EMIR

Garanti Bank S.A. brings to your attention

The issuance, by the European Parliament, of Regulation no 648/2012 on OTC derivatives, central counterparties and trade repositories (hereinafter called “EMIR”) which imposes a series of rules that have to be followed by both banks and non-banks who trades derivative financial instruments. EMIR entered into force on 15 March 2013 and its provisions are mandatory for both parties in the transaction traded according to provisions of Derivative Master Agreement concluded with Garanti Bank SA.

We kindly require that you obtain information linked to EMIR from the following official source.

Type of derivatives transactions within EMIR scope and reporting to Trade Repository

EMIR requires that counterparties shall keep evidence of all derivative transactions and of all alterations of those transactions for minimum 5 years. This obligation shall be fulfilled by the bank and by the Client each in its own name and shall not be undertaken by Garanti Bank SA. Also, EMIR requires that the counterparties to a derivative agreement, not concluded on a stock exchange and not cleared through a clearing house, (hereinafter called “OTC derivative”) to agree, in writing, certain standardized procedures with regard to, among others:

  • Portfolio reconciliation
  • Dispute resolution

The counterparties should inform one another with regard to their own classification under EMIR (please see below details), in order to comply with EMIR requirements, applicable to every participant in the trade, including portfolio reconciliation and dispute resolution.

The reporting obligation applies to all derivatives trades.

The start date of reporting obligation is 12 February 2014. As of this date the counterparties have to submit information relating to derivatives trades, in a specific format required by EMIR, towards authorized trade repositories.

The reporting obligation also applies retrospectively to derivatives trades entered into:

  • Trades concluded before 16 august 2012 and outstanding at 12 February 2014
  • Trades concluded after 16 august 2012 and outstanding at 12 February 2014
  • Trades concluded before 16 august 2012 and matured before 12 February 2014.

Please note that there are still open questions from market participants with respect to the reporting of listed derivatives that are reflected in the fact that market participants and service providers are not operational ready to full support the reporting of listed derivatives as of 12 February 2014.

In order to implement the reporting obligations established by EMIR, each party to a derivative transaction will have to apply for a sole identification number: Legal Entity Identifier (LEI). Presently, LEI was not yet approved at the international level and until than an intermediary solution is in place, the parties can access a series of entities which can provide a pre-LEI at the following address.

Clearing obligation through a Central Counterparty (CCP)

Mandatory clearing through a Central Counterparty (CCP) is a process through which the two parties involved in an OTC contract are replacing the respective contract/transaction with two contracts/transactions, each of them cleared through a CCP, which captures the position of each counterparty on a distinct contract. Thus the CCP becomes a counterparty for each participant and from legal point of vue, as per novation mechanisms, interposes itself between the clearing members directly participating to the CCP.

Clearing thresholds (gross notional figures) for FC and NFC+ :

  • EUR 1 bln for OTC credit derivatives or equity derivatives;
  • EUR 3 bln for OTC interest rate derivatives, exchange-rate OTC derivatives, merchandise or contract-based derivatives.

Details regarding calculation method for thresholds are mentioned in EMIR. Reaching these thresholds implies, together with mandatory clearing, the obligation of notifying relevant authorities.

Mandatory clearing obligation through CCP’s does not apply in case when at least one of the counterparties is a NFC-, registered in the EU.

Intra-group transactions are exempt from the clearing obligations through CCP’s, providing that some conditions have to be fulfilled.

Pension funds transactions are excluded, for the time being, from the mandatory clearing obligation through CCP’s.

Instruments subject to mandatory clearing through a CCP:

Currently, the following asset classes of OTC financial derivatives are subject to mandatory clearing through a CCP:

  • Basis swaps and fixed-to-floating Interest Rate swaps (denominated in EUR, GBP, USD and JPY), having a maturity from 28 days to 50 years (30 years for JPY);
  • Forward rate agreements (denominated in EUR, GBP and USD) having their maturity anywhere between3 days to 3 years;
  • Overnight index swaps (denominated in EUR, USD and GBP) with the maturity from 7 days to 3 years;
  • European untranched credit interest rate derivatives denominated in EUR, with the maturity up to 5 years.

Effective date for the mandatory clearing obligations through a CCP:

  • 21-June-2016 – for Category 1 Financial Counterparties
  • 21-Dec-2016 – for entities in Category 2
  • 21-June-2017 - for entities in the Category 3
  • 21-Dec-2018 – for entities in Category 4

Risk mitigation measures

To the extent that OTC transactions are not subject to claring compensation through a CCP, the counterparties are obliged to implement measures for mitigating the risks, such as:

  • timely confirmation of the transactions;
  • portfolio reconciliation and advanced procedures for dispute resolution
  • mark-to-market of transactions

Delegated reporting

Reporting of mark-to-market valuations and information on collateral was deferred with 180 days from the reporting starting date (until 11 august 2014). Garanti Bank SA will report the required data using its own records, directly to trade repository, in its own name and also on your behalf.

However if the legislation in the future will require each counterparty to produce or to report these data, Garanti Bank SA may change the terms and conditions applied to delegated reporting service.

In order for the client to delegate the reporting of all transactions with OTC derivatives concluded between the Bank and the clients, towards Garanti Bank SA we shall send you in a short period of time an agreement that shall have to be signed by the client and the bank in order to start reporting on 12 februarie 2014.

Generating UTI and Trade Repository

All derivatives trades shall be recognized by a unique trade identifier (UTI). Until the approval at the international level of a UTI, Garanti Bank SA shall generate a code for each OTC derivative transaction concluded with its clients and also Garanti Bank SA will be the UTI generating party for the derivatives transactions reported on client’s behalf. The bank shall report the OTC derivative transactions to REGIS TR, with the possibility to change the trade registry any time shall consider necessary.

EMIR’s classification

Garanti Bank SA classifies itself as Financial Counterparty (FC) under EMIR, Category 2, which means a financial counterparty that is not a Clearing Member, situated above the non-clearead EUR 8 bln threshold, representing cumulated outstanding OTC derivatives balance for Jan., Feb. and March, 2016.

For Garanti Bank SA, effective and mandatory clearing obligations will start as of December 21st, 2016.

Taking into account the OTC derivative trades concluded/that shall be concluded, we bring to your attention the obligation to classify yourself according to provisions of EMIR and to communicate this classification to Garanti Bank SA.

Portfolio reconciliation

Starting with 15 September 2013,EMIR requires that counterparties which trade OTC derivatives to agree in writing, before trading takes place, which are the terms used for portfolio reconciliation.

According to EMIR rules, the frequency (daily, weekly, quarterly or annually) of portfolio reconciliation (see table below) will depend on:

  • The EMIR category in which your company is classified (a financial counterparty or a non-financial counterparty, below or above the clearing thresholds);
  • Number of outstanding Transactions.

Dispute resolution

Starting with 15 September 2013 EMIR requires that counterparties agree in writing, before trading takes place, procedures and processes used to identify, record and monitor disputes and their resolution in a timely manner.

What you should do in relation with Garanti BBVA if you trade OTC derivatives with the Bank

  • Verify whether you signed the Addendum to the Derivative Master Agreement regarding EMIR, if not please contact us either on the email address or by phone.
  • Verify whether you have communicated us your EMIR classification within the addendum or by other means of communication. If not, please proceed to this communication as soon as possible;
  • Obtain a pre-LEI and communicate it to Garanti Bank SA. before 12 February 2014 by accesing the relevant web address mentioned above;
  • Sign a mandate agreement with Garanti Bank S.A. for fulfilling of the reporting obligation;
  • Verify the reports regarding the portfolio reconciliation received periodically form the Bank within 5 working days from the date they were received.

Disclaimer

The information presented here does not represent a legal opinion or of other type.

For any discrepancies between the Romanian and English language version, the Romanian version will prevail.

For details and clarifications, in applying EMIR and understand its consequences, we suggest you to ask for a legal opinion from a law firm which offers you current consultancy, and to consult ESMA’s site, here.