary  initiate  the  dispute  resolution  procedure.   The  matching  itself  can  be  performed  by  specialist  software,  or  using  a  spreadsheet.  Spreadsheets   can  be  complex  in  this  area,  although  the  introduction  of  the  UTI  will  make  this  task  easier.   The   benefit   of   the   bilateral   approach   is   that   it   is   simple   to   use,   especially   for   those   with   a   small   number  of  reconciliations  to  perform   The  drawback  is  that  any  counterparty  with  more  than  a  handful  of  reconciliations  to  perform  will   need   to   send   a   large   number   of   files   to   different   counterparties   on   the   correct   dates.   This   can   become   logistically   complex   and   lead   to   operational   risk,   and   the   wrong   fields   being   sent   to   the   wrong  places,  risking  a  breach  of  confidentiality.   Third  Party  Service  Provider   An   alternative   of   bilateral   reconciliation   is   to   use   a   third   party   to   assist   in   the   process.   –Using   this   method  a  third  party  service  such  as  the  triResolve  service  provided  by  TriOptima  is  used  centrally  to   organise   reconciliation.   They   do   not   however,   perform   the   reconciliation   from   a   legal   perspective.   They  simply  organise  the  process  and  make  it  easier  than  a  bilateral  reconciliation.   When  using  the  service  provider  model,  each  subscriber  sends  a  file  on  a  regular  basis  to  the  service   provider,  containing  data  regarding  other  subscribers.   The   service   then   calculates   how   often   reconciliation   is   necessary   and   performs   the   appropriate   scheduling.   It   then   performs   the   matches   and   informs   the   subscribers   of   any   disputes,   after   following  a  prescribed  process.   There  are  several  benefits  to  this  approach:  Firstly,  only  one  set  of  data  needs  to  be  sent  for  all  of   the  subscribing  counterparties.  This  greatly  reduces  operational  risk  and  the  logistical  overhead.   The   second   benefit   is   that   the   service   will   provide   scheduling   services   on   behalf   of   the   client.   This   removes   the   scheduling   overhead   of   the   bilateral   approach.   A   service   provider   will   be   able   to   optimise  the  schedule  whilst  taking  into  consideration  all  of  the  subscribers  simultaneously.   Agent   Using   this   paradigm   a   third   party   performs   the   reconciliation   on   the   participant’s   behalf.   The   entire   process  is  outsourced  to  another  party,  who  perform  the  reconciliation  on  their  behalf.  They  will  be   given   the   portfolio   to   reconcile   and   advise   of   disputes   if   they   arise   and   cannot   be   resolved   by   the   agent  themselves.   Contractual  Changes  required  for  Portfolio  Reconciliation  and  dispute  resolution   Market   participants   are   required   to   amend   their   ISDA  and   other   contracts   in   order   to   accommodate   these   changes,   the   contract   should   encompass   the   new   protocols   that   permit   information   sharing   for   the   appropriate   key   terms   in   order   to   reconcile,   as   well   as   requiring   the   reconciliation   to   take   place.     See  the  ISDA  website  for  more  details.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

26    

 

       

 

       


European  Energy  Market  Regulations  

 

Portfolio  Compression   Portfolio   Compression   is   the   process   of   reducing   the   number   of   trades   in   a   portfolio   whilst   maintaining  a  risk  equivalent  position.   Reducing  “unnecessary”  trades  with  a  counterparty  reduces  credit  risk  and  settlement  risk.   EMIR   mandates   compression   for   FCs   and   NFC’s   every   six   months   for   counterparty   portfolios   with   more  than  500  trades.  EMIR  also  “encourages”  compression  wherever  possible.   Compression   is   not   always   easy   or   desired   by   all   in   an   organisation,   although   it   is   desired   by   the   credit  department  and  has  many  benefits  once  in  place  in  terms  of  risk  management.   Compression  can  be  performed  either  bilaterally  or  multilaterally.   Bilateral  Compression   When  one  counterparty  attempts  compression  directly  with  another,  there  are  several  steps:   1-­‐ Identify   counterparties   –   It   is   necessary   firstly   to   identify   which   counterparties   are   being   compressed  with  and  when  to  schedule  them  for.   2-­‐ Identify  areas  for  compression  –  An  analysis  of  the  portfolio  must  be  carried  out  in  order  to   determine  which  trades  may  be  compressed,  if  any.   3-­‐ Agreement  of  compression  –  the  two  entities  must  then  agree  the  set  of  trades   4-­‐ Execute   compression   –   execution   of   a   compression   involves   terminating   the   deals   being   compressed,  and  replacing  them  with  new  ones.     5-­‐ Mark  trades-­‐  The  new  trades  must  be  marked  as  “resulting  from  compression”  in  EMIR  trade   reporting.  The  ETRM  system  will  need  to  record  this  as  a  reason  for  the  trade.   Multilateral  Compression   Compression  involving  several  parties  can  be  a  great  deal  more  effective  than  bilateral  compression.   Multilateral  compression  involves  viewing  the  trades  between  all   of  the  counterparties  in  a  group,   and  then  reducing  them  down  as  much  as  possible  using  a  combination  of  trades  and  closures.  The   more  parties  involved  in  a  compression,  the  more  benefit  it  will  have.   TriOptima‘s   triReduce   service   offers   such   a   service,   both   within   the   energy   industry   and   within   banking.   Multilateral  compression  involves  the  following  steps;   1-­‐ Set   calendar   –   multilateral   compressions   take   place   periodically   (typically   quarterly   depending  on  market  characteristics).   2-­‐ Send  in  trade  portfolio  –  each  party  sends  in  candidate  trades  with  the  other  entities  in  the   group   to   the   service.   Nominate   trades   –   each   party   agrees   to   the   compressions   from   the   suggestion  list   3-­‐ Dress  rehearsal  –  on  a  specific  day,  the  compression  is  “simulated”  by  all  parties   4-­‐ Execution   –   On   a   nominated   day,   all   of   the   agreed   trades   are   closed   out   and   new   ones   created.  Service  suggests  trades  –  the  service  will  suggest  which  trades  can  be  compressed,   which  trades  will  need  to  be  closed  out  and  which  new  ones  created       A   typical   cycle   lasts   two   weeks,   with   trade   submission   and   matching   in   the   first   week,   and   dress   rehearsal  and  live  execution  in  the  second  week.   As  with  bilateral  compression,  all  trades  resulting  from  a  compression  must  be  marked  and  reported.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

27    

 

       

 

       


European  Energy  Market  Regulations  

 

Is  it  worth  compressing  if  it  is  not  mandatory?   As  outlined  above  there  are  many  benefits  to  compression,  in  particular  credit  risk  reduction.  One   other  benefit  that  applies  in  particular  to  non-­‐financial  counterparties,  is  the  reduction  in  total  Gross   Notional  Value.  By  compressing  enough  trades,  an  NFC-­‐  may  be  taking  them  further  away  from  the   threshold,  which  could  be  considered  a  great  advantage.  Other  benefits  include:   o o o

Capital  cost:  With  the  Basel  III  leverage  ratios  it  is  quite  beneficial  to  reduce  gross   notional   Balance  sheet:  Compression  also  reduces  gross  mark-­‐to-­‐market,  which  under  IFRS   accounting  will  decrease  your  balance  sheet   Operational   costs   and   risks:   Compression   leads   to   fewer   trades   that   needs   to   be   processed   through   its   lifecycle,   i.e.   fewer   lifecycle   events   like   scheduling,   settlements,   payments,   etc.   to   process,   where   each   step   has   a   cost   and   risk   associated  

Daily  mark  to  market/model   All  FCs  and  NFC+s  are  required  to  mark  all  trades  to  market  daily.  If  this  is  not  possible  then  trades   must  be  marked  to  an  approved  model.   It  is  also  necessary  to  report  these  valuations  daily,  as  part  of  trade  reporting,  six  months  after  the   initial  reporting  date.    

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

28    

 

       

 

       


European  Energy  Market  Regulations  

 

European  Regulatory  Solutions  Directory   We   have   made   an   effort   to   identify   a   variety   of   possible   solutions   for   the   European   Regulatory   environment  and  assembled  this  directory.  This  is  most  certainly  not  the  total  picture  and  we  will  add   to  it  through  time  to  try  to  keep  it  up  to  date.  Please   note   that   the   product   descriptions   are   often   lightly   edited   versions   of   the   vendor’s   web   content   associated   with   the   product   and   we   are   not   responsible   for   any   errors   in   this   content.   Please   also   see   the   CTRMCenter   software   directory   at   http://www.ctrmcenter.com.    

Types  of  service  and  software   There  are  a  variety  of  services  and  software  that  can  be  considered  when  implementing  trade-­‐ reporting  solutions:   Trade  Repositories  –  Trade  Repositories  that  have  applied  under  EMIR.     Reporting  Services  –  Third  party  services  to  which  data  can  be  reported  and  sent  on  to  a  TR   or  RRM.  In  most  cases  these  will  be  acting  as  RRMs   Specialist  Reporting  and  aggregation  software  –  Software  specifically  designed  to  take  in   data  from  one  or  more  sources  including  ETRMs  and  reference  data  systems  and  send  it  to   one  or  more  Trade  Repositories  and  /or  reporting  services   ETRM  offerings  –  Adapters  from  ETRM  vendors  that  link  their  systems  (only)  to  one  or  more   destinations.   Exchange  Offerings  –  Exchanges  offering  to  report  information  about  deals  executed  there.     Trade  Repositories     A  number  of  organizations  applied  to  ESMA  for  registration  as  Trade  Repositories  including;     • • • • • • • •

the  CME  Group,     the  London  Stock  Exchange,     Intercontinental  Exchange  (ICE)  Trade  Vault,     REGIS-­‐TR,     LSE  Unavista   The  Independent  Data  Repository,     KDPW-­‐TR  and,     The  Depository  Trust  and  Clearing  Corporation  (DTCC).    

Those  in  bold  have  so  far  been  approved  by  ESMA.   It  is  interesting  to  note  the  provenance  of  several  of  these  applicants  as  some  already  act  as  Swap   Data   Repositories   in   the   USA   and   others   as   approved   reporting   mechanisms   under   MiFID.   All   of   these  entities  plainly  have  some  degree  of  experience  in  collecting  and  storing  trade  data.   In   the   USA,   Swap   data   repositories   (“SDRs”)   were   new   entities   created   by   the   Dodd-­‐Frank   Wall   Street  Reform  and  Consumer  Protection  Act  (“Dodd-­‐Frank  Act”)  in  order  to  provide  a  central  facility   for  swap  data  reporting  and  recordkeeping.    Some  seven  entities  applied  to  become  SDRs  but  two   applications   were   later   withdrawn   and   a   third   does   not   cover   commodities   as   an   asset   class.   The   four   remaining   include   BSDR   LLC,   CME,   DTCC   and   ICE   where   BSDR   LLC   is   a   new   entity   specifically   created   for   the   purposes   of   becoming   an   SDR.   CME,   DTCC   and   ICE   are   all   applying   for   registration   under  EMIR  too.   ©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

29    

 

       

 

       


European  Energy  Market  Regulations  

 

LSE   has   some   experience   as   regional   trade   repositories   for   MiFID.   Only   REGIS   –TR   and   the   Independent  Trade  Repository  Ltd.  have  no  real  prior  track  record  having  been  specifically  set  up  for   EMIR,  although  with  a  test  system  having  been  live  already  for  several  months;  REGIS  TR  is  proving   to  be  popular.  KDPW-­‐TR  is  the  central  securities  depository  of  Poland  and  has  some  experience  of   working  with  large  amounts  of  trade  data  as  a  result.  

CME  Group   The   CME's   Swap   Data   Repository   Service   already   provides   public   data   on   swap   transactions   and   stores   confidential   trade   and   position   data   for   regulatory   purposes,   in   accordance   with   the   Dodd-­‐ Frank  Act.  The  CFTC  approved  its  repository  service  as  a  swap  data  repository  (SDR)  for  credit  default   swaps,  interest  rate  swaps,  commodities  and  foreign  exchange  asset  classes.     CME  Europe's  cross-­‐asset  trade  repository  solution  is  to  launch  on  1st  January  2014  in  line  with  the   first   reporting   requirements,   In   addition   to   operating   for   CME's   global   clearing   and   execution   facilities,   it   will   accept   non-­‐cleared   bilateral   OTC   and   exchange   trades   executed   anywhere   in   the   market.   The  CME  Repository  Service  leverages  the  CME  ClearPort  front-­‐end,  a  gateway  to  CME  reporting  and   clearing   post-­‐trade   services.   This   common   point   of   connectivity   offers   messaging   efficiency   and   lower  maintenance  costs.  

LSE   The  London  Stock  Exchange  Group  also  has  applied  to  ESMA  for  its  UnaVista  platform  to  be  a  trade   repository   across   all   asset   classes  for   both   exchange   traded   derivatives   and   OTC   derivatives.     UnaVista  currently  operates  as  a  European  Approved  Reporting  Mechanism  (ARM)  under  the  MiFID   regime   for   all   asset   classes   and   markets.   LSE   believes   that   by   becoming   a   trade   repository   for   all   asset  classes  across  all  venues,  its  customers  will  only  need  to  connect  once  to  meet  both  their  EMIR   and  MiFID  reporting  requirements.     As   a   MiFID   Approved   Reporting   Mechanism   (ARM),   UnaVista   already   reports   c1   billion   multi-­‐asset   transactions   annually   to   multiple   regulators,   including   over   300   million   derivatives   on   behalf   over   600   clients.   As   a   hosted   central   utility,   UnaVista   will   utilize   its   inbuilt   reconciliation   engine   to   facilitate   the   ESMA   requirement   for   contract   details   to   be   reconciled   before   reporting   to   the   various   different  trade  repositories  

ICE   ICE   has   decided   to   establish   ICE   Trade   Vault   Europe   Limited   (ICE   Trade   Vault   Europe)   as   a   Trade   Repository   (TR)   for   the   reporting   of   derivatives   trade   data   to   meet   requirements   of   the   European   Market   Infrastructure   Regulation   (EMIR).   It   plans   to   serve   the   commodities,   credit,   interest   rate   and   foreign  exchange  asset  classes.   In   June   2012,   ICE   Trade   Vault,   LLC   (ICE   Trade   Vault   US)   became   the   first   Swap   Data   Repository   (SDR)   in  the  U.S.  to  receive  provisional  regulatory  approval  from  the  CFTC  and  the  Vault  began  accepting   credit   default   swaps   trade   data   in   October   2012   followed   by   commodities   trade   data   in   February   2013.  Since  its  inception,  ICE  Trade  Vault  US  has  already  accepted  around  fifteen  million  trades.   Since   ICE   provides   direct   access   to   the   core   energy   and   commodity   market   infrastructure,   it   believes   itself   to   be   a   qualified   trade   repository   for   those   markets.   Through   the   ICE   trading   platform   and   clearing   houses,   as   well   as   ICE   eConfirm,   ICE   sees   an   opportunity   to   simplify   workflows   and   trade   data   reporting   requirements   for   market   participants,   helping   its   customers   achieve   efficient   and   cost-­‐effective  compliance  with  evolving  regulations.    

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

30    

 

       

 

       


European  Energy  Market  Regulations  

 

Utilizes   ICE   eConfirm   as   the   front-­‐end   application   for   counterparties   to   submit   data   to   ICE   Trade  Vault,  thereby  enabling  market  participants  to  use  their  long-­‐established  connectivity   solutions  with  fewest  modifications  possible   Distributes  real-­‐time  trade  data  to  market  participants  and  provides  historical  data  for  online   viewing   and   access.   Participants   will   control   permissions   for   regulatory   reporting   purposes   as  well   Features  a  high-­‐performance,  scalable  data  warehouse  and  reporting  platform  

ICE  is  likely  to  also  act  as  an  RRM.    

REGIS-­‐TR   REGIS-­‐TR   is   a   European   trade   repository   created   as   a   joint   venture   by   Clearstream   Banking   S.A.   (Deutsche   Börse   Group)   and   Iberclear   (Bolsas   y   Mercardos   Españoles).   Its   services   have   been   operating  live  since  2010.    Derivatives  based  on  interest  rates,  foreign  exchange,  commodities  and   equities   are   currently   eligible   for   registration   at   REGIS-­‐TR,   which   will   enable   full   compliance   with   EMIR   for   all   asset   classes   and   listed   derivatives   before   the   reporting   obligation   comes   into   places.   Key  characteristics  of  REGIS-­‐TR  are  as  follows;   • • • • • • •

European  provider,  fully  compliant  with  EMIR,  with  a  Financial  Market  Infrastructure  (FMI)   license   Co-­‐owned   by   two   neutral   securities   services   infrastructures,   providing   services   from   Luxembourg,  holding  data  exclusively  in  the  EU   One-­‐stop-­‐shop  for  the  registration  of  all  types  of  derivatives  on  all  asset  classes   Flexible  access  for  all  types  of  counterparties  (financial  and  non-­‐financial  entities)   Competitive   price   list   allowing   full   price   transparency   and   predictability.   Fee   caps   for   all   users   Commitment  to  be  a  REMIT  RRM   Flexible   trade   delivery   mechanism   spanning   simple   upload   of   csv   files   to   a   web   services   based  XML  sending  mechanism.  

  REGIS-­‐TR   will   enable   full   compliance   with   EMIR’s   derivatives   reporting   requirements.   However,   it   also   allow   customers   to   meet   their   obligations   for   transaction   reporting   under   the   Markets   in   Financial  Instruments  Directive  (MiFID),  the  Regulation  on  Energy  Market  Integrity  and  Transparency   (REMIT)   and   repo   agreements   and   securities   lending   reporting   under   the   Capital   Requirements   Directive  (CRD  IV).   In   addition   to   its   statutory   trade   repository   activities,   REGIS-­‐TR   may   also   offer   its   clients   extra   services  such  as  electronic  matching  and  confirmation  services,  independent  valuation  services  and   exposure  management.   REGIS-­‐TR   and   TriOptima   have   also   recently   announced   that   they   will   provide   portfolio   reconciliation   of   REGIS-­‐TR’s   trade   repository   data   with   data   in   TriOptima’s   triResolve   reconciliation   service   for   OTC   derivatives  as  requested  by  their  clients.  

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

31    

 

       

 

       


European  Energy  Market  Regulations  

 

The  Independent  Trade  Repository   CapitalTrack,  a  vendor  of  a  data  transfer  database  and  network,  Capital  Market  Daily  Portal,  a  data   network,   technology   and   services   vendor,   and   Fincore,   a   software   vendor,  have   established   a   new   company,  Trade  Repository,  and  hope  to  win  ESMA  approval  for  its  Independent  Trade  Repository   product.   The   Independent   Trade   Repository   will   allow   users   to   submit   the   details   of   their   trades   on   spreadsheets   to   its   online   database.     The   Independent   Trade   Repository   believes   that   it   will   be   particularly   attractive   to   market   participants   because   it   is   not   affiliated   to   a   clearinghouse   and   because  the  companies  operating  it  have  an  expertise  in  data  management.      

DTCC   DTCC’s  Global  Trade  Repository  (GTR)  Service  provides  full  coverage  of  all  cleared  and  uncleared  OTC   derivatives  products  within  each  major  asset  class.  Trade  submissions  will  be  supported  for  100%  of   products   traded   in   each   asset   class   regardless   of   whether   trade   is   electronically   processed   or   bespoke  –  paper  confirmed.   A   customer   of   a   Repository   may   selectively   elect   to   enable   reporting   for   one   or   more   jurisdiction/regulation   that   is   supported   by   that   Repository.   For   example,   a   member   of   the   DDRL   legal  entity  may  elect  to  report  to  any  combination  of  ODRF,  HKMA,  CSA,  and  ESMA.   The   above   TR   entities   can   also   be   registered   as   foreign   TR   in   other   jurisdictions,   e.g.   Canada   and   Australia.   The   GTR   service   supports   a   multitude   of   data   submissions   including   real-­‐time   price   reporting,   transaction  details,  confirmation  records,  and  valuation  data.   The   GTR   service   provides   open   access   to   third-­‐party   providers   to   promote   efficient   reporting   processes  –  this  includes:   • • • • • •

Electronic  Execution  Platforms   Confirmation  Providers   Clearing  Houses  (CCPs)   Inter-­‐dealer  brokers   Custodians   Any  other  middleware  providers  

The   GTR   is   brought   to   the   energy   industry   by   EFETNet   who   have   partnered   with   DTCC   in   the   US   and   will  offering  forwarding  of  trades  under  EMIR  to  the  repository  via  the  eRR  service.    

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

32    

 

       

 

       


European  Energy  Market  Regulations  

 

KDPW-­‐TR   On  2  November,  the  Central  Securities  Depository  of  Poland  (KDPW)  launched  the  trade  repository   service  (KDPW_TR)  in  response  to  Regulation  No.  648/2012  of  the  European  Parliament  and  of  the   Council   of   4   July   2012   on   OTC   derivatives,   central   counterparties   and   trade   repositories   (“EMIR”).   According  to  Article  48.5a  of  the  Act  on  Trading  in  Financial  Instruments  of  29  July  2005  as  amended   by  adding  provisions  concerning  novation,  the  Central  Securities  Depository  of  Poland  (KDPW)  may  –   under  the  rules  set  out  in  separate  rules  –  collect  and  store  information  concerning  trade  in  financial   instruments  and  information  concerning  such  instruments.  The  detailed  operating  rules  of  KDPW_TR   are  set  out  in  the  Trade  Repository  Rules.        

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

33    

 

       

 

       


European  Energy  Market  Regulations  

 

Reporting  Services    

NASDAQ  OMV     NASDAQ   OMX   already   provides   a   service   for   Nordic   Market   Participants   for   MiFID   trade   reporting   (TRS)  to  local  Financial  Supervisory  Authorities  (FSA)  and  will  extend  this  reporting  service  to  cover   EMIR  derivative  reporting  to  Trade  Repositories.   It  offers  its  members  reporting  services  regarding:   • • • • • •

Establishing  connectivity  with  relevant  Trade  Repositories   Reporting  of  derivatives  contracts  traded  and  cleared  on  NASDAQ  OMX’s  markets   Reporting  of  OTC  derivatives  transactions  that  are  not  traded  or  cleared  by  NASDAQ  OMX   Ability  for  members  to  append  required  data  to  derivatives  transactions  for  reporting   Daily  updates  to  the  Trade  Repository  of  collateral  and  mark-­‐to-­‐market  valuations   Reporting  feedback  of  submitted  reports  

NASDAQ  OMX  further  aims  to  extend  its  service  to  include  reporting  obligations  under  REMIT  for  the   energy  market.     It   provides   the   option   of   full   service   reporting   of   all   required   data   and   a   complimentary   reporting   service  where  NASDAQ  OMX  and  the  Customer  jointly  complete  the  reports.   For  derivatives  cleared  with  NASDAQ  OMX  where  the  Market  Participant  keeps  position-­‐segregated   accounts   per   beneficial   owner,   NASDAQ   OMX   can   complete   the   Trade   Repository   report   with   all   required   data   without   the   need   for   interaction   from   the   Customer.   For   Customers   with   a   setup   where   NASDAQ   OMX   does   not   have   access   to   all   required   data   or   where   the   Customer   selects   to   submit  its  own  reports  to  a  Trade  Repository  but  need  NASDAQ  OMX  to  complement  their  reports   with  some  data,  it  will  offer  a  partial  reporting  service  according  to  the  alternatives  described  below:   •

For  Customers  that  connects  to  a  Trade  Repository  themselves  for  reporting,  NASDAQ  OMX   will   duplicate   the   missing   data   at   the   Trade   Repository   to   the   report   created   by   the   Customer.   Alternatively,   the   Customer   can   complete   partial   reports   created   by   NASDAQ   OMX   and   submit   the   reports   to   the   Trade   Repository   through   NASDAQ   OMX.   This   option   does   not   require  direct  connectivity  to  a  Trade  Repository  for  the  Customer.   OTC   derivatives   transactions   that   are   not   traded   or   cleared   by   NASDAQ   OMX   may   also   be   submitted   via   the   service   interface.   This   option,   also,   does   not   require   direct   connectivity   to   a  Trade  Repository  for  the  Customer.  

The  service  is  provided  with  a  flexible  interface  where  the  Customer  can  select  to  interact  with  the   service   via   a   provided   application   or   by   uploading   fixed   formatted   files.   The  Trade  Repository  application  is  a  desktop  application  that  enables  the  Customer  to  perform  the   following  activities:   • • • •

View  status  of  submitted  reports   View  status  of  individual  reported  transactions   Search  for  historical  reports   Review  and  confirm  NASDAQ  OMX  generated  reports  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

34    

 

       

 

       


European  Energy  Market  Regulations  

• • •

 

Complement   partial   NASDAQ   OMX   generated   reports   with   additional   data   before   submission   Create  new  transactions  for  reporting   Export  data  to  external  systems  

Vendor  –  Nasdaq  OM   http://www.nasdaqomx.com/europeanclearing/traderepositoryservices/    

EFETnet  eRR   EFETnet’s  electronic  Regulatory  Reporting  (eRR),  is  an  industry  wide  solution  to  an  industry   wide  problem;    implementation  of  regulatory  reporting  requirements  is  having  a  significant   impact  on  the  wholesale  European  energy  market.  Operational  processess  and  systems  are   under   pressure   because   of   the   changing   regulation   and   investments   in   IT   are   inevitable   to   comply   with   all   regulatory   reporting   obligations.  EFETnet   developed   eRR,    a   single   standardized  interface  for  regulatory  reporting,  delivering  reporting  compliance  for  REMIT,   EMIR,   MIFID,   CRD   IV   etc.   eRR   operates   through   a   single   open   industry   standard   interface   providing  connectivity  to  the  different  regulatory  repositories.     eRR   will   be   offered   as   an   add   on   to   EFETNet   ‘s   confirmation   matching   service,   which   is   already  used  widely  in  the  industry.  Trade  information  will  be  sent  using  the  same  protocol   and  format  and  for  confirmation  matching.  Trade  information  will  only  need  to  be  sent  once   for  both  confirmation  and  regulatory  reporting.   EFETNet   uses   the   CpML   format   to   represent   trades.   In   order   to   encourage   that   use   of   this   format   as   a   standard,   its   management   is   now   being   given   to   an   independent   body   run   by   EFET   and   the   CIO   Council.   This   will   permit   other   vendors   to   use   CpML   in   order   to   encourage   interoperability.  The  initiative  to  carry  this  out  has  already  begun.     Vendor  –  EFETnet   http://www.efetnet.org    

TrayPort  Complete   Trayport   Complete   is   designed   to   reduce   the   operational   costs   and   delays   associated   with   trading  energy  commodities.  The  Complete  suite  of  real-­‐time  solutions  will  provide  market   participants   with   transparency   and   control   over   their   post-­‐trade   activity.  With   Complete,   users  will  be  able  to  accurately  manage  and  monitor  their  post-­‐trade  workflows  across  the   160+   markets   accessible   through   Trayport's   platform   immediately   following   the   trade.   Complete  will  be  seamlessly  integrated  with  existing  Trayport  products  and  will  enable  users   to:  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

35    

 

       

 

       


European  Energy  Market  Regulations  

 

Clear  –  Users  can  see  the  status  of  trades  in  real-­‐time  across  all  clearing  houses  and   counterparties  on  the  Trayport  network  through  one  screen.  Complete  Clear  is  live   and  available  for  CME  ClearPort,  LCH,  MEFF,  NOS  and  SGX.  Connectivity  to  European   Commodity  Clearing  AG  (ECC)  and  OMIClear  will  be  announced  in  the  coming  weeks   Confirm  –  Users  will  be  able  to  confirm  standardized  terms  of  a  trade  immediately   post   execution   with   up   to   400   counterparties   and   17   brokers   on   the   Trayport   network.   Complete   Confirm   will   enable   users   to   define   their   own   confirmation   processes   and   workflows   to   meet   their   internal   requirements.   This   will   improve   efficiency,  optimize  workflows  and  reduce  operational  risk  and  the  processing  costs   associated  with  energy  trading.   Report   –   Users   will   be   able   to   report   as   close   to   real   time   as   they   choose   to   European   regulatory   authorities   and   trade   repositories.   Complete   Report   will   be   designed  to  satisfy  REMIT  and  EMIR  regulatory  reporting  obligations  at  the  point  of   execution.  Further  reporting  obligations  and  jurisdictions  will  be  added  in  the  future.   Control  –  With  Complete  Control,  users  will  be  able  to  manage  post-­‐trade  execution   with   transparency   and   control.   The   real-­‐time   monitoring   application   will   allow   all   counterparties   to   the   trade   to   track   the   progress   of   their   trade   and   immediately   identify  and  resolve  any  questionable  trades  at  the  point  of  execution,  significantly   reducing  operating  risk  and  cost.  

Vendor  –  Trayport   http://www.trayport.com     Specialist  Reporting  and  aggregation  software  

  BroadPeak  -­‐  K3     BroadPeak  is  an  integration/ETL  software  firm.    Its  flagship  product,  K3,  is  a  low  latency,  fully  audited   integration/ETL  platform  for  simplifying  trading  integration.    Used  in  production  at  banks,  trading   merchants  and  hedge  funds,  K3’s  low  latency  integrations  with  Exchanges,  Trade  Repositories,  Price   Sources  and  ensure  audited,  transparent  and  correct  delivery  of  data  payloads.   K3  has  current  off  the  shelf  integrations  for  both  Dodd-­‐Frank  and  EMIR  compliance.    Purpose  built  to   meet  FC,  NFC+  and  NFC-­‐  reporting  demands,  K3’s  off  the  shelf  connections  include,  ICE  Trade  Vault,  CME,   DTCC  and  Regis-­‐TR.      K3  also  has  existing  connections  to  most  ETRM  systems  including,  OpenLink,   Triplepoint,  Amphora,  Allegro,  Eka,  Sungard  and  Brady.      For  ad-­‐hoc  reporting,  BroadPeak  also  offers   cloud  based  drop  copy  service  that  allows  users  to  drop  an  Excel  sheet  of  trades  into  a  local  folder  that  is   picked  up  by  K3  for  routing  and  transformation  to  the  TR  of  choice.    

Vendor  –  BroadPeak  Inc   www.broadpeakpartners.com   info@broadpeakpartners.com  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

36    

 

       

 

       


European  Energy  Market  Regulations  

 

EMIR-­‐ate.com   emir-­‐ate.com  is  a  service  provided  by  Treamo  Business  Consulting  GmbH.  and  is  a  cloud-­‐based  SaaS-­‐ solution   that   helps   corporates   comply   with   the   reporting   requirements   of   EMIR.   It   interacts   with   existing   systems   and   tools   (TMS,   spreadsheets,   trading   platform)   as   well   as   with   the   Trade   Repository.  It  is  a  service  that  ensures  EMIR  compliance  at  the  press  of  a  button.     The   trades   will   be   reported   via   XML   files.   At   the   moment,   the   Trade   Repository   requires   approx.   five   minutes   for   the   return   message   that   either   confirms   the   correctness   of   data   or   contains   a   list   of   errors.  EMIRate  will  convert  these  status  messages  in  an  understandable  format  and  will  present  the   result   of   the   return   message   in   the   list   of   trades,   where   users   can,   for   example,   filter   all   those   transactions,   which  have   been   sent   but   not   yet   acknowledged.   The   same   also   applies   to   messages   regarding  the  reconciliation  status.     Vendor  –  Treamo  Business  Consulting  GmbH     http://www.emir-­‐ate.com      

DeltaconX/Tradelogic   DeltaconX   Captures   the   compliance   data   held   in   your   trading,   financial,   and   logistical   systems,   transforms  them  into  the  correct  message  structures,  and  routes  them  to  the  appropriate  regulatory   reporting  destination  such  as  Trade  Repositories,  CCPs,  RRMs,  ARMs,  and  ACER.  Response  and  status   messages  are  captured  as  part  of  the  submission  process  and  relayed  back  to  the  source  systems.  A   full   audit   trail   of   data   processing   and   transfers   is   maintained.   There   is   no   need   to   upgrade   your   trading  system  as  all  the  required  and  missing  data  can  be  added  directly  in  DeltaconX.   DeltaConx  is  being  offered  to  the  market  together  with  TradeLogic  as  implementation  partners.   Vendor:  CH  Consult  GmbH   http://www.deltaconx.com    

Finalyse   FINALYSE   offers   an   automated   solution   for   the   new   European   Market   Infrastructure   Regulation   (EMIR).   This   solution   can   be   easily   implemented   on   site   or   externalized   towards   Finalyse   (Third   Party).     The  goal  of  this  solution  is  to  allow  customers  to  be  EMIR  compliant  with  a  minimum  of  investment   costs   and   to   benefit   from   our   expertise   in   terms   of   European   regulation   and   implementation   solutions.     The  main  advantages  of  the  solution  are:  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

37    

 

       

 

       


European  Energy  Market  Regulations  

 

EMIR  Compliant  Data  Model   Our  EMIR  data  model  is  compliant  with  the  new  regulatory  standards  of  the  European   Securities  and  Markets  Authority  (ESMA)  and  is  built  according  to  the  most  modern  and   advanced  data  model  design  techniques  (full  auditable,  security  and  normalization).   Furthermore,  it  will  store  a  complete  history  of  all  transactions.   Automated  Data  Quality  Checks   Our  EMIR  data  model  is  verifying  the  data  for  completeness  and  is  transforming  the  client’s   specific  naming  conventions  into  the  EMIR  required  taxonomy.  Specific  data  quality  errors   are  monitored  and  reported  for  improvement.   Automated  Reporting  to  Trade  Repository   Our  solution  is  an  automated  process  flow  for  the  reporting  of  modifications,  valuations  and   trade  terminations  towards  one  of  the  major  trade  repository  systems.  Furthermore,  the   process  reports  information  coming  back  from  the  TR  (e.g.  uncommitted  trade  reports).       Easy  Implementation  or  Full  Outsourcing   Finalyse’s  solution  for  EMIR  consists  of  a  data  model  concept  and  process  flow  which  can  be   easily  implemented  on  site.  The  remaining  workload  is  to  build  a  bridge  between  our  ready-­‐ to-­‐use  solution  and  the  client’s  internal  data  system(s).  Furthermore,  customers  can   delegate  the  reporting  as  well  towards  Finalyse,  which  will  act  as  Third  Party.                                                       Vendor  –  Finalyse   http://www.finalyse.com    

Seven2one   Steria  Mummert  Consulting  AG  and  Seven2one  Informations  systeme  GmbH  offer  companies  subject   to   reporting   requirements   a   mature,   holistic   solution   for   secure,   transparent   and   cost   efficient   reporting  that  is  fully  compliant  with  the  EMIR  and  REMIT  regulations.   The  solution  includes;     • • • • • • • • • • • •

EMIR/REMIT  compliant  data  model   Automated   collection   of   data   from   upstream   systems   and   reporting:   any   data   format   possible,  no  adaptation  required   Stable,  automated  and  auditable  reporting  processes   Integrated  data  quality  checks  ensure  highest  data  quality   Simple  and  transparent  monitoring  of  data,  processes  and  reports   Easy  implementation  in  your  own  company,  full  outsourcing  or  SaaS   Can  be  expanded  to  comply  with  future  reporting  requirements  (e.g.  MiFID,  Bafin)     Secure  investment  with  added  value  and  full  cost  control  (fixed  price  offer)   Wide   variety   of   functions   (portfolio   comparison,   risk   cockpit,   compliance   relevant   evaluations,  e.g.  market  manipulation,  market  abuse)   High   professional   utility,   e.g.   mapping   of   electricity   products   with   complex   profiles,   mapping   of  orders  for  REMIT,  serves  all  asset  classes  (FX,  IR,  commodities)   Immediate  implementation,  project  can  be  started  immediately   Full  control  over  reportable  data,  data  streams  and  generated  reports  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

38    

 

       

 

       


European  Energy  Market  Regulations  

• • • •

 

Reporting   with   added   value:   expandable   without   programming   to   comply   with   further   reporting  obligations  (e.g.  MiFID,  BAfin)  even  up  to  the  production  of  an  internal  reporting   tool  for  trading  and  risk  management   Tried  and  tested  standard  software  solution  offers  a  high  degree  of  reliability   Rapid  integration  of  new  reporting  obligations  through  modular  updates   Strong  partners  offer  extensive  experience  with  both  the  technology  and  sector   A   broad   range   of   services   provide   optimum   support   -­‐   from   professional   consulting   on   the   regulatory  framework  to  the  implementation  of  an  automated  solution  to  operation  of  the   software     Vendor  –  Seven2One   http://www.seven2one.de  

   

Impendium  Elements   Impendium   Systems   Elements   is   a   Private   Cloud   Platform   that   enables   you   to   be   compliant   with   multiple   regulations   throughout   the   world   using   a   single   solution.   Unlike   traditional   approaches   and   vendors   we   incorporate   the   technical   elements   of   common   global   regulations   onto   the   Platform   enabling   you   to   be   compliant   sooner.   Report   to   regulators,   central   banks   or   even   internal   departments   using   Elements   in   a   timely   and   cost   efficient   manner   whilst   having   a   complete   single   view  of  your  regulatory  data.   Elements   is   a   specifically  engineered  regulatory  platform.  Impendium  Systems  Regulatory  Advisory   Board   –   made   up   of   industry   and   regulatory   experts   –   continuously   studies   the   global   regulatory   roadmap   and   ensures   that   key   regulatory   components   are   incorporated   directly   into   the   Platform.   Elements   services   many   current   financial   regulations   including   as   Dodd-­‐Frank,   EMIR,   REMIT   and   MiFID  and  work  is  underway  on  future  regulations  such  as  MiFID  II  and  MAD  II.     Vendor  –  Imperium  Systems   http://www.impendiumsystems.com    

Lombard  Risk  REFORM   The   Lombard   Risk   REFORM   platform   is   a   highly   configurable   solution   designed   to   help   firms   manage   predominantly   trade-­‐related   processes   –   such   as   pre-­‐/post-­‐trade   processing  and   regulatory   transaction  reporting.   Right   now   firms   are   using   REFORM   to   meet   the   global   regulatory   transaction   reporting   requirements.   Lombard   Risk   REFORM   is   designed   for   real-­‐time   regulatory   transaction   reporting,  will   interface  seamlessly  with  an  organization’s  banking  (or  other)  systems,  and  is  ideally  suited  for  EMIR  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

39    

 

       

 

       


European  Energy  Market  Regulations  

 

(as   well   as   Dodd-­‐Frank,   MiFID   and   REMIT)   that   are   being   introduced   to   monitor   and   regulate   the   OTC  derivatives  market.   Vendor  –  Lombard  Risk   http://www.lombardrisk.com    

OpenLink  –  RegCube    

The   EMIR  and   REMIT   business   intelligence   solution   is   an   extension   of   OpenLink's   CubeIntelligence   portfolio.   The   new   online   analytical   processing   (OLAP)   based   cube   offering   provides   financial   institutions  and  organizations  in  other  verticals,  particularly  energy  firms,  participating  in  energy  and   financial   trading   a   speedy   and   cost-­‐effective   way   to   comply   with   the   new   reporting   and   reconciliation  requirements.         The  CubeIntelligence  team  has  developed  the  OpenLink  REG  Cube  to  ensure  clients  continue  to  have   access  to  the  market  while  remaining  compliant  with  the  new  regulations  set  to  come  into  force  this   year.     The  OpenLink  RegCube  offers  firms  the  ability  to:     • Generate   the   regulatory   reports   that   firms   must   provide   daily   to   trade   repositories   and   registered  reporting  mechanisms     • Send  the  data  to  EMIR  TRs  and  REMIT  RRMs   • Calculate  and  record  the  gross  notional  values  in  line  with  EMIR   • View  the  EMIR  and  REMIT  values  for  the  entire  firm  and  also  drill  down,  by  all  categories  into   trade  level  detail  if  required   • Easy  integration  of  multiple  source  systems  (whether  produced  by  Openlink  or  not)  using  a   simple  interface  which  offers  trade  enrichment  with  reference  date  and  other  complex  rule   based  transformations   • Specify   which   trades,   books   or   products   are   in   scope   of   the   regulations   so   users   can   filter   on   these  criteria  to  calculate  the  EMIR  and  REMIT  values  for  the  in-­‐scope  trades  only   • Enrich  and  transform  data  before  sending  to  the  Repository  using    a  complex  transformation   engine   • Perform  bilateral  portfolio  reconciliation  using  the  data  already  in  the  cube  combined  with   file  production  and  matching  facilities     The  cube  is  integrated  with  other  cubes  such  as  the  Risk  Cube.  It  can  be  used  as  the  basis  of  a  cross   company  business  intelligence  solution.     Openlink  also  supply  an  “accelerator”  from  Endur  and  IRM  so  that  those  systems  can  be  connected   to  the  cube  with  a  short  implementation  time.   Vendor  -­‐  OpenLink  Financial   http://www.olf.com    

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

40    

 

       

 

       


European  Energy  Market  Regulations  

 

Energeya  –  XDM  Compliance   Energeya’s  XDM©   COMPLIANCE  allows   users   to   manage   manage   regulations   as   a   Business   Process   with  a   complete   environment   of   tools   and   processes   for   full   requirements   management   versus   local   and  international  Compliance  Regulators.   The   solution   is   multi-­‐regulation,   rules-­‐based,   data-­‐independent,   workflow-­‐based   and   provides   batch   support.  It  is  part  of  XDM©  Suite  for  commodities  management,  and  is  available  both  stand  alone  or   together  with  other  Energeya’s  commodities  and  process  management  modules.   As   a   standalone   solution,   XDM©   COMPLIANCE   can   address   the   Compliance   requirements   also   for   customers   who   already   have   other   ETRMs   or   Contract   Management   systems:   in   this   case,  XDM©   COMPLIANCE  takes   advantage   from   the   full   modularity   of   the   XDM©   platform,   providing   the   Customer  with  a  lightweight  version  of  the  XDM©  system  but  with  the  whole  set  of  infrastructure   core  modules.   Vendor:  Energeya   http://www.energeya.com    

eOpt  PriceHub  e·Comply     PriceHub   e·∙Comply   has   been   developed   by   e·∙Opt   Solutions,   a   Germany   based   provider   of   solutions   in   the   Energy  Trading  space.  It  is  a  comprehensive  tool  for  Regulatory  Reporting  under  EMIR  and  REMIT  and  is   targeted  towards  the  obligations  of  most  medium  to  small  sized  energy  companies  in  Europe.  It  is  a  viable   tool   for   this   market   and   though   currently   built   for   EMIR   and   REMIT,   it   can   be   easily   extended   to   serve   future  Regulatory  challenges.     e·∙Comply   has   an   intuitive   and   transparent   workflow.   It   offers   extensive   Reporting   and   interfacing   possibilities   as   well   as   an   open   data   model   for   upstream   source   systems,   thereby   making   bespoke   interfacing   to   ETRM   or   other   systems   achievable   with   limited   effort.   e·∙Comply   already   has   a   downstream   interface  for  REGIS-­‐TR  and  as  other  Repositories  and  RRMs  expose  their  interfaces,  e·∙Opt  plans  to  update   its  interfacing  as  well.   Two   key   differentiators   of   e·∙Comply   have   are   firstly   its   ability   to   seamlessly   report   Orders   to   Trade   under   REMIT,  and  secondly  its  Third  Party  Reporting  module.  The  former  uses  online  interfacing  to  Trayport  and   other  platforms  to  gather  orders.  The  Third  Party  Reporting  module  allows  companies  to  offer  Reporting   Services  to  smaller  clients  with  limited  resources  and  trading  operations.   With  Regulators  expected  to  be  increasingly  intrusive,  the  Trade  Annotation  function  is  a  useful  tool  to   answer  background  questions  on  Trades  and  Orders.     e·∙Comply  has  been  built  as  a  comprehensive  Compliance  tool  for  organizations,  rather  than  being  limited   to   EMIR   and   REMIT.   It   is   deployed   as   an   inward   as   well   as   outward   looking   tool,   helping   Compliance   Managers  to  satisfy  internal  as  well  as  external  demands.   The  team  behind  e·∙Opt,  led  by  its  CEO,  Rajeev  Bhatt  traces  its  roots  to  years  of  Energy  Trading  and  Risk   Management   experience.   The   PriceHub   suite   with   its   various   modules   for   Forward   Curves,   Price   Data   Management,   Pricing   and   related   areas,   have   been   built   using   their   experience   in   Trading   and   Technology.  

Vendor  –  e  Opt  Solutions   ©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

41    

 

       

 

       


European  Energy  Market  Regulations  

 

http://www.eopt.org    

Pioneer  Solutions  Compliance  Tracker   Pioneer  Solutions'  ComplianceTracker  provides  enterprise-­‐wide  compliance  tracking,   performance  monitoring  and  reporting  for  corporate,  regulatory,  environmental  and  other   compliance  requirements.   ComplianceTracker  supports  the  following:     § § § § § §

Compliance  requirements  administration   Performing  activities  and  monitoring   Approving  activities  and  monitoring   Triggers  and  exception  management   Compliance  management   Reporting  

Vendor  –  Pioneer  Solutions   http://www.pioneersolutionsglobal.com    

Calvus  Solutions  Golden  Trade  Repository   Many   organisations   use   the   regulatory   reporting   services   offered   by   the   exchange   or   banks   with   which   they   trade.   However,   they   remain   responsible   for   providing   evidence   that   all   their   transactions  have  been  properly  reported.  CalvusControl™  provides  this  evidence.  We  aggregate  all   the   information   from   each   of   your   banks   and   exchanges,   together   with   any   directly   reported   transactions,  into  a  single  consistent  view  that  provides  the  compliance  you  require.     Vendor  –  Calvus  Solutions     http://www.calvussolutions.com            

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

42    

 

       

 

       


European  Energy  Market  Regulations  

 

E/CTRM  offerings   It  is  anticipated  that  most  of  the  E/CTRM  vendors  will  be  involved  with  initiatives  to  ensure  that  they   too  are  ready  for  the  new  regulations  and  many  are  particularly  in  the  energy  side  of  the  business.   Mostly,  this  involves  insuring  that  their  offerings  include  the  ability  to  capture  all  of  the  data  items   required   for   trade   reporting   both   in   terms   of   the   database   and   screens   to   enter   the   data.   Some   may   go  beyond  this  fairly  minimal  requirement  such  as  OLF  and  Pioneer  who  have  both  announced  other   initiatives  (see  the  listings  elsewhere  in  this  directory).    Other  vendors  that  have  been  proactive  in   marketing   their   capabilities   to   date   have   included   Allegro   and   Trayport   Contigo   while   Triple   Point   has  been  actively  involved  as  well.  These  vendors  have  various  connectivity  tools  as  well  that  might   well  play  a  role  in  communicating  or  reporting  to  trade  repositories  or  reporting  services.   Many   of   the   E/CTRM   vendors   will   also   be   keen   to   emphasize   their   reporting,   audit   trailing   and   workflow   capabilities   with   regard   to   REMIT   and   trade   monitoring.   Only   SunGard   can   boast   a   true   trade  surveillance  product  (see  entry  in  this  directory)  but  many  others  will  feel  that  they  can  offer  a   number  of  tools  to  inspect  and  analyze  trade  data.      

Allegro   Allegro  Derivative  Regulation  provides  a  transparent  and  structured  process  to  manage  the   transformation  of  trade  execution  and  valuation  data  into  required  regulatory  standards  for   EMIR/REMIT   and   directly   transmits   this   data   to   registered   trade   repositories   and   reporting   mechanisms.  Allegro  also  provides  monitoring  against  clearing  thresholds  and  facilitation  of   portfolio  reconciliation  and  compression  requirements.       Vendor:  Allegro  Development   http://www.allegrodev.com      

Trayport  Contigo   Trayport   Contigo’s   enTrader   is   a   sophisticated   multi   commodity   energy   trading   and   compliance   platform.   enTrader   has   been   designed   to   be   easy   to   use,   easy   to   implement   and   delivers   client   benefit   quickly,   without   an   extended   implementation   and   configuration   period.     enTrader   provides   a   scalable   platform,   and   is   currently   being   used   by   energy   companies   ranging   from   new   market   entrants   through   to   some   of   the   largest   European   utilities.   It   is   equally  suitable  for  small  trading  houses,  brokers  and  market  makers  with  no  physical  assets   and  a  tight  commodity  coverage  through  to  the  largest  financial  and  physical  trading  asset   heavy   organisations.   This   includes   companies   operating   in   multiple   markets   with   multiple   currencies  and  with  international  fuel  logistics  chains.     enTrader   has   been   designed   to   handle   all   of   the   data   required   by   EMIR   and   REMIT   in   accordance  with  the  current  specifications.  All  of  the  fields  required  by  the  regulations  are   stored  as  per  the  rules,  and  the  system  is  capable  of  handling  the  different  aspects  of  rules,   such  as  EMIR  trade  statuses,  LEIs,  product  identifiers  etc.      

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

43    

 

       

 

       


European  Energy  Market  Regulations  

 

Trayport  Contigo  is  working  with  its  clients  in  order  to  be  able  to  send  data  to  EMIR  Trade   Repositories  by  the  end  of  2013.  The  system  will  also  handle  REMIT  reporting,  from  both  a   trade  data  and  fundamental  data  perspective.     Vendor:  Trayport  Contigo     http://www.contigoenergy.com      

Triple  Point     Commodity  XL  is  being  enhanced  to  support  the  key  requirements  of     the  REMIT  and  EMIR   regulations   in   the   area   of   transaction   reporting,   mitigation   of   operational   risk,   clearing   threshold  monitoring,  and  trade  life-­‐cycle  auditing.  For  these  and  related  financial  regulation   (e.g.  Dodd-­‐Frank),  the  underlying  business  logic  is  modelled  in  Commodity  XL  so  transactions   are  monitored,  processed  and  reported  according  to  the  governing  regulations.  Users  need   to   choose   their   preferred   Trade   Repository,   CCP,   and   Electronic   Confirmations   service   providers   so   that   appropriate   communications   channels   may   be   configured   within   Commodity  XL.       For   EMIR   ‘Timely   Confirmation’,   EFET   eCM   and   ICE   E-­‐Confirm   standards   for   electronic   confirmations   are   supported.   For   EMIR   and   REMIT   transaction   reporting,   connections   to   RegisTR  and  ICE  Trade  Vault  trade  repositories  are  offered,  and  will  be  completed  in  time  for   the   commencement   of   EMIR   transaction   reporting,   based   on   the   current   ESMA   ITS   RTS   documents  and  timelines.  Connectivity  to  other  services  such  as  EFET  eRR  and  ACER  ‘ARIS’   can  be  configured.     For   REMIT   requirements   regarding   anti-­‐market   abuse,   and   transparency,   Commodity   XL   provides  a  full  log  of  all  user  interactions  with  the  database  regarding  the  trading  life-­‐cycle.   This  audit  log  can  be  inspected  by  external  authorities  in  the  event  of  an  investigation  into   suspicious  trading  activity  as  defined  under  REMIT,  MAD/MAR,  and  MiFID.     Vendor:  Triple  Point   http://www.tpt.com     SunGard   SunGard  are  delivering  an  EMIR/REMIT  solution  to  Aligne  clients  through  the  implementation  of   a   standard   adaptor.     This   adaptor   utilises   the   flexible   Aligne   3.0   AUX   fields   to   allow   clients   to   augment   native   Aligne   data   through   the   Importer   and   then   store   this   on   the   Aligne   database   before   communicating   an   EMIR   file   to   accredited   Trade   Repositories   using   standard   Aligne   ReportServer  functionality.   For   those   clients   who   wish   to   create   datastores   outside   Aligne,   standard   Aligne   reporting   functionality  can  be  used  to  create  exports  of  Aligne-­‐held  data.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

44    

 

       

 

       


European  Energy  Market  Regulations  

 

By   leveraging   off   the   knowledge   gleaned   by   successfully   providing   SunGard   clients   with   a   solution   the   US   Dodd-­‐Frank,   SunGard   are   confident   that   the   EMIR/REMIT   Adaptor   will   be   delivered  in  time  for  the  commencement  of  EMIR  reporting  in  early  2014     Vendor:  SunGard   http://www.sungard.com    

OpenLink    

See  entry  above  for  the  RegCube.  

 

Energeya    

   

See  entry  above.  

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

45    

 

       

 

       


European  Energy  Market  Regulations  

 

Portfolio  Reconciliation/Dispute  Resolution   In  the  area  of  portfolio  reconciliation,  we  are  currently  aware  of  only  one  third  party  service  (there   are  bilateral  solutions  and  agents  available)although  we  understand  that  others  maybe  planned  by   EFET,   for   example.   Additionally,   some   of   the   data   repositories   such   as   REGIS-­‐TR   will   perform   portfolio   reconciliation   as   a   part   of   their   activities   and   it   is   conceivable   that   they   may   offer   such   a   service  in  the  future.  Otherwise,  portfolio  reconciliation  will  be  a  largely  manual  process.  

TriOptima  triResolve   triResolve   is   designed   to   help   manage   counterparty   exposures   and   provides   portfolio   reconciliation,   margin   call   management   and   dispute   resolution.     triResolve   highlights   any   areas   of   dispute   from   the   individual   transaction   level   up   to   the   margin   call.   Users   have   access   to   a   web-­‐based,   flexible   platform   that   enables   communications   between   counterparties  and  even  internally  to  provide  detailed  information  to  resolve  differences.  In   the  proactive  reconciliation  process,  differences  are  researched  immediately  and  resolved  so   they   don’t   persist   contributing   to   disputed   collateral   calls.   However,   if   a   collateral   dispute   does   arise,   the   triResolve   communications   capability   enables   counterparties   to   research   and   resolve  the  problems  in  real  time.     triResolve   is   an   alternative   to   bilateral   portfolio   reconciliation,   which   can   quickly   evolve   into   a   messy   process,   which   involves   sending   around   a   great   deal   of   files   and   is   very   prone   to   error.     triResolve  has  applied  its  expertise  to  the  range  of  challenges  in  the  bilateral  collateralization   process   introducing   margin   call   calculation   and   administration   functionality   as   well   as   reconciliation   of   key   ISDA   CSA   terms.   Margin   calls   can   be   issued,   accepted   or   disputed   on   triResolve  in  a  manner  that  complies  with  the  ISDA  standard  for  electronic  margin  calls.     By  identifying  trade  mismatches  with  counterparties,  CCPs,  DTCC,  and/or  custodians  through   an  automated  reconciliation  of  OTC  derivatives  and  securities  financing  portfolios,  this  daily   independent  verification  of  books  and  records  ensures  that  users  can:     • Identify  discrepancies  in  trade  valuations  by  trade,  portfolio,  or  underlier   • Increase   transparency   of   operational   issues   by   identifying   systemic   booking   and   valuation  issues   • Resolve   identified   issues   by   communicating   with   internal   departments   or   with   counterparties  through  triResolve’s  centralized  web  service     triResolve   is   a   web-­‐based   solution   into   which   users   upload   their   portfolios.   Currently   the   service  has  over  7  million  trades  being  reconciled  regularly  through  triResolve.  A  web-­‐based   community   network   with   around   300   institutions   is   using   the   service.     triResolve   performs   over  24,000  group  reconciliations  (or  106,000  legal  entity  level  reconciliations)  per  week.       Vendor:  TriOptima     http://www.trioptima.com       Portfolio  Compression   For   portfolio   compression,   we   are   only   aware   of   one   multilateral   service   at   this   time   although   other   solutions  are  being  discussed,  such  as  EFET,  for  example.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

46    

 

       

 

       


European  Energy  Market  Regulations  

 

 

TriOptima  triReduce     Multilateral   termination   removes   transactions   and   consequently   reduces   the   need   for   collateral   requirements   by   keeping   portfolios   trimmed   down.   Participating   in   triReduce   cycles   reduces   both   the   regulatory   and   economic   capital   costs  associated  with   OTC   derivatives,   especially   for   capital-­‐intensive   emerging   market   transactions.   Periodic   compression  will  eliminate  capital  charges  for  risk-­‐weighted  assets  appearing  on  the  balance   sheet.   With   fewer   outstanding   OTC   derivative   trades,   a   firm   can   manage   its   current   exposures  more  effectively  by  reducing  collateral  management  costs  and  minimizing  balance   sheet  growth.   Compression   will   also   facilitate   managing   potential   future   exposure   for   transactions   that   cannot   be   collateralized.   When   trades   are   eliminated,   they   no   longer   require   periodic   payments   to   be   calculated   and   settled,  reducing   operational   costs.   In   addition,   potential   errors   and   the   costs   associated   with  resolving   errors,   including   operational  risk  capital  charges,  are  eliminated.     Using   a   multilateral   system   offers   a   great   advantage   over   bilateral   compression   since   the   amount  compressed  can  be  a  lot  higher.  A  multilateral  system  is  only  useful  if  it  has  critical   mass,  which  is  an  advantage  of  TriReduce.         By  August  2013,  TriOptima’s  230  triReduce  participants  (including  major  energy  houses  and   dealer   banks),   have   eliminated   $354   trillion   in   notional   principal   outstanding   in   IRS,   CDS   and   Commodities..  The  impact  on  the  interdealer  notional  outstandings  as  reported  in  the  DTCC   Trade  Information  Warehouse  and  the  BIS  statistical  surveys  has  been  significant.         triReduce  is  a  web-­‐based  service  that  does  not  require  any  software  installation  or  elaborate   preparation.  The  service  is  accessible  to  institutions  with  a  qualifying  portfolio.  

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

47    

 

       

 

       


European  Energy  Market  Regulations  

 

  Vendor:  TriOptima     http://www.trioptima.com         Trade  Surveillance   We   are   aware   of   three   trade   surveillance   solutions   for   commodities   but   there   are   many   more   for   other  asset  classes  that  most  likely  will  be  made  available  for  commodity  market  players  use  in  time.  

SunGard  Protegent   Protegent   Surveillance   helps   market   participants   mitigate   reputational,   internal   and   regulatory  risks.  With  Protegent  Surveillance,  firms  can  detect  suspicious  trading  activity  and   address   supervision   and   suitability   requirements.   The   solution   helps   firms   identify   questionable   transactions   and   high-­‐risk   positions,   streamline   review   processes,   support   audits   and   respond   quickly   to   regulatory   and   legal   inquires.   Protegent   Surveillance   helps   firms   detect   a   broad   range   of   issues   including   commissions,   concentration,   suitability,   licensing,   breakpoints,   market   manipulation,   AML,   restricted   holdings   and   insider   trading   activity.   Deployment   options   include   a   full   in-­‐house   implementation   or   a   SunGard   hosted   ASP  service  module.   Features   • • • • • •

Identifies  questionable  transactions  and  positions     Provides  alert  scoring  with  justification  and  auto  escalation     Supports  issue  resolution  workflow  using  a  robust  alert  management  functionality     Easily  accessible  web-­‐based  user  interface     Allows  personal  and  shared  watch  lists     Provides  historical  data  snapshots  and  statistical  reporting    

Vendor:  SunGard   http://sungard.com/campaigns/fs/globaltrading/360trading/solutions/compliance/proteg entsurveillance.aspx    

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

48    

 

       

 

       


European  Energy  Market  Regulations  

 

Oracle  Financial  Services  Energy  and  Commodity  Trading  Compliance   Oracle   Financial   Services   Energy   and   Commodity   Trading   Compliance   (ECTC)   applies   sophisticated   pattern   recognition   techniques   to   monitor   trading   and   market-­‐making   activities  regarding  regulatory  compliance  and  quality  of  execution.   The   solution   provides   trade-­‐by-­‐trade   visibility   into   interactions   between   traders   and   other   market  participants  to  identify  potentially  problematic  practices  or  inferior  order  handling.   Oracle   Financial   Services   Energy   and   Commodity   Trading   Compliance   covers   multiple   instruments,   market   segments,   jurisdictions,   time   zones,   currencies,   and   market   structures   through  the  use  of  behavior  detection  scenarios  to  identify  trading  anomalies.   Additionally  when  deployed  in  combination  with  Oracle  Financial  Services  ECTC  Analytics  the   solution  enables  compliance  and  supervisory  users  to  further  explore  their  trading  data  for   unusual  trends,  patterns,  or  other  behaviors  of  interest  thus  providing  a  powerful  alert  and   investigation  solution.   • • • •

• •

Flexibility   and  Configurability  –   users   can   readily   tailor   the   application   to   meet   any   specific  needs  of  the  firm   Expedited   Implementation   Processes   –   provides   multiple   approaches   to   data   acquisition  that  can  get  you  up  and  running  quickly  and  efficiently   Automated   Alert   Correlation   –   automatically   searches   across   all   alerts   to   identify   potentially  undiscovered  relationships   Integrated   Case   Management   –   users   can   generate   new   cases   or   promote   existing   alerts  to  cases  enabling  a  more  holistic  and  enterprise  approach  to  compliance  risk   management   Highly  Configurable  Scenarios   Comprehensive  Instrument  Coverage  

Vendor  –  Oracle   http://www.oracle.com/us/industries/financial-­‐services/energy-­‐commodity-­‐trading-­‐ compliance-­‐170563.html    

NICE  ACTIMIZE   The   Actimize   Energy   Trading   Compliance   solution   provides   automated   trade   surveillance   and   detection   capabilities   targeted   specifically   for   institutions   that   must   comply   with   regulatory   requirements   associated   with   energy   trading   standards   set   by   the   CFTC,   FERC,   FTC,   European   Commission,  and  ACER.              

Automated   surveillance   of   internal   policies/risk   limits   and   external   regulatory   issues,   with   capabilities  to  correlate  business  communication,  market  news,  and  trading  activity       Multi-­‐dimensional  coverage  for  compliance  oversight  across  affiliates,  markets,  products,  and   instrument  types      

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

49    

 

       

 

       


European  Energy  Market  Regulations  

 

 

Established   out-­‐of-­‐the-­‐box   detection   scenarios   to   support   business   and   regulatory   needs   unique  to  energy  trading  markets       Built  upon  a  proven  core  risk  platform,  enabling  end-­‐to-­‐end  case  and  workflow  management,   investigation,  audit,  and  reporting  capabilities  

       

New   regulatory   standards   associated   with   energy   trading   set   by   the   CFTC,   FERC,   FTC,   and   ACER   are   placing   increased   pressure   on   energy   trading   firms   to   demonstrate   adequate   procedures,   processes,   and   controls   to   detect   and   prevent   prohibited   activities.   Actimize   helps   firms   efficiently   meet   the   needs   of   regulators,   avoid   fines,   disgorgement,  and  civil  penalties   Vendor  –  NICE  Systems   http://www.niceactimize.com          

 

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

50    

 

       

 

       


European  Energy  Market  Regulations  

 

About  The  Authors   This  report  has  been  compiled  and  issued  by  ComTech  Advisory  in  association  with  ETR  Advisory  and   sponsored  by  TriOptima.    

Aviv  Handler   Mr.   Handler   is   the   Managing   Director   of   ETR   Advisory,   a   specialist   consulting   company   focused   entirely   on   Energy   Trading   regulation.   He   specializes   in   energy   regulation   and   the   IT   systems   and   platforms  required  for  compliance.  He  gained  this  after  spending  several  years  in  the  field,  setting  up   the  European  Compliance  Centre  of  Excellence  at  SunGard  prior  to  founding  ETR.  He  has  also  been   involved  in  banking  regulation.   He   has   20   years   of   experience   in   energy   trading,   credit,   risk   and   financial   technology.   He   has   delivered  a  series  of  trading,  credit  and  risk  solutions  to  a  wide  variety  of  oil  majors,  power  and  gas   companies  and  investment  banks.   The  last  12  years  have  been  focused  on  the  commodity  trading  markets,  the  majority  of  which  was   spent   running   Coherence   Consulting,   which   specialized   in   credit   risk   within   the   energy   markets   as   well  as  CTRM  systems  and  implementations  and  compliance.  Coherence’s  team  delivered  a  number   of   solutions   to   a   variety   of   global   and   local   clients   under   his   leadership,   spanning   oil   majors,   gas   and   power  trading  companies  and  CTRM  software  houses.  Coherence  was  ultimately  absorbed  by  Sirius   Solutions  where  he  ran  the  European  region.   Prior   to   forming   his   business,   Mr.   Handler   led   product   strategy   for   KWI,   an   ETRM   vendor   whose   system,  KW  3000,  was  widely  used  in  Europe  and  North  America.   Mr.  Handler  also  spent  several  years  in  capital  markets  technology,  specializing  in  compliance,  risk   and   financial   messaging.   He   was   one   of   the   original   members   of   the   FpML   initiative,   a   standard   that   is  now  in  scope  for  Energy  regulation  alongside  others  such  as  CpML.   Mr.   Handler   speaks   regularly   at   conferences,   and   has   written   a   large   number   of   articles   on   regulation,   credit   and   commodity   trading,   as   well   as   financial   messaging.   His   blog   at   http://www.energytradingregulation.com   is   being   increasingly   used   as   a   primary   resource   for   information  about  the  state  of  the  regulation  space.   Mr.  Handler  holds  a  degree  in  computer  science  from  Imperial  College,  University  of  London.  

  Dr.  Gary  M.  Vasey   Dr.  Vasey  is  an  industry  expert  noted  for  his  analysis,  consulting,  marketing,  and  branding  skills.  With   over  29-­‐years’  experience  in  the  energy  and  commodities  trading  industry,  Gary  has  experienced  the   industry’s   volatility   as   an   executive   of   a   trading   firm,   geologist,   consultant,   software   developer,   analyst,  and  marketing  practitioner,  providing  him  with  unique  insights,  not  just  into  the  entire  value   chain,  but  also  into  how  to  position,  brand,  and  deliver  products  and  services  to  the  industry.   He   is   a   noted   expert   on   the   commodity   trading,   transaction   and   risk   management   software   industry   and  an  accomplished  industry  analyst  and  thought  leader.   Gary  has  published  more  than  200  articles  on  energy  and  commodities  industry  trends  in  a  variety  of   publications,  is  a  regular  speaker  at  industry  conferences,  and  is  the  co-­‐author  of  the  books  Trends  in  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

51    

 

       

 

       


European  Energy  Market  Regulations  

 

Energy   Trading,   Transaction   and   Risk   Management   Software   –   A   Primer   and   Selecting   and   Implementing  ETRM  Software  –  A  Primer  (with  Patrick  Reames).  He  also  contributed  two  chapters  to   The   Professional   Risk   Managers‘   Guide   to   Energy   and   Environmental   Markets   published   by   PRMIA   and  two  chapters,  co-­‐written  with  Peter  C.  Fusaro,  to  Weather,  Energy  and  Environmental  Hedging  –   An  Introduction  (ICFAI  University  Press,  2007)  edited  by  Amando  F  C  Da  Silva.   Gary  is  also  the  co-­‐author  of  Energy  &  Environmental  Hedge  Funds  –  The  New  Investment  Paradigm   (Wiley,  2006)  with  Peter  C.  Fusaro,  and  of  many  trade  press  articles  on  hedge  funds  in  the  energy,   commodities  and  environmental  industry.   Gary  holds  a  B.Sc.  (Hons.)  degree  in  Geological  Sciences  from  the  University  of  Aston  in  Birmingham,   England  and  a  Ph.D.  in  Geology  from  the  University  of  Strathclyde,  Scotland.    

ComTech  Advisory   Commodity   Technology   Advisory   is   the   leading   analyst   organization   covering   the   ETRM   and   CTRM   markets.   We   provide   the   invaluable   insights   into   the   issues   and   trends   affecting   the   users   and   providers   of   the   technologies   that   are   crucial   for   success   in   the   constantly   evolving   global   commodities  markets.   Patrick   Reames   and   Gary   Vasey   head   our   team,   who’s   combined   60-­‐plus   years   in   the   energy   and   commodities   markets,   provides   depth   of   understanding   of   the   market   and   its   issues   that   is   unmatched   and   unrivaled   by   any   analyst   group.   For   more   information,   please   visit   http://www.comtechadvisory.com.   ComTech   Advisory   also   hosts   the   CTRMCenter,   your   online   portal   with   news   and   views   about   commodity   markets   and   technology   as   well   as   a   comprehensive   online   directory   of   software   and   services.  Please  visit  the  CTRMCenter  at  http://www.ctrmcenter.com.  

  ETR  Advisory   ETR   (Energy   Trading   Regulation)   Advisory   Ltd   is   a   specialized,   expert   resource,   which   explains,   and   helps  apply  the  complex  labyrinth  of  European  Energy  and  Commodity  Market  regulations,  including   EMIR,   REMIT   and   MiFID   II.   Our   detailed   knowledge   of   the   rules   and   the   technology   platforms   and   solutions   around   them   permits   us   to   help   our   clients   navigate   and   implement   the   best   solutions   while  being  ready  for  future  rules.   Since   being   founded   in   May   2013,   ETR   has   already   advised   several   Market   Participants,   ETRM   companies  and  trading  platforms.  ETR  has  also  provided  training  to  several  companies.   ETR   also   runs   the   blog   at   www.energytradingregulation.com,   which   provides   news   and   thoughts   about  developments  in  the  regulatory  field  in  one  place.  

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

52    

 

       

 

       


European  Energy  Market  Regulations  

 

About  the  Sponsor   TriOptima   TriOptima  is  the  award-­‐winning  provider  of  post  trade  risk  management  services  and  infrastructure   for   OTC   derivatives.   Focused   on   reducing   costs,   eliminating   operational   and   credit   risk,   improving   counterparty   exposure   management,   and   reducing   systemic   risk,   TriOptima   offers   a   range   of   services:   triReduce   to   reduce   swap   inventory   and   counterparty   risk;     triResolve   to   reconcile     OTC   derivative  portfolios  and  manage  disputes;  triBalance  to  manage  cleared  and  bilateral  counterparty   risk;  and  triQuantify  to  measure  and  analyze  counterparty  risk.  Currently  triBalance  and  triQuantify   are  in  the  piloting  phase  and  are  targeted  for  launch  by  early  2014.     triReduce,  TriOptima’s  portfolio  compression  service,  eliminates  credit  risk  and  reduces  operational   and   capital   costs.   Eliminating   derivatives   exposures   and   shrinking   the   balance   sheet   is   critically   important  in  anticipation  of  Basel  III  gross  leverage  ratio  guidelines.  Derivatives  are  measured  on  a   gross,   not   net   basis,   inflating   balance   sheets   significantly.   Moreover,   compression   eliminates   gross   notional   value,   and   with   the   EUR   3   billion   clearing   threshold   in   EMIR,   it   has   become   extremely   important  for  commodity  trading  companies  to  proactively  manage  their  gross  notional  exposure.       Serving  over  150  institutions  worldwide  including  major  energy  houses  and  dealer  banks,  triReduce   offers  compression  cycles  in  a  range  of  commodity  derivatives,  interest  rate  swaps  and  credit  default   swaps.   triReduce   has   terminated   $354   trillion   in   notional   principal   outstanding   across   product   classes  since  its  introduction  in  2003  through  August  2013.     TriOptima  has  gone  from  a  pilot  phase  in  2011  to  running  6  live  cycles  in  the  commodity  space  in  the   past  year,  including  natural  gas,  power,  oil,  coal  and  precious  metals.  Over  24  commodities  houses   and  dealer  banks  have  participated  with  several  more  completing  documentation  in  preparation  of   the   upcoming   cycles.     More   than   $14   Billion   in   notional   principal   has   been   eliminated   for   commodities  transactions.     triResolve,  TriOptima’s  portfolio  reconciliation  and  counterparty  exposure  management  service,  is   used   by   over   450   institutions   to   reconcile   their   OTC   derivative   portfolios,   the   majority   on   a   daily   basis.     With   over   8   million   transactions   on   triResolve   (90%   of   collateralized   OTC   derivative   transactions   plus   uncollateralized   OTC   derivatives,   cleared   trades   and   other   types   of   trades),  most   reconciliations  are  done  daily  in  order  to  comply  with  the  new  portfolio  reconciliation  standards  that   will  be  effective  under  the  CFTC  (August  23)  and  ESMA  (September  15)  rules  in  2013.       New   institutions   are   joining   triResolve   daily   around   the   world,   over   the   past   12   months   over   250   new   firms   have   started   to   use   triResolve,   an   increase   of   more   than   100%   over   the   previous   12   months.     The  number  of  reconciliations  grew  to  116,000  a  month  in  July  2013.  Energy  firms,  Asian   financial  institutions  and  mid-­‐tier  European  firms  are  among  the  growing  number  using  triResolve.   Enhancements   to   the   basic   triResolve   platform   incorporated   and   standardized   data   categories   critical  to  commodity  participants.  Currently  over  450,000  commodity  trades  are  being  reconciled  on   triResolve.   Adoption   of   the   triResolve   service   accelerated   dramatically   in   the   past   year   in   order   to   meet   the   regulatory   deadlines   for   portfolio   reconciliation   in   the   US   (August   23)   and   Europe   (September   15).     During   the   past   year,   triResolve   has   been   adopted   by   the   commodity   trading   community  as  the  industry-­‐wide  solution  for  portfolio  reconciliation.  As  of  end  of  August  2013,  over   70   leading   energy   houses   and   financial   institutions   use   the   triResolve   service   for   reconciliation   of   commodity  trades.       triResolve   is   a   network   service   that   does   not   involve   any   software   installation   or   updates.     In   fact,   triResolve   revolutionized   reconciliation   practice   from   a   reactive,   spreadsheet-­‐based   internal   ©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

53    

 

       

 

       


European  Energy  Market  Regulations  

 

operation  to  a  proactive,  secure  web  service.     Clients  upload  their  data  against  their  counterparties   onto  the  triResolve  website,  and  the  results  of  the  reconciliation  are  available  on  the  website.     All   types   of   OTC   derivative   transactions   (IRS,   equity,   CDS,   FX,   Commodities,   etc.)   and   all   product   structures   (plain   vanilla   to   bespoke)   are   accommodated   in   triResolve.     There   are   no   data   format   requirements;  triResolve  normalizes  the  data  that  each  institution  submits.  Matching  information  is   available  to  users  at  the  portfolio  level  or  at  the  individual  transaction  level.    Users  can  communicate   on   the   triResolve   platform   both   internally   with   other   departments   in   their   institution   or   externally   with   their   counterparties   to   investigate   differences.     triResolve’s   advanced   analytics   and   reporting   functionality  allow  users  to  drill  down  to  any  level  of  the  data  in  multiple  dimensions  and  produce   reports   targeted   to   the   needs   of   any   audience   from   the   most   senior   credit   officer   to   the   head   of   collateral  management.     During   the   last   year,   triResolve   users   have   expanded   the   application   of   triResolve’s   reconciliation   functionality   to   trades   beyond   the   collateralized   OTC   derivative   transactions   initially   included.     Uncollateralized   OTC   trades,   cleared   transactions,   exchange-­‐traded   transactions,   securities  lending  trades  and  repo  trades  are  also  reconciled  on  triResolve  in  response  to  the  need   for   greater   precision   in   counterparty   credit   risk   management.     Emphasizing   the   versatility   and   adaptability  of  the  service,  triResolve  clients  also  reconcile  their  collateral  positions.         Most   recently   (June   2013),   TriOptima   and   DTCC   announced   the   DTCC   trade   repository   will   make   client   data   available   to   TriOptima   to   support   data   verification   and   portfolio   reconciliation   of   trade   repository  data.     TriOptima  will  be  the  first  service  provider  to  directly  receive  DTCC  repository  data   for   this   purpose   underscoring   TriOptima’s   commitment   to   interoperability   and   innovation   in   a   changing   marketplace.    Interested   in   establishing   connectivity   to   additional   repositories,   TriOptima   also  announced  that  it  will  connect  to  REGIS-­‐TR  when  it  goes  live  in  January  2014  under  EMIR  rules   for  transaction  reporting.     TriOptima,  an  ICAP  Group  company,  maintains  offices  in  London,  New  York,  Singapore,  Stockholm,   and  Tokyo.      

©  Commodity  Technology  Advisory  LLC  and  ETR  Advisory  Ltd,  2014,  All  Rights  Reserved.    

54    

 

       

 

       


European Commodity Market Regulations - Implementation, Impacts and Solutions