The EMIR Regulation governing derivative trading introduced a new obligation not only for banks and other financial institutions, but in many cases also for other entities. For this reason, please read the following information.
The Regulation applies only to derivative transactions, not to spot transactions, TVIS, deposit products and promissory note programmes.
Determining the Counterparty
In order to determine which duties apply to an entity trading in derivatives, the EMIR Regulation introduces the categorization of counterparties[2] as follows:
- Financial Counterparties (FC)
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Non-Financial Counterparties over the central clearing threshold (NFC+)
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The thresholds are very high and are calculated only from speculative derivatives. Only a few counterparties in the Czech Republic fall within this category.
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Non-Financial Counterparties below the central clearing threshold (NFC-)
When entering into the contract, a KB client should specify the category to which it belongs.
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Timely Confirmations
According to the EMIR Regulation, received confirmations of derivative transactions must be confirmed:
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In case of a FC and NFC+: by the end of the business day immediately following the date of conclusion of an OTC derivative transaction (T+1)
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u NFC - do konce druhého pracovního dne následujícího po dni uzavření OTC derivátového obchodu (T+2)
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Portfolio Reconciliation
The EMIR Regulation introduced am obligation of both transaction parties to reconcile the respective portfolios regularly in order to compare mutually agreed transactions and identify any possible misunderstanding concerning terms of a given transaction.
Financial Counterparties (FC) and Non-Financial Counterparties over the central clearing threshold (NFC+)
Running OTC derivative transactions
Frequency
Up to 50 at any time during a quarter
Quarterly
51–499 at any time during a week
Weekly
500 and more
Each business day
Non-Financial Counterparties below the central clearing threshold (NFC-)
Running OTC derivative transactions
Frequency
Up to 100 at any time during a year
Yearly
100 and more per quarter
Quarterly
KB meets the obligation to reconcile transactions with its clients in the following manner:
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Clients falling into the category of quarterly or yearly frequency of reconciliation will receive a report containing information about all open transactions and their basic parameters in the manner agreed with a relevant client for sending the confirmations. If a client agrees with such a report, he/she/it does not have to respond and the portfolio reconciliation obligation is deemed to be complied with by the client and KB.
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Clients falling into the category of weekly or daily frequency of reconciliation will be contacting via the TriOptima triResolve system. Detailed terms and conditions will be agreed individually.
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Reporting
The EMIR Regulation further introduced an obligation to communicate information about all derivative transactions to the so-called Relevant Trade Repository. This obligation concerns all financial and non-financial counterparties (FC, NFC-, NFC+) except natural persons (non-business). As a rule, Komercní banka, a.s. fulfils this obligation on behalf of its clients (except banking institutions. The client does not have to ask or pay for this service.
If, nevertheless, the client wishes to report on his/her/its own behalf, he/she/it must notify KB in order to prevent forbidden duplicate reporting.
No matter whether you report directly or KB reports on your behalf, you must obtain your LEI (Legal Entity Identifier).
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LEI (Legal Entity Identifier)
Each legal person must obtain its LEI, i.e. an identification number that identifies it uniquely throughout the world, for the purpose of reporting to the Relevant Trade Repository (each entity can have only one LEI). The LEI cannot be assigned to natural persons and businesspersons.
Several commercial entities are entitled to assign the LEI; in the Czech Republic it is the Central Securities Depository (www.cdcp.cz), that issues them online [4]
The LEI can normally be obtained online within several minutes. The LEI is issued for a fee and another annual fee is paid for its maintenance. The separate fees are specified in the tariffs of fees issued by relevant LEI providers.
The client is entitled to choose an alternative LEI provider if it provides its services on more favourable terms (the client’s LEI will remain unchanged in such a case). The client has to consult the LEI providers for the terms of changing the LEI.
The LEI must remain valid throughout the whole duration of client’s any derivative transaction; failing this, such a transaction, KB will not be able to report on the client’s behalf.
The LEI is used for the identification of its holder during the reporting in accordance wit the EMIR Regulation. The reporting cannot be done properly without the LEI.
Should the client fail to deliver its LEI to KB, KB may reject to conclude a transaction with a client as the reporting without the LEI may be considered an administrative offence committed both by the client and the bank under Act No. 256/2004 Coll., On Trading in the Capital Market.
Caution: Please consult the openleis.com website to find out whether your company has already obtained its LEI, e.g. from its parent company, so that you will not ask for issuing the LEI repeatedly.
If you obtained the LEI and have failed to notify us about this fact, please send us your LEI through the zc.bk@rime e-mail box.
| LEI Komerční banky, a.s.: |
IYKCAVNFR8QGF00HV840 |
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Dispute Resolution
Any possible disputes resulting from OTC derivative transactions will be resolved in accordance with an agreement contained in the contract or in addressed in another manner as agreed by both parties.
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Central Clearing
EMIR has introduced a general obligation of the transaction parties to clear selected OTC derivative transactions through a so-called central clearing counterparty. Such a clearing will be introduced item by item for counterparties and derivative transactions of different types starting from 2015. This obligation does not apply to NFC- counterparties.
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