Europe’s answer to addressing the risks of over the counter (OTC) trading has been impacting the derivatives market for over a year now,1 and market participants are concurrently finding themselves facing some costly challenges. Now more than ever, the costs of non-compliance with the latest European Market Infrastructure Regulations (EMIR) are demanding strict organizational shifts from non-financial counterparties (NFC), such as commodity traders.2 To account for measures against the lack of transparency in trading and weak risk management strategies, NFC’s should leverage the most current data management practices to drive these core business activities. ZE’s solution to enterprise data management (EDM), ZEMA, helps traders take on the challenges around regulatory compliance through its three pillars of data, analytics, and integration.
EMIR’s enforcement of corporate responsibility will see a push towards greater public transparency and accountability in the energy and commodity markets.3 How traders react to the extensive requirements built around regulatory reporting to Trade Repositories (TR) can be pivotal in determining a successful or detrimental transition towards compliance.
Regulatory Compliance with Data
Data is often considered a broad and ambiguous term for all companies, irrelevant of their scope and size. However, when delving into the details of Europe’s new regulatory model, data suddenly turns into a specific strategic asset that needs to be accounted for on different levels. The first level would entail timely and accurate market pricing regarding several different derivatives including; commodity, contracts for gas and power, emissions allowance, and transportation rates as examples.3 The second level would include internal trading and financial data sets required for the purposes of tracking business activities. The third level involves the automated collection and centralization of all critical data to a single source for easy access and auditability.4 Organizations, unprepared to handle the disparate formats and granularities of this data, run the risk of misreporting trade positions limits to their respective repositories.
Regulatory Compliance with Analytics
When traders can automate their data collection processes to meet the stringent information requirements imposed by EMIR, more resources can be allocated towards the analysis of that data to improve decision making. Without the capability to perform and easily retrieve analysis, such as; volatilities, correlations, credit rating, logistics, and derivatives pricing, critical reporting data may be missed.3 Moreover, the risk of making errors is heightened when these derived data sets are not automatically created and stored in a centralized location.4
Regulatory Compliance with Integration
The synergy between an EDM solution and an E/CTRM system plays a critical role in the journey towards compliance. Miscalculating the timeliness and accuracy of essential counterparty data, class of derivatives, contract details, and mark to market valuations places a heavy burden on traders.3 These miscalculations can often arise when the technology to automatically aggregate and convert data sets into the correct format for TR’s to consume is not present within a company’s IT infrastructure.4 Risk departments are tasked with ensuring that a properly aggregated and formatted set of data is ready for reporting, no later than one day following a transaction, to comply with EMIR’s T+1 requirements.1 Manual reporting processes, with no integration capabilities, may instigate major setbacks that organizations should avoid to remain compliant.
EMIR Compliance made easy with ZEMA
Through the automated collection of data, creation of analysis, and integration with trade and risk management systems, ZEMA’s flexible applications have the potential to enhance reporting activities towards new European regulations. ZEMA’s core value proposition to traders impacted by EMIR is that it ensures the full availability of accurate and timely information to avoid non-compliance in reporting processes.
ZEMA’s data, analytical, and integration pillars leverage powerful scheduling, notification, security, and workflow automation applications to ensure that the information submitted to TR’s will meet EMIR’s reporting standards. NFC’s can move closer to regulatory compliance within their trade and risk management strategies by leveraging ZEMA’s functionalities:
- Automatic collection, aggregation, and formatting of internal/market data sets to a centralized location
- Immediate notification of any quality issues with derivative data, physical assets, logistics etc.
- Extensive security features to ensure the right people have access to critical information
- Automatic creation and integration of derived data sets/full audit trails with E/CTRM systems to monitor trader position limits and monitor overall risk management performance
To learn more about how ZEMA can help your organization stay compliant with changing regulations, book a complimentary demo.
- European Securities and Markets Authority. “What does EMIR mean for Non-financial counterparties?”. Accessed March 31, 2014. https://www.esma.europa.eu/system/files/emir_for_non-financials.pdf
- Ernst & Young. “EMIR: what does it mean for commodity traders?”. Accessed April 1, 2014. http://www.ey.com/Publication/vwLUAssets/EMIR -what-does-it-mean-for- commodity-traders/$FILE/1367511_EY_EMIR_paper.pdf
- Collet, Laurent. “European Market Infrastructure Regulation (EMIR) How will it impact your business?”. March 2014. Accessed April 1, 2014. https://www.deloitte.com/assets/Dcom-Luxembourg/Local%20Assets/Documents/Slidedecks/2013/lu_en_emirimpactbusiness_22032013.pdf
- Allegro Development. “EMIR and REMIT: Wholesale Energy Trading on the Docket“. Accessed April 2, 2014. http://www.allegrodev.com/whitepapers/Allegro–EMIR-and-REMIT-Wholesale-Energy-Trading-on-the-Docket.pdf?mkt_tok=3RkMMJWWfF9wsRons6vLZKXonjHpfsX %2F7%2BUkT%2Frn28M3109ad%2BrmPBy%2B24cEWp8na%2BqWCgseOrQ8lV0KV8S3V80VraA%3D