Committee on Payments and Market Infrastructures and The International Organization of Securities Commissions
Addressing non-default losses - CPMI and IOSCO publish joint discussion paper on CCP practices - 4 August 2022
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have published a joint discussion paper on central counterparty (CCP) practices to address potential losses arising from non-default events (non-default losses or NDLs).
The CPMI and IOSCO caution that NDLs can threaten a CCP’s viability as a going concern and its ability to continue providing critical services. Under the ‘Principles for financial market infrastructures’ (PFMI), CCPs must take action and have policies, procedures and plans in place for addressing NDLs, in addition to sound risk management frameworks to mitigate and manage those risks. The CPMI and IOSCO highlight that the discussion paper is not intended to create additional standards for CCPs beyond the PFMI, nor is it intended to be an assessment of whether CCPs have appropriately implemented the standards set out in the PFMI regarding NDLs. Instead, the discussion paper aims to advance industry efforts and foster dialogue on the key concepts and processes used by CCPs in four areas:
- developing methodologies and practices for: (i) identifying scenarios from which NDLs may occur, (ii) quantifying potential NDLs, and (iii) assessing the sufficiency of resources and tools available to address NDLs;
- achieving the operational effectiveness of plans to address NDLs;
- reviewing, exercising and testing plans for addressing NDLs; and
- providing effective governance of, and transparency regarding, plans for addressing NDLs both in advance of, and during, an NDL event, and engaging with participants and authorities.
The deadline for responses is 4 October 2022.
CPMI/IOSCO discussion paper: on central counterparty practices to address non-default losses
Cover note
Press release
European Parliament
MiFIR - ECON publishes draft report on proposed amending Regulation - 29 July 2022
The European Parliament’s Economic and Monetary Affairs Committee (ECON) has published a draft report (021/0385(COD)) (dated 26 July 2022) on the proposed Regulation amending the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR), regarding enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payments for forwarding client orders.
The legislative proposal for the Regulation was adopted in November 2021. The draft report suggests several improvements to that proposal, including:
- an exemption from mandatory contributions for markets that either represent less than 1% of the total EU average daily trading volume or do not contribute significantly to the fragmentation of EU markets;
- an opt-in option to the mandatory contribution scheme for those exemptible regulated markets;
- limiting the use of waivers to pre-trade transparency requirements under Article 4 of MiFIR;
- harmonising the deferral regime for non-equities at EU level. The price and volume of a non-equity transaction should be published as close to real time as possible, and the price should only be delayed until the end of the trading day at most;
- the establishment by ESMA a register of all systematic internalisers (SIs) and designated reporting entities (DREs) specifying their identity and the instruments or classes of instruments for which they are either an SI or a DRE;
- allowing targeted suspensions of the derivatives trading obligation in favour of dealer-to-dealer platforms that have established links to central counterparties established in the EU; and
- implementing changes to the best execution requirements under Article 27 of the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II), to ensure a harmonised approach to best execution, more transparency and a level playing field across the EU.
Draft Report on the proposal for a regulation of the European Parliament and of the Council amending Regulation (EU) No 600/2014 as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payments for forwarding client orders (2021/0385(COD))
European Securities and Markets Authority
Pre-hedging - ESMA publishes call for evidence - 29 July 2022
The European Securities and Markets Authority (ESMA) has published a call for evidence (ESMA70-449-672) on pre-hedging. The call for evidence aims to promote discussion and gather evidence on pre-hedging to assist ESMA in developing appropriate guidance to delineate its admissibility in the context of the Market Abuse Regulation (596/2014/EU) (MAR), the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) and the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR). It follows ESMA’s Final Report (ESMA70-156-2391) on the review of MAR, which was published in September 2020.
ESMA explains that the review of MAR found fundamentally different views on pre-hedging, with some market participants seeing pre-hedging as essential for risk management and the correct functioning of the markets, while others considered that it may amount to insider trading. In light of this, following the Final Report, market participants asked ESMA to issue guidance on what should be considered as MAR-compliant in terms of pre-hedging; and the sort of behaviour that might constitute front-running.
The deadline for responses is 30 September 2022.
ESMA Call for Evidence: On Pre-hedging (ESMA70-449-672)
Webpage
Press release
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CSDR - ESMA updates Q&As on settlement discipline - 3 August 2022 - ESMA has published an updated version of its Q&As on the implementation of the Central Securities Depositories (CSDs) Regulation (909/2014/EU) (CSDR) on improving securities settlement in the EU and on central securities depositories.
The revised version updates the ‘Settlement Discipline’ Q&As by introducing two new Q&As on the cash penalties calculation and two new Q&As on the bilateral cancellation facility.
ESMA: Q&As on implementation of the Regulation (EU) No 909/2014 on improving securities settlement in the EU and on central securities depositories (ESMA70-156-4448)
