Photo of Anita Prasad and Jayna Bundy, Microsoft.

When the European Market Infrastructure Regulation (EMIR) came into effect in February 2014 requiring dual reporting of all over-the-counter (OTC) and exchange traded derivatives (ETD) by both buy and sell side firms, it changed the landscape of regulatory reporting requirements. Microsoft has implemented a solution to respond.

The challenge

When the European Market Infrastructure Regulation (EMIR) came into effect in February 2014, requiring the dual reporting of all over-the-counter (OTC) and exchange traded derivatives (ETD) by both buy and sell side firms, it changed the landscape of regulatory reporting requirements.

In the early days of EMIR, Microsoft performed the reconciliation themselves using Excel and macros but the process was cumbersome and time-intensive. However, several years prior, the investment operations team had worked to outsource collateral management services to their custodian, Northern Trust, using TriOptima to reconcile daily counterparty positions, valuations and mark-to-markets. So Eric T. Barka, Senior Treasury Manager at Microsoft asked: “If they could do this for collateral management, why couldn’t we leverage a similar model using TriOptima for EMIR reporting?”

The solution

Microsoft explored using TriOptima directly via an in-house solution but the model would still require dedicated internal resources to manage the tool and overall reconciliation process. In order to achieve best practice and compliance around EMIR reporting and counterparty reconciliations they knew they needed to create a more robust, automated solution to manage the amount of data necessary to complete accurate reconciliations. After exploring several alternatives, they found that one holistic solution really didn’t exist so worked with their custodian to customise one.

Under EMIR regulations, reporting to a Global Trade Repository (GTR) for all OTC derivatives and ETDs must be reported no later than T+1. Microsoft elected to go with the delegated counterparty reporting model which made the need to reconcile to their Global Trade Repository critical. As Jayna Bundy, Director, Treasury Operations, explains: “With delegated reporting, where our counterparties report on our behalf, the onus is still on us to ensure timely and accurate reporting to the Depository Trust & Clearing Corporation (DTCC). With over 5,000 annual derivative trades, representing tens of billions in gross EUR notionals, across 20 trading counterparties, 12 external managers, two CCPs, and several FCMs all in scope for EMIR reporting, reconciliations across counterparties was no small feat and became an immense, extremely manual process. To mitigate the risk of providing inaccurate regulatory reporting we needed a strong, automated solution.”

After discussions with its third-party custody bank, they discovered that no other corporate had made such a request and they did not have a solution in place for EMIR. A solution would need to be built from scratch so they worked with their solution provider to design and implement a pilot programme for reconciling derivative positions against the GTR.

Best practice and innovation

The outsourced solution Microsoft implemented leverages their custody bank to perform weekly trade repository reconciliation for their EU based legal entities, which had never been implemented when they first began inquiring about solutions.

The goal was to implement a new service for EMIR using the same technology used in the TriOptima reconciliation for their daily mark-to-market valuations. The solution, which went live in July 2015, provides Microsoft with an automated trade reconciliation that validates internal trades vs repository reported trades in a business intelligence dashboard format that highlights matched, matched with difference(s) and unmatched positions at a high level.

This solution has greatly enhanced the visibility and transparency required to manage risk around EMIR mandatory reporting.

Barka concludes: “What makes our Global Trade Repository reconciliation solution unique is that Microsoft leverages our third-party custody bank, to perform this EMIR trade repository reconciliation on our behalf as an added benefit to our outsourced collateral management services. Microsoft was the first corporate client to ask its third-party custody bank, perhaps one of the first more broadly, to identify a way to leverage existing collateral management technology rails and processes to add functionality to complete EMIR trade repository reconciliation.”

Key benefits

• Accurate and timely counterparty reporting.
• Improved visibility and transparency.
• Risks mitigated.
• Need for excel removed.