European Commission
BMR - European Commission publishes call for evidence on the scope and third-country regime - 2 March 2023
The European Commission has published a call for evidence on the Benchmarks Regulation (EU) (2016/1011) (BMR), focused primarily on the scope of the rules and the use of non-EU financial benchmarks. The call for evidence notes that:
“[third-country] benchmarks are used widely throughout the EU in the financial sector and the real economy to measure markets, hedge risks and create investment exposure. When the new rules on the use of non-EU benchmarks come into force, it would deprive market participants in the EU of access to the majority of the world’s benchmarks… In 2021, this issue was addressed for the specific category of foreign exchange benchmarks. Conscious that there was a broader problem, the European Parliament and Council of the EU tasked the Commission with a full review of the rules for non-EU benchmarks by mid-2023.”
The call for evidence will also consider the status of non-EU benchmarks labelled as EU Climate Transition Benchmarks or EU Paris-Aligned Benchmarks, two categories that were introduced to promote sustainable investing.
Webpage
European Parliament
Amendments to MiFIR/MiFID II - ECON adopts draft reports - 1 March 2023
The European Parliament’s Economic and Monetary Affairs Committee (ECON) has voted to adopt draft reports on the European Commission’s legislative proposals on the proposed Regulation and Directive amending the Markets in Financial Instruments Regulation (2014/600/EU) (MiFIR) and the Markets in Financial Instrument Directive (2014/65/EU) (MiFID II).
ECON intends to make a number of changes to the proposals. Among other things, it proposes that retail investors, academics and civil society organisations using the data for research purposes should have access to the consolidated tape free of charge. ECON also recommends a single volume cap to limit the amount of dark trading in an equity instrument in the EU to 7% of total trading in that instrument. ECON has included text which would allow regulated markets to temporarily halt or constrain trading in emergencies or if there is a significant price movement in a financial instrument and, in exceptional cases, to cancel, vary or correct any transaction.
Press release
Proposed CSDR Refit Regulation - ECON adopts draft report - 1 March 2023
The European Parliament’s Economic and Monetary Affairs Committee (ECON) has voted to adopt a draft report on a proposed Regulation amending the Central Securities Depositories Regulation (909/2014/EU) (CSDR Refit).
ECON intends to make a number of changes to the proposals. It intends to apply deterrent and proportionate cash penalties when a party to a transaction does not deliver security or funds on time. Mandatory buy-in rules should apply only as a last resort measure. ECON also proposes to exclude transactions that fail for reasons not attributable to the participants, transactions that do not involve two trading parties, or transactions that could lead to detrimental consequences for the market. In addition, ECON recommends an extension of the recognition regime for central securities depositories (CSDs) established in a third country to cover securities settlement services. ECON also proposes that CSDs that are not authorised as banks should be able to offer a sufficient amount of foreign currency settlement through a bank account, subject to risk mitigating requirements to be drafted by the EBA.
Press release
European Securities and Markets Authority
Impact of market correction mechanism on financial markets - ESMA publishes effects assessment - 1 March 2023
The European Securities and Markets Authority (ESMA) has published a report on the impact on financial markets of the market correction mechanism (MCM). The MCM was established under Council Regulation (EU) 2022/2578 and imposes a ceiling on certain natural gas transactions in title transfer facility exchange-traded derivatives. The MCM has applied since 15 February 2023.
ESMA has not identified any changes in the market indicators assessed that could be unequivocally and directly attributed to the MCM. However, ESMA notes that some of the potential effects and risks in the trading and clearing environment may only become apparent as the market environment changes and the activation of the MCM is anticipated by market participants. Bringing the residual trading activity on other EU virtual trading points (VTPs) under the scope of the MCM may lead to further use of circumvention mechanisms by market participants, impose additional costs for market participants and create increased risks for smaller central counterparties (CCPs). ESMA has not identified noticeable changes in CCP risk management or in margin requirements that could be attributed to the MCM.
ESMA: Effects Assessment of the impact of the market correction mechanism on financial markets
Press release
HM Treasury
Financial Services and Markets Act 2000 (Commodity Derivatives and Emissions Allowances) Order 2023 - Draft statutory instrument and explanatory memorandum published - 1 March 2023
HM Treasury has published a draft version of the Financial Services and Markets Act 2000 (Commodity Derivatives and Emissions Allowances) Order 2023 alongside an explanatory memorandum. This follows HM Treasury’s response to the Wholesale Markets Review, which considered measures to simplify the ancillary activities test, published in March 2022.
The draft Order relates to the ancillary activities exemption set out in Schedule 3 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (RAO), that applies to firms trading commodity derivatives or emission allowances primarily for investment purposes or in support of the firm’s commercial business. UK Commission Delegated Regulation (EU) 2017/592 (UK RTS 20) contains provisions for determining whether a firm’s activity is ancillary to its main commercial business. Article 72J of the RAO enables firms to carry on their business without obtaining authorisation if there is no data available to enable them to perform the test establishing when an activity is ancillary.
The draft Order will amend the RAO and the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (SI 2017/701) to remove the obligation for firms relying on the ancillary activities exemption to notify the FCA of their exemption annually. It will also remove references to Delegated Regulation (EU) 2017/592. Article 72J of the RAO will be deleted.
The draft Order aims to “streamline the process for determining when a firm trading commodity derivatives or emission allowances needs to be authorised as an investment firm.” HM Treasury states, in the explanatory memorandum, that the FCA will establish a simpler and lower cost regime for determining when a firm that trades commodities or emission allowances as an ancillary activity does not need to be authorised as an investment firm.
The Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023
Explanatory memorandum
Financial Conduct Authority
Wholesale data market - FCA publishes findings and launches market study - 2 March 2023
The FCA has published a report on its review of trade data and announced the launch of its wholesale data market study, amid concerns that competition in other types of wholesale data markets may not be as effective as they should be. Among the findings, the report found that:
- some trading markets are concentrated among a few firms so there is little choice for users not to buy this important data and switching supplier is often difficult;
- the way data is sold can be complex, making it harder for data users to make informed choices;
- complexity and limited choice both result in additional costs to data users, which are likely to be passed on to UK retail investors and savers; and
- despite rules in place requiring delayed data to be distributed for free, many users end up with little choice but to pay for data.
The FCA is working with the government to develop consolidated tapes which collect wholesale data across the market and distribute them in single, standardised data feeds.
The new wholesale data market study will investigate potential competition problems in the markets for benchmarks, credit ratings data and market data vendor services and whether they could be leading to higher costs for investors, less effective investment decisions and preventing new firms entering these markets. The FCA invites all stakeholders to share their views on the issues set out in the accompanying terms of reference by 30 March 2023.
The FCA intends to publish a market study report setting out its findings and further actions within twelve months. It will provisionally decide whether or not it is proposing to make a market investigation reference to the Competition and Markets Authority within six months.
FCA Findings Report: Trade data review
FCA Webpage: MS23/1: Wholesale data market study
FCA Market Study Notice
FCA Wholesale Data Market Study: Terms of Reference (MS23/1.2)
FCA press release
Financial Conduct Authority and Bank of England
UK EMIR - FCA and Bank of England publish joint Policy Statement (PS23/2) - 24 February 2023
The FCA and the Bank of England (the Bank) have published a joint Policy Statement (PS23/2) on changes to reporting requirements, procedures for data quality and registration of trade repositories (TRs) under the retained EU law version of the European Market Infrastructure Regulation (648/2012/EU) (UK EMIR). The Policy Statement summarises feedback on their joint Consultation Paper published in November 2021 (CP21/31) and sets out their final policy.
The final rules include:
- amendments to the table of reportable fields in relevant technical standards (RTS) under UK EMIR to align them with international guidance issued by the Committee on Payments and Market Infrastructures and International Organization of Securities Commissions (CPMI-IOSCO);
- introduction of a notifications and reconciliation process for counterparties;
- introduction of specific requirements on the mandatory delegated reporting requirements under UK EMIR in the RTS;
- requirements for counterparties to use standardised XML schemas when submitting details of their derivatives to a TR; and
- introduction of specific requirements for the use of global identifiers.
Separately, amendments to the registration process for TRs to streamline the process for those already registered or recognised under the Securities Financing Transactions Regulation (EU) (2015/2365) (UK SFTR) will be made. Further to this, the FCA will introduce new requirements for TRs which will improve data quality, promote consistency of reporting and facilitate the orderly transfer of data between TRs and regulatory authorities. The FCA is implementing this through the introduction of a new sourcebook called the European Market Infrastructure Regulation Rules (EMIRR).
The final rules, which were made by the FCA Board on 23 February 2023, are set out in the Technical Standards (EMIR Reporting and Data Quality and Miscellaneous Amendments) Instrument 2023 (FCA 2023/4), Technical Standards (EMIR Registration of Trade Repositories and Miscellaneous Amendments) Instrument 2023 (FCA 2023/5) and EMIR Rules (Procedures for Ensuring Data Quality) Instrument 2023 (FCA 2023/3). These are contained in Appendixes to PS23/2. The rules in Part 1 of Annex A relating to verification of completeness and correctness of data, came into force on 24 February 2023. All other rules had effect from 1 February 2023.
Policy Statement (PS23/2): Changes to reporting requirements, procedures for data quality and registration of Trade Repositories under UK EMIR - feedback on CP21/31 and final rules and guidance
FCA Webpage
Bank of England Webpage
Updated FCA Webpage: Reporting obligation
