ESMA has published a first report (no.1, August 13, 2015), a review on the use of OTC derivatives by non-financial counterparties.
For EMIR-addicts who cannot resist the temptation, we have made this document available here - honestly, it's good reading, but we don't think that you want to know in greater detail, how even the self-assessment of NFC+s (and vice versa) went obviously dramatically wrong.
However, the main findings and conclusions are:
1. ESMA confirms different interpretations of MIFID in different member states and therefore different interpretations of what is a derivative, especially referring to FX forwards. We think that this is an important part, because we find the result, that the majority of NFC-s uses interest rate derivatives (rather than FX) only, quite surprising. Our assumption: A lot of FX trades have not even been reported yet.
2. NFC-s have just an insignificant impact with regard to volumes (not numbers) of transactions. Who would have thought that? The only area where ESMA sees a significant systemic risk are commodities. We find this soothing, because it (in theory) means that FCs don't speculate with commodities more than NFCs use such instruments to manage their real, underlying exposures. On the other hand - can this really be true?
3. ESMA says, that the majority of NFC-s is not able to qualify their trades as hedges or not, because of the costs related to the respective analysis. (Yes, we also think that this is a good laugh, if it weren't that sad). We also find it interesting that ESMA has estimated the cost of being able to analyze your instruments whether they are hedges or not at EUR 50 K (one-off, they write on-off) and EUR 40 K / year recurring. Hm.
4. For those of you that have been reading until here, now comes the fun part: On the basis of this report and considering the interesting results, ESMA recommends to the EU commission to suspend the mandatory character of the field 'Directly linked to commercial activity or treasury financing' for NFCs and to allow NFCs to report all their trades as 'Not linked to commercial activity', because of the fact, that volumes are irrelevant anyway. This way, ESMA seriously believes to help reducing the costs of being compliant with the regulation.
Long story short - for the time being we don't see any relief for NFCs with regard to the reporting in general. What ESMA thinks could be a relief is, with all due respect, a joke.
