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20 Days to GLERT Day– How are we expected to report commodity trades with these fields?

In 20 days’ time, the Go Live for EMIR Trade Reporting Day (GLERT) will be with us. And yet, at this stage, there is still a huge amount of confusion about how to report commodity trades under EMIR, amongst other things.

The EMIR message as defined by ESMA contains a dedicated commodity section, and within it energy trades have a “repeating” section. This permits multiple deliveries to be defined for a specific trade (with the same UTI).

Useful as that is, the structure provided has many omissions, and it is not at all clear how many different types of commodity trades should be represented.

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For a start, most repositories have a cap on the number of delivery legs that may be sent, sometimes as low as 20. This is not enough for many types of physical commodity trade.

Then there is the issue of repeatability. Many of these trades repeat, but in many cases it is not possible to represent this in any way except to send each leg. Basic structures (such as “peak” and “off peak”) are provided for but others are not.

It is not possible to have a trade in more than one commodity type. So spark spreads and the like are out. The only way to report such a trade is to send it as two trades, with different UTIs. But if you do that, the regulator will not have a clear picture of what is happening in the market. And there is no link ID to connect such trades together.

And for many types of trade it is not obvious which index to put where, which price to use or which notional to use.

The concept of a notional in commodities is slightly different to financial products in that it is in a volume. This must be converted to price. The question of which price to use, and which volume remains unclear.

For now, as there is no definitive answer most, are taking a “best guess” approach as to what to send, and the thought is that it is better to send something than nothing.

That approach will not lead to much peace and quiet, since the moment reconciliations between pairs of records starts, there will be errors every time two counterparties’ best guess differs. At that stage we may get some clarity.

In the meantime, we can be sure that GLERT day will not see the end of all the questioning about what to put in each field.

Interview with Nick Boatman of REGIS-TR

Published 23 January 2014

ComTech Analyst Briefing Note – EKA

Published 23 January 2014