Forward Rate Agreements (FRAs) and Reporting Under EMIR and MiFIR

What Is a Forward Rate Agreement?

A Forward Rate Agreement (FRA) is a financial contract between two parties to exchange interest payments on a notional principal amount for a specified future period. The agreement sets the fixed interest rate in advance, allowing both parties to hedge or speculate on future interest rate movements.

In an FRA, there is no actual exchange of the notional amount. Instead, the agreement is settled in cash based on the difference between the agreed-upon interest rate and the prevailing market rate at the time of settlement. FRAs are typically OTC instruments and are commonly used by financial firms and investors to manage exposure to fluctuations in interest rates.

What Are the Reporting Requirements for FRAs Under EMIR?

Under EMIR, FRAs are classified as OTC derivative contracts and as such are required to comply with the mandate for reporting to authorised trade repositories (TRs). This reporting obligation applies to both financial and non-financial counterparties and mandates certain information about each transaction to be reported.

Key reporting requirements for FRAs under EMIR include:

• • • Counterparty details by way of Legal Entity Identifiers (LEIs)
    • Agreement information such as notional amount, fixed and floating interest rates and maturity date
    • Valuation data to reflect the current market value of the agreement
    • Collateral information relating to the type and value of collateral posted

EMIR mandates the reporting of lifecycle events such as amendments, terminations or novations of FRAs to ensure that TRs maintain up-to-date records of all outstanding derivatives contracts. By enforcing these reporting requirements, EMIR aims to enhance market transparency, mitigate systemic risk and improve the overall stability of the EU financial markets.

What Are the Reporting Requirements for FRAs Under MiFIR?

FRAs that are traded on a trading venue are subject to the requirements of MiFIR including specific reporting obligations aimed at enhancing market transparency. Firms are subject to both transaction reporting obligations and post-trade transparency requirements as follows:

Transaction Reporting Obligations: Under Article 26 of MiFIR, firms are required to report detailed transaction-level information on FRAs to their respective national competent authority (NCA). This includes information such as the instrument identifier, price, date and time of execution and counterparty details. Reports must be submitted by the close of the next working day (T+1).

Post-Trade Transparency Requirements: MiFIR mandates that investment firms publicly disclose details of executed FRA transactions as close to real-time as technically possible via an Approved Publication Arrangement (APA). Unlike transaction reports, which are submitted confidentially to NCAs, post-trade transparency reports are publicly available. Since FRAs are often not highly liquid, they may qualify for deferral mechanisms under MiFIR, which allows for delayed publication in some instances.

Conclusion

Whether traded OTC or on a trading venue, FRAs are required to be reported under the relevant EMIR or MiFIR frameworks to ensure compliance and timely reporting. As with all derivatives, firms should maintain robust controls around reporting standards, counterparty data and post-trade requirements to meet regulatory obligations.

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