Portfolio reconciliation and dispute resolution - EMIR
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The JC’s Reg and Leg resource™
EU Edition
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A part of EMIR relating to — portfolio recognition and dispute resolution. (648/2012/EU (EUR Lex).
As per the recital to those delegated regulations:
“Dispute resolution aims at mitigating risks stemming from contracts that are not centrally cleared. When entering into OTC derivative transactions with one another, counterparties should have an agreed framework for resolving any related dispute that may arise. The framework should refer to resolution mechanisms such as third party arbitration or market polling mechanism. The framework intends to avoid unresolved disputes escalating and exposing counterparties to additional risks. Disputes should be identified, managed and appropriately disclosed.”
ISDA, bless them, have published the ISDA 2013 Emir Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol, a copy which may be found here.
Dispute resolution
Article 15: Dispute resolution
1. When concluding OTC derivative contracts with each other, financial counterparties and non-financial counterparties shall have agreed detailed procedures and processes in relation to:
- (a) the identification, recording, and monitoring of disputes relating to the recognition or valuation of the contract and to the exchange of collateral between counterparties. Those procedures shall at least record the length of time for which the dispute remains outstanding, the counterparty and the amount which is disputed;
- (b) the resolution of disputes in a timely manner with a specific process for those disputes that are not resolved within five business days.
2. Financial counterparties shall report to the competent authority designated in accordance with Article 48 of 2004/39/EC (EUR Lex) any disputes between counterparties relating to an OTC derivative contract, its valuation or the exchange of collateral for an amount or a value higher than EUR 15 million and outstanding for at least 15 business days.
ISDA’s sainted PRDR Protocol has this to say on the topic of dispute resolution:
4 Dispute Identification and Resolution Procedure
The parties agree that they will use the following procedure to identify and resolve Disputes between them:
(a) either party may identify a Dispute by sending a Dispute Notice to the other party;
(b) on or following the Dispute Date, the parties will consult in good faith in an attempt to resolve the Dispute in a timely manner, including, without limitation, by exchanging any relevant information and by identifying and using any Agreed Process which can be applied to the subject of the Dispute or, where no such Agreed Process exists or the parties agree that such Agreed Process would be unsuitable, determining and applying a resolution method for the Dispute; and
(c) with respect to any Dispute that is not resolved within five Joint Business Days of the Dispute Date, refer issues internally to appropriately senior members of staff of such party or of its Affiliate, adviser or agent in addition to actions under (b) immediately above (including actions under any Agreed Process identified and used under (b) immediately above) and to the extent such referral has not occurred as a result of action under (b) immediately above (including any Agreed Process).
5 Internal processes for recording and monitoring Disputes
Each party agrees that, to the extent the Dispute Resolution Risk Mitigation Techniques apply to each party, it will have internal procedures and processes in place to record and monitor any Dispute for as long as the Dispute remains outstanding.