EMIR Refit | Navigating the Details

Recognition of TONA Index

13 July 2023

As preparation has started for EMIR Refit, firms reporting to both EU and UK are faced with a few challenges in relationship to divergence in regulations. Our previous article, EMIR Refit | Top 5 Challenges, touched upon the staggered GO-LIVE dates between jurisdictions as one challenge. There are also some field-level differences within ESMA and FCA validation rules.

One notable difference between the two versions lies in the recognition of the index TONA (TONAR, the Tokyo Overnight Average Rate). TONA is a widely used benchmark for Japanese yen interest rates.

Under the FCA's version of the EMIR REFIT changes, the index TONA is deemed a valid entry in fields related to derivatives trading. TONA is valid in:

Field 2.15 Indicator of the Underlying Index

Field 2.84 Indicator of the Floating Rate of Leg 1

Field 2.100 Indicator of the Floating Rate of Leg 2

In contrast to the FCA, the EU version of the EMIR REFIT changes does not recognise TONA as a valid entry in the same fields. The EU's stance reflects a more cautious approach to benchmark recognition and a divergence from the FCA's permissive stance. The EU likely has its reasons for excluding TONA, such as concerns regarding the benchmark's robustness, level of liquidity, or lack of widespread usage within the European derivatives market.

It is essential for market participants to remain updated on the specific requirements and guidelines issued by the relevant regulatory authorities to ensure compliance with the EMIR REFIT changes in each jurisdiction.

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