Research European Commodity Market Regulations - Part 1 | Page 23

European Energy Market Regulations V3.1

Timely confirmation
The timely confirmation requirement of EMIR is intended to reduce risk and encourage a move to
electronic confirmations.
The confirmation deadline refers to the time the trade is confirmed as matched, rather than when it
is sent.

Portfolio Reconciliation and Dispute Resolution
EMIR requires that counterparties reconcile their portfolios of uncleared trades from 15th September
2013 onwards, as follows:
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•

FC and NFC+
- More than 500 trades: Daily
- Between 50 and 499 trades: Weekly
- 49 or less: Quarterly
NFC- More than 100 trades: Quarterly
- Less than 100 trades: Annually

Where an NFC- is the counterparty of an NFC+ or FC, the NFC- timings apply.
Generally, for those with many reconciliations to perform, there is a good case for automation, if it
does not already exist. There is clearly far less work to perform for an NFC-, which reduces that case
and will give rise to the reconciliations being performed manually.
However, NFC-‘s are advised to calculate exactly how long this will take. A medium sized utility with
20 counterparties with over 100 trades will still need to do 20 of these per quarter, i.e. one every 3
working days, and also have the overhead of the annual reconciliations, which may be numerous.
Consideration should therefore be given to at least a “semi-automatic” solution.

The reconciliation process
In order to reconcile trades, the two parties must exchange the position each thinks it has with the
other. In order to do this each party must provide data to the other so that it will be “matched”.
(Usually via a file). The file will contain a pre agreed set of fields, known as the “key terms” that can
be used to identify a specific trade. In addition, fields such as price and notional and sometimes
mark to market will be sent.
The parties then take each file and compare them using the key terms. Those where the key terms
and positions are the same are declared a “match”. If there is no match or a large difference in views
are marked in dispute. In reality, not all fields will always match, and so the parties declare a
“tolerance” for the key terms.
Those that are in dispute then are checked and if that cannot be resolved, the dispute resolution
procedure commences. There are various ways in which this may happen:
Typical modes of operation
In general, there are three usual modes of operation:
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•
•

Bilateral – where counterparties exchange files (either one or both ways).
Third Party Service provider – Where a third party is involved in the reconciliation, to
organise it as a central service.
Agent – Where another party performs the reconciliation on the counterparty’s behalf.

© Commodity Technology Advisory LLC and ETR Advisory Ltd, 2013, All Rights Reserved.

v3.1

November 13th, 2013

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