The first wave of financial regulatory change affecting banks, brokers and their users is in the field of derivatives. Various deadlines for new reporting, clearing and conduct of business requirements are imminent. The manner in which financial institutions deal with their clients and take collateral will undergo significant structural change. Hedge funds and corporates will need new operational processes and documentation in the short term and may also want to reconsider corporate structuring. This note discusses what companies and hedge funds, which use derivatives in their businesses, should be doing to ensure compliance.

Mandatory Reporting -

In Europe, EMIR2 requires counterparties to report all derivative contracts (OTC and exchange traded) to a trade repository. Counterparties are also required to maintain a record of their derivative contracts until at least five years after a contract has terminated. The reporting start date under EMIR is dependent on registration of a trade repository for each particular asset class. The European Securities and Markets Authority (“ESMA”) has recently signified that mandatory reporting will start around January 2014 for credit derivatives and interest rate derivatives. The reporting start date for all other asset classes, including equities, FX and commodities is currently also scheduled for 1 January 2014 but this is dependent on a trade repository being registered by 1 October 2013 for the relevant asset class.