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Steven Ferigno, Allegro Development Corporation

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EMIR compliance – is 90 days enough?

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Steven Ferrigno (pictured), Managing Director EMEA for Allegro Development Corporation, comments on Monday’s announcement from the European Securities and Markets Authority (ESMA) regarding the reporting deadline for EMIR, the European Market Infrastructure Regulation regime…

After months of wait-and-see, ESMA fired the starting gun on Monday for its much-discussed EMIR energy derivatives regulatory scheme, registering four new trading repositories and setting a firm reporting obligation for energy market participants starting 12th February 2014.
 
Also on Monday, the EU rejected ESMA’s draft implementing technical standard for EMIR. So reporting will begin on 12-February 2014 for transactions executed both on, and off, exchanges.
 
That leaves European utility companies, commodity traders and scores of energy-intensive businesses less than 90 days to switch on a proper means of reporting, clearing and demonstrating risk mitigation if they wish to continue operating under a hedging strategy.
 
There are alternatives in terms of what companies can do to comply with EMIR’s requirements, but managing the process manually isn’t one of them. The electronic reporting and data storage requirements will quickly overwhelm any approach based on spreadsheets. And whilst outsourcing may be feasible, a third party provider would most likely not be held responsible for paying fines should any errors or missed deadlines occur.
 
The remaining options are to abandon hedging strategies altogether and accept higher prices, or automate the process. Automation is the best and most viable option for most energy market participants.
 
Implementing an automated regulatory solution for commodity trading and corporate financial compliance, however, involves integrating contract data, hedge accounting, revenue allocation in line with regulatory reporting requirements and other specialised functions.
 
This is not a three-month job.
 
Given the past uncertainties around EMIR’s rollout schedule, we urge ESMA to work with market participants, show flexibility and even assess readiness on a case-by-case basis to help companies find an achievable path to compliance.

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