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Summary
When there is a fund and fund manager involved in derivatives trades, the fund manager is generally responsible for trade reporting for the transactions entered into by the fund. But what happens if one is inside the European Union and the other one outside the EU? For instance, if a fund is registered in the Cayman Islands but the fund manager is in Ireland, what happens then?
Background
EMIR has 3 main entity fields in relation to reportability:
| Field | Description |
|---|---|
| Counterparty1 (CP1) | The entity that has legally entered into a derivative. |
| Counterparty2 (CP2) | The other party the CP1 has entered into the derivative trade with. |
| Entity Responsible for reporting (ERR) | Usually CP1, or in the case of a fund, the fund manager. |
What does the regulation state?
ESMA's EMIR guidelines state at point 33;
"If a fund manager in the EU has funds domiciled outside the EU, the reporting obligation applies to counterparties in general and more particularly to FC, regardless of the country of establishment of the FC. Based on the definition of an FC, derivative contracts entered into by AIFs established in a third country and where the AIFM is authorised or registered in the Union are subject to the reporting obligations"
Example
An Irish fund manager directs its Cayman Islands-based fund to enter into a derivatives contract with an Australian bank. Reporting fields would be populated as follows:
| Field | Example | EMIR Reporting obligation |
|---|---|---|
| Counterparty1 (CP1) | Cayman based fund | No |
| Counterparty2 (CP2) | Australian bank | No |
| Entity Responsible for reporting (ERR) | Irish fund manager | Yes, the ERR would report the trades CP1 enters into |
Conclusion
As you can see from the above example, the EMIR reporting obligations can be broader than just EU firms in certain circumstances, especially those involving a fund manager.
How can TRAction assist?
If you need any assistance with your current trade reporting set up or are new to trade reporting and need to a delegate trade reporting service provider, please do not hesitate to contact us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
