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ESMA L2 Validations: will you be impacted?

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28 April 2015

ESMA has recently just published an updated EMIR Q&A, the highlight of which is the publication of the so-called L2 validations. 

These will be mandatory in application across all Trade Repositories and create hard-fails where the validations have not been met. The ultimate aim is the harmonisation of reporting between the various systems also thereby solving many of the problems inherent in the inter-TR reconciliation process.

A quick scan of the document shows that almost all of the fields now contain additional validation over the original TR specification (although of course individual providers may have opted to enforce tighter validation sets).

Much of this increase in specification appears to address the validity of data contained within individual fields, such as formats for dates or validity of LEIs. More difficult to discern is the level to which the definition of individual contract classes is proscribed by this new validation. Mapping the L2 validations onto product sets will give a quick and powerful way to assess the impact on your own reports. 

This change in validation set introduces no new concepts or reportable values into the EMIR reporting process. This allows for analysis and implementation to be completed at any time before October 2015. If your reporting was in-line with up to date guidance then there should be minimal uplift, especially since the body of the Q&A has really only clarified some technical aspects of reporting modified termination dates on contracts. 

This update is an evolutionary change in how reporting controlled but does not change the playing field in any way. Firms that have invested in keeping up with the process should find this is a non-event. Departments struggling with the impacts of large numbers of rejected trades on implementation may however come to regard this as ESMAs halloween trick rather than treat.