EMIR; for most of the world, is an innocent, meaningless acronym. But, for many European financial firms, EMIR brings to mind other four letter words.
Standing for European Market Infrastructure Regulation, EMIR is an EU initiative that was created to set in place reporting rules for over the counter (OTC) derivatives trades such as swaps, CFDs and options. The impetus for the creation of EMIR was the result of the 2008/09 global financial crisis, of which losses on derivative trades played a major factor in the crisis.
As an OTC market that is based on counterparty relationships without central clearing parties, losses on derivative products caused a domino effect of which banks, brokers and other financial parties bought and sold securities which became uncollectable from their counterparties. To mitigate this risk, financial regulators around the world have been creating various guidelines to allow for better analysis and pre and post-trade credit risk. Beyond the EU, similar trade reporting rules have been put in place by the CFTC in the US and ASIC in Australia.
Within the EU, one of the biggest complaints of EMIR is the far reaching requirements of who is required to report. As a result, even firms with minimal involvement with the OTC derivative market trading nearly exclusively in the spot market, or companies that use derivatives for hedging purposes may be required to report.
There are about one million organizations meant to report under EMIR
Another problem facing financial firms with EMIR is the difficulty in actually filling out the reporting requirements. Specifically, trade reports generated by company solutions rarely sync well with fields required by EMIR trade repositories. As a result, according to Ronen Kertis, CEO of Cappitech, who explained to Finance Magnates: “Our understanding is that there are about one million organizations meant to report under EMIR, where only 25% of them do.”
Creative Approaches to Marketing in the Post-ESMA EraGo to article >>
To create a solution to assist brokers and other entities required to report EMIR with handling the reporting process, Cappitech has created a new division, Cappitech Regulation. Formerly an R&D and development division for ITG, Cappitech became a standalone firm through a management buyout. Since becoming independent of ITG, Cappitech continues to provide services to ITG, but has also expanded its work to include technology outsourcing to other financial firms. Like with ITG, its expertise is based on creating trading and reporting systems.
In creating Capptivate, the product was based on its past experience in building reporting solutions for MiFid 1 including helping clients report their trades under the EMIR regulation. As a result of realizing that firms were meeting difficulties in their reporting, as well as viewing many of similar issues being experienced, it led Cappitech to create an automated solution for handling EMIR reports.
Offered as a SaaS product, Capptivate is an end-to-end solution for firms to upload their trade reports and have them validated and sent directly to trade repositories such as the CME, DTCC and others. Capptivate is offered as both a self-reporting solution to assist firms in generating their EMIR reports that they file with a trade repository. In addition, firms can let Capptivate report on their behalf, thereby removing the necessity to work directly with repositories.
Using the product, firms first upload their trade reports to the system. The solution then converts data fields to format them to meet requirements of designated trade repositories. After this process, Capptivate then analyzes the data for errors and provides specific explanation of what needs to be fixed.
Once reports are structured to meet all reporting requirements, for clients using the end-to-end solution, Capptivate sends the information on behalf of clients to the trade repository. Kertis explained that they added the ability to have reports submitted as it saves them “the need to contract with the trade repositories.” Kertis added that there is also a cost benefit as he stated: “We have volume reporting agreements and are also able to significantly reduce client’s cost compared to paying directly to the trade repository.”
First emerging to the public with the launch of a dedicated website for Capptivate, Cappitech is planning its larger public presentation of Capptivate at next month’s Finance Magnates’ London Summit.