EMIR Refit | Navigating the Details

Recognition of TONA Index

Author Image Author: Sophia Fulugunya Sophia's LinkedIn
Director of Transaction Reporting
First published 13 July 2024, updated 8 February 2024

As preparations for EMIR Refit are well-underway, 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.

A notable divergence between the EU and UK versions of EMIR Refit revolves around the recognition of the Tokyo Overnight Average Rate (TONA). TONA is a widely accepted benchmark for Japanese yen interest rates, and its treatment in regulatory reporting has become a point of contention.

Under the FCA's iteration of EMIR Refit changes, TONA is considered a valid entry in specific fields related to derivatives trading. These fields include:

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

However, the EU's version of EMIR Refit takes a different stance. TONA is not recognised as a valid entry in the same fields. This disparity highlights a nuanced difference in approach between the FCA and the EU, showcasing a more cautious standpoint from the latter.

The EU's decision to exclude TONA from these fields suggests a more reserved approach to benchmark recognition, deviating from the FCA's permissive stance. While the exact reasoning is not explicitly stated, it is plausible that the EU may have concerns regarding TONA's robustness, level of liquidity, or its limited 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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