The European Market Infrastructure Regulation(EMIR) deadline for reporting derivatives trades is looming large. Tomorrow—February 12,2014—all parties involved in derivatives transactions in Europemust begin reporting the transactions to trade repositories on adaily basis. EMIR covers a wide range of transactions, includingforeign exchange (FX), interest rate, commodity, credit, and equityderivatives, as well as some instruments Dodd-Frank doesn't cover,such as FX forwards. And the rule applies to both financialinstitutions and their corporate clients.

“Buy-side firms will be deeply impacted by the arrival of EMIR,as the onus to report derivatives trades will be shared by both thesell-side and the buy-side,” says Rob Friend, global head of fixedincome product for Bloomberg. “This will have a significant impacton their business processes, operations, and returns for theirinvestors.” In fact, Anthony Kirby, executive director and head ofregulatory reform for capital markets and asset management in therisk and regulation division of EY's financial services practice,has estimated that the costs associated with EMIR reporting could,at the extreme end of the spectrum, add two to three basis pointsto asset managers' cost-income ratios over the next few years.

“That's a main difference between Dodd-Frankand EMIR—that under EMIR both sides have to report theirtransactions,” emphasizes Guenther Peer, regional vice president,solutions consulting EMEA, for treasury and risk managementsoftware vendor Reval. “Intragroup transactions also have to bereported. If a U.S. multinational is trading with a European bank,there's not too much that needs to happen because the bank is goingto report their side of the trade. But if a U.S. corporate has asubsidiary based in the EU [European Union], then the subsidiaryneeds to comply with EMIR.”

A poll conducted two weeks ago byReval indicates that many organizations are not yet ready to do so.When asked whether they were confident that they'd be able tocomply with EMIR's reporting requirements by tomorrow's deadline,only 42 percent of respondents said yes. (See Figure 1.)

In response to another question in the samepoll, about a third (32 percent) said they plan to do their ownreporting to trade repositories. Nearly as many (28 percent) saidthey plan to contract with third parties to report on their behalf.But just two weeks ago, 40 percent said that they hadn't yetdecided how they would convey information on their trades to thetrade repositories.

“The EMIR timelines were pretty dense,” Peersays. “There was a very narrow window for trade repositories,financial institutions, and corporates to get ready. I think a lotof organizations have been working furiously, but they're stillfine-tuning their processes.”

Nevertheless, Peer believes that the 65percent of respondents in Reval's poll who said they expect a delayin implementation of the reporting requirements will bedisappointed. “Local regulators are saying they're probably notgoing to fine for noncompliance on day one,” he says. “At the sametime, they have made two things crystal clear: First, there's notgoing to be any relief, nor will they delay the deadline. Andsecond, corporates need to be trying to comply. If they don't havethe last field in their reports by tomorrow, that should be OK. Atleast, that's what the rumors suggest. But they can't simply sitback and expect to avoid scrutiny.”