Securities and Markets

Issue 1163 / 9 June 2022

European Commission

EMIR - Equivalence decisions for five non-EU jurisdictions published in OJ - 9 June 2022

Five Commission Implementing Decisions on the equivalence of the regulatory framework for central counterparties (CCPs) in non-EU jurisdictions to the requirements of the European Market Infrastructure Regulation (648/2012/EU) (EMIR), have been published in the Official Journal of the European Union:

  • three Commission Implementing Decisions determining that the legal and supervisory frameworks for central counterparties (CCPs) in Chile, Malaysia and Indonesia are equivalent to the requirements applicable under EMIR; and
  • two Commission Implementing Regulations amending the existing equivalence decisions for CCPs in South Africa and India.

Once recognised, non-EU CCPs are able to provide central clearing services in the EU to EU clearing members and trading venues.

The European Commission adopted the Commission Implementing Decisions on 8 June 2022. They will enter into force on 29 June 2022.

Commission Implementing Decision (EU) 2022/903 of 8 June 2022 on the equivalence of the regulatory framework for central counterparties in Chile to the requirements of Regulation (EU) No 648/2012 of the European Parliament and of the Council

Commission Implementing Decision (EU) 2022/902 of 8 June 2022 on the equivalence of the regulatory framework for central counterparties in Malaysia to the requirements of Regulation (EU) No 648/2012 of the European Parliament and of the Council

Commission Implementing Decision (EU) 2022/899 of 8 June 2022 on the equivalence of the regulatory framework for central counterparties in Indonesia to the requirements of Regulation (EU) No 648/2012 of the European Parliament and of the Council as regards central counterparties under the supervision of the Indonesia Financial Services Authority (Otoritas Jasa Keuangan)

Commission Implementing Decision (EU) 2022/900 of 8 June 2022 amending Implementing Decision (EU) 2015/2039 as regards the evolution of the regulatory framework of South Africa for central counterparties

Commission Implementing Decision (EU) 2022/901 of 8 June 2022 amending Implementing Decision (EU) 2016/2269 as regards central counterparties under the supervision of the International Financial Services Centres Authority

Press release

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EMIR - European Commission publishes third report on clearing solutions for pension scheme arrangements and further extends clearing exemption - 9 June 2022

The European Commission (the Commission) has published a third report on clearing solutions for pension scheme arrangements (PSAs) under the European Market Infrastructure Regulation (648/2012/EU) (EMIR) (COM(2022) 254 final). The Commission’s first and second reports were issued variously in September 2020 and May 2021, as previously reported in this Bulletin.

The Commission notes that PSAs are largely ready to clear, have clearing arrangements in place and clear some trades voluntarily, but the underlying issue of access to cash remains. The EMIR Refit Regulation ((EU) 2019/834) amended EMIR to extend the exemption from the clearing obligation for PSAs until June 2021. The Commission has adopted Commission Delegated Regulation C(2022) 3584 (final), which will now extend the exemption for PSAs until 18 June 2022. It explains that a further extension will allow alternative models to accessing liquidity through the repo market time to mature, and will provide time for PSAs to improve their internal liquidity and collateral management practices.

The European Parliament and Council of the EU will now scrutinise the Commission Delegated Regulation. If neither objects, it will enter into force on the day after its publication in the Official Journal of the European Union.

Report from the Commission to the European Parliament and the Council: under Article 85(2) of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories, as amended by Regulation (EU) No 834/2019, assessing whether viable technical solutions have been developed for the transfer by pension scheme arrangements of cash and non-cash collateral as variation margins and the need for any measures to facilitate those viable technical solutions (COM(2022) 254 final)

Commission Delegated Regulation (EU) …/… of 9.6.2022 extending the transitional period referred to in Article 89(1), first subparagraph, of Regulation (EU) No 648/2012 of the European Parliament and of the Council (C(2022) 3584 final)

European Securities and Markets Authority

Capital Markets Union - ESMA publishes speech - 1 June 2022

The European Securities and Markets Authority (ESMA) has published a speech delivered by Verena Ross, ESMA Chair, at the Convention of the Federation of European Securities Exchanges. In the speech, Ms Ross elaborates on a number of topics related to the delivery of the Capital Markets Union, including:

  • review of Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR) review and establishing a consolidated tape: ESMA’s overall support for the European Commission’s proposal for a review of MiFIR is highlighted, albeit with concerns over the current timetable;
  • MiFIR review and the trading venue perimeter: Ms Ross refers to the January 2022 consultation on ESMA’s proposed opinion on what a multilateral system is and providing guidance on when a system should seek authorisation as a trading venue;
  • digital transformation and cryptoassets: Ms Ross notes ESMA’s support for the European Commission’s Digital Finance Package, including the Regulation on Markets in Crypto-Assets (MiCA). ESMA hopes to play a greater role in the authorisation and supervision of significant cryptoasset service providers;
  • commodities and circuit breakers: ESMA is reflecting on additional tools that could be put in place to better identify potential risks to orderly markets at an early stage, so that market infrastructures and authorities can take necessary action before those risks materialise. ESMA is particularly looking at how transparency, for example through additional information on the over-the-counter positions held by market participants trading on-venue commodity derivatives, could allow market participants, trading venues and regulators to better identify risks and maintain orderly markets.

Speech by Verena Ross: Towards delivering the CMU (ESMA70-445-442)

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CSDR buy-in regime - ESMA publishes final report and draft RTS suspending application - 2 June 2022

The European Securities and Markets Authority (ESMA) has published a final report (the Report) on its approach to the implementation of buy-in provisions under Article 7 of the Central Securities Depositories Regulation (909/2014/EU) (CSDR) and Articles 21 to 28 of Commission Delegated Regulation (EU) 2018/1229 which contains Regulatory Technical Standards (RTS) on settlement discipline. The CSDR settlement discipline regime has applied since 1 February 2022.

ESMA proposes to suspend the application of the mandatory buy-in rules for three years. The proposed amendment to the RTS on settlement discipline, as set out in the draft regulatory technical standards (RTS) in Annex IV to the Report, is based on the expected changes to the CSDR buy-in regime presented in the European Commission's legislative proposal for the CSDR Review, which was published in March 2022 as well as on the amendment made to the CSDR through the DLT Pilot Regulation ((EU) 2022/858) (covered in the General section above), which allows ESMA to propose a later start date for the CSDR buy-in regime.

ESMA has sent the draft RTS to the Commission for endorsement in the form of a Commission Delegated Regulation. Following the Commission's endorsement, the draft RTS will be subject to non-objection by the European Parliament and the Council of the EU.

ESMA Final Report: CSDR RTS on Settlement Discipline - Suspension of buy-in (ESMA70-156-5011)

Webpage

EMIR clearing threshold increase - ESMA publishes final report and proposed RTS amendments - 3 June 2022

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The European Securities and Markets Authority (ESMA) has published its final report (ESMA70-451-114) (the Report) containing proposed amendments to the regulatory technical standards (RTS) laid down in Commission Delegated Regulation EU/149/2013 relating to the commodity derivative clearing thresholds under the European Market Infrastructure Regulation (648/2012/EU) (EMIR).

ESMA is required to review the EMIR clearing thresholds and update them where necessary under the EMIR Refit Regulation ((EU) 2019/834). It proposes to increase the clearing threshold for commodity derivatives from EUR3 billion to EUR4 billion. Annex II to the report sets out the proposed draft regulatory technical standards (RTS), which will amend the RTS laid down in Delegated Regulation (EU) No 149/2013, to reflect the increase.

The Report also refers to ESMA’s response to the European Commission’s consultation on the targeted review of the central clearing framework in the EU, notably two structural change proposals to the EMIR framework for the clearing threshold: the proposed distinction between cleared versus non-cleared (such that only derivatives not cleared at an authorised or recognised CCP should count towards the clearing threshold); and the proposed application of bilateral margins to NFCs above the clearing threshold (NFC+) on a “per-asset-class-basis”, i.e. once the relevant threshold is exceeded.

It takes into account these Level 1 change recommendations and presents an overview of the considerations, concerns and feedback on certain issues faced by NFCs entering into commodity derivatives. If the proposed amendments to Level 1 are adopted, ESMA will re-assess the clearing thresholds as part of the mandate to periodically review them, to ensure they remain fit for purpose. Given the uncertainties around the timing of the legislative procedure on the Level 1 framework, ESMA does not recommend a pre-defined end date for the increased clearing threshold.

ESMA has sent the draft RTS to the European Commission for endorsement in the form of a Commission Delegated Regulation. Following the Commission's endorsement, the draft RTS will be subject to non-objection by the European Parliament and the Council of the EU.

ESMA Final Report: EMIR RTS on the commodity derivative clearing threshold

Press release

HM Treasury

Introduction of the SMCR for FMIs - HM Treasury publishes response to consultation - 7 June 2022

HM Treasury has published the response to its July 2021 consultation paper on a proposal to introduce a Senior Managers and Certification Regime (SMCR) for financial market infrastructures (FMIs) to cover central counterparties (CCPs), central securities depositories (CSDs), payment systems recognised under the Banking Act 2009 (recognised payment systems), and specified service providers to these recognised payment systems.

The government considers that creating an SMCR for FMIs remains a desirable and effective way to achieve its objectives of enhancing the accountability of senior managers and improving governance arrangements at FMIs. It intends to implement an SMCR for CCPs and CSDs, with particular detailed aspects of the regime set out in secondary legislation and regulators’ rules, where appropriate.

The government also wishes to retain the option to extend the SMCR to other systemic financial services entities in the future, such as credit rating agencies (CRAs) and recognised investment exchanges (RIEs). The government will therefore legislate to create an SMCR ‘gateway’ when parliamentary time allows, to enable HM Treasury to lay statutory instruments to apply the SMCR to CCPs, CSDs and, in the future, potentially CRAs and/or RIEs. Separately to the gateway, the government intends to legislate to implement an SMCR for recognised payment systems and specified service providers, with a separate timetable. This is to account for the forthcoming review of the regulatory perimeter for systemic firms in payment chains regulated by the Bank of England (the Bank).

The detail of the regime will be decided and implemented by the Bank through its rules and will be subject to public consultation. The Bank will have the power to determine which functions will be ‘Senior Management Functions’ and scope of the Certification Regime.

HM Treasury Consultation Response: Senior Managers & Certification Regime for Financial Market Infrastructures

Updated webpage

Bank of England

EMIR - Bank of England publishes Consultation Paper on derivatives clearing obligation - 9 June 2022

The Bank of England (the Bank) has published a consultation paper on its proposal to modify the scope of contracts which are subject to the clearing obligation, by adding Overnight Index Swaps (OIS) that reference the Secured Overnight Financing Rate (SOFR) and then removing contracts referencing the USD London Interbank Offered Rate (LIBOR). The consultation paper follows the Bank’s September 2021 and December 2021 policy statements, which finalised changes to the clearing obligation to reflect the discontinuation of certain other interest rate benchmarks by January 2022.

The Bank explains that, owing to the increase in trading activity in SOFR contracts since the beginning of 2022, it now considers it appropriate to consult on changes to the clearing obligation in relation to USD interest rate swaps.

The Bank proposes to modify the contract types which are subject to the clearing obligation in the retained EU-law version of Commission Delegated Regulation (EU) 2015/2205 supplementing the European Market Infrastructure Regulation ((EU) 648/2012) (EMIR) on over-the-counter derivatives, central counterparties (CCPs) and trade repositories with regard to regulatory technical standards on the clearing obligation (Binding Technical Standards (BTS) 2015/2205). Specifically, the Bank proposes to:

  • add OSI contracts that reference SOFR, to come into force on 31 October 2022; and
  • subsequently remove contracts that reference USD LIBOR, to come into force around the same time as a number of CCPs contractually convert these contracts and remove them from their list of contracts eligible for clearing.

The Bank notes that the SOFR OIS contract type will cover broadly the same maturity range as the USD LIBOR contracts currently cover. However, with the addition of the Tokyo Overnight Average Rate (TONA) OIS to the clearing obligation in January 2022, the Bank proposes a minimum maturity for the SOFR OIS contract type of seven days.

The deadline for responses is 21 July 2022. Following the consultation, the Bank will submit the proposed technical standards to HM Treasury for approval.

Bank of England Consultation Paper: Derivatives clearing obligation - modifications to reflect USD interest rate benchmark reform: Amendments to BTS 2015/2205