CACEIS NEWS 36

products and services

4 caceis news - No. 36 - January 2014

CACEIS provides its clients with Trade Repositories reporting delegation

The EMIR reporting obligation for all derivative contracts to Trade Repositories will start on 12 February 2014. C ounterparties will be required to re- port both over the counter (OTC) and exchange traded derivatives (ETD) including any outstanding or entered trade into or after 16 August 2012 (when EMIR

came into force). Trades must be reported at T+1. One of the main purposes of the EMIR reporting obligation is to enable the authori- ties to identify and analyse risk positions. The new reporting obligation to Trade Repositories requires two types of data: ▷ The Legal Entity Identifier (LEI) includes details regarding the parties to the derivative contract; ▷ The main characteristic of the derivatives contract (Type, underlying asset, notional value, the valuation of the contracts and of

the linked collateral, etc.) and the Unique Trade Identifier (UTI) to enable ESMA to record the trades. CACEIS can report either on behalf of a cli- ent (simple delegation) or a counterparty which would receive a delegation from its client (double delegation). All changes during the OTC traded deriva- tives contract’s lifecycle are reported to the Trade Repositories within the T+1 deadline. Thus, CACEIS helps its client to comply with the EMIR reporting obligation and to reduce their administrative burden ■

david celeste, Head of OTC Derivatives, CACEIS

CACEISwill support BPCE Group inthe clearing and processing of OTC derivatives Christophe Lebrun, Head of EMIR project – BPCE Group Finance Department

What does EMIR involve for the BPCE Group and its entities (regional Banques Populaires and Caisses d’Epargne)? The first concern for the BPCE Group is to be EMIR- ready within the regulatory timeline. Regulations on some issues have developed over time and we have therefore had to

flexible management of both clearable and non-clearable OTC derivatives. Involving CACEIS in our derivatives processing chain will enable us to meet EMIR requirements on measuring, supervising and reducing operational and counterparty risk. As regards bilateral contracts, CACEIS provides a range of modular services including: daily valuation of derivatives, counterparty reconciliation, initial and variable margin call calculation and collateral management services, which will be used by most BPCE group entities that will clear their transactions. This choice was made by the entities with the aim of simplifying and optimising derivatives processing through standard processes that interface with CACEIS, which will be the central contact point for the entities in their relations with the clearing brokers and CCPs. Some Group entities will use CACEIS to report their exchange-traded and OTC derivatives to a trade repository when this requirement takes effect on 12 February 2014 ■

CACEIS OTC DERIVATIVES SERVICE - OVERVIEW

be fully ready and able to anticipate and adapt. Apart from the regulatory issue, the Group wanted to use these developments as a lever to adapt and rationalise its derivatives processing function. After a scoping study, financial impacts analysis and definition of the target organisation, the Group has evolved its operating model by upgrading its systems and harmonising the associated processes. For example, connecting all Group entities to Markit, the electronic trading platform for derivatives, will enable us not only to abide by the very short confirmation deadlines imposed by EMIR but also to implement the technical standards required to automate the OTC derivatives processing chain. The requirements on reporting to trade repositories have also prompted the BPCE Group to develop a systematic, standardised reporting solution for derivatives transactions. All these measures aim to give the Group an effective secure management system in a new, highly demanding environment. Do you think the clearing requirement for standardised OTC derivatives and the collateralisation requirement for bilateral contracts will reduce counterparty risk? Yes, the central counterparties (CCPs) will play a crucial role in reducing counterparty risk through three mechanisms: novation, initial and variable margins (IM, VM) and default management procedures. However, they will need to have the requisite resources and highly sophisticated risk management systems required by the regulations (EMIR in Europe and Dodd-Frank Act in the USA) to protect the markets they serve. The Group is particularly attentive to this issue as the majority of its OTC derivatives transactions involve instruments that will clear in SWAPCLEAR as of September 2014. BPCE has selected clearing brokers and opted for a segregation of accounts by entity to minimise risks. At the same time, the collateralisation requirements for bilateral OTC derivative contracts and Basel III capital requirements for this type of transaction will also help reduce counterparty risk. In addition, requirements regarding risk mitigation techniques and reporting to trade repositories will strengthen security and improve transparency of the derivatives market. How does CACEIS support BPCE Group to clear and process OTC derivatives? What are the main services in terms of measuring, supervising and reducing operational and credit risk? The BPCE Group has selected an operating model that focuses on scaling up processes and automating the derivatives processing chain whilst enabling