European Commission
Short Selling Regulation - European Commission adopts Delegated Regulation amending notification threshold - 27 September 2021
The European Commission has adopted a Delegated Regulation amending the Short Selling Regulation ((EU) 236/2012) (SSR) as regards the threshold for the notification of significant net short positions in shares under the SSR.
The aim of the draft Delegated Regulation is to adjust the relevant threshold for the notification to competent authorities of net short positions in shares set out in Article 5(2) of the SSR from 0.2% to 0.1% (and each 0.1% above that).
This lower threshold was in place during the COVID-19 pandemic, when the European Securities and Markets Authority (ESMA) used its emergency intervention powers to lower the notification threshold from 0.2% to 0.1% on a temporary basis. After numerous extensions, this lower threshold expired in March 2021. The Delegated Regulation follows ESMA’s recommendation that the adjustment of the threshold be made permanent in light of the increased visibility obtained by competent authorities on volumes of net short positions.
The Delegated Regulation will enter into force on 18 October 2021 and is directly applicable in all member states.
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European Securities and Markets Authority
MiFID II - ESMA publishes consultation paper on best execution reports - 24 September 2021
The European Securities and Markets Authority (ESMA) has published a consultation paper on a review of the Markets in Financial Instruments Directive (2014/65/EU) (MiFID II) framework on best execution reports.
In the consultation paper, ESMA sets out proposals for revisions to the requirements for reporting on best execution, in particular the regulatory technical standards (RTS) set out in Delegated Regulation (EU) 2017/575 (RTS 27) and Delegated Regulation (EU) 2017/576 (RTS 28). The two RTS relate respectively to the data to be published by execution venues and the information to be published by investment firms on the identity of their top five execution venues or third-party executing entities.
The consultation closes on 23 December 2021.
Consultation paper: Review of the MiFID II framework on best execution reports
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Press release
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CSDR - ESMA calls on European Commission to delay mandatory buy-in regime - 24 September 2021
The European Securities and Markets Authority (ESMA) has sent a letter to the European Commission on the implementation of the Central Securities Depositories Regulation (909/2014/EU) (CSDR). In the letter, ESMA urges the Commission to consider a delay of the mandatory buy-in regime under the CSDR, currently due to enter into force on 1 February 2022, owing to challenges associated with its implementation.
ESMA states these challenges are twofold: an absence of clarity regarding some open questions necessary for the implementation of the buy-in requirements and uncertainty as to whether the European Commission’s legislative proposal for the review of CSDR (expected later in the year) will include amendments to the mandatory buy-in rules.
ESMA requests that the Commission take urgent action to signal that it intends to postpone the mandatory buy-in framework; ideally, the Commission should state its position no later than the end of October 2021.
Letter: ESMA’s views on the way forward on settlement discipline in the context of the CSDR review (ESMA70-156-4963)
Press release
Short Selling Regulation - ESMA publishes consultation on review - 24 September 2021
ESMA has published a consultation paper on its review of certain aspects of the Short Selling Regulation (236/2012/EU) (SSR). Among other things, ESMA presents an empirical analysis of the impact of the short selling bans adopted during the COVID-19 pandemic, proposes a review of the current framework for the calculation of net short positions (NSPs) and reviews the framework for transparency and publication of NSPs. The consultation closes on 19 November 2021, and ESMA expects to publish a final report by the end of Q1 2022.
Consultation paper: Review of certain aspects of the Short Selling Regulation (ESMA70-156-3914)
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Press release
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Benchmarks Regulation - ESMA publishes final report and guidelines on methodology, oversight function and record keeping - 24 September 2021
ESMA has published a final report and guidelines on methodology, the oversight function and record keeping under the Benchmarks Regulation ((EU) 2016/1011) (BMR). In particular, the guidelines aim to provide further guidance to market participants and national competent authorities on the application of the requirements relating to the use of a methodology for calculating a benchmark in exceptional circumstances, such as COVID-19. The guidelines will apply from 31 May 2022.
Final report: Guidelines on methodology, oversight function and record keeping under the Benchmarks Regulation (ESMA81-393-239)
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CSDR - ESMA publishes final report and guidelines on settlement fails reporting under Article 7 - 24 September 2021
ESMA has published its final report containing guidelines on settlement failure reporting under Article 7 of the Central Securities Depositories Regulation (909/2014/EU) (CSDR).
Under Article 7(1) of the CSDR, for each securities settlement system it operates a central securities depository (CSD) must establish a system that monitors settlement failures in relation to transactions in financial instruments and provide regular reports on the number and details of settlement failures. The objective of the guidelines is to clarify the scope of the data to be reported by CSDs, the representation and valuation of financial instruments, the types of transactions and operations that should not be included, and how to report settlement failures according to the reason for them.
The guidelines will apply from 31 May 2022.
Final report: Guidelines on Settlement Fails Reporting under Article 7 of CSDR (ESMA70-156-4717)
Derivatives - ESMA publishes speech on priorities - 28 September 2021
ESMA has published a speech by ESMA Executive Directive Natasha Cazenave on its priorities for derivatives. The speech focuses on ESMA’s:
- recommendations for the review of the framework under MiFID II and the Markets in Financial Instruments Regulation (600/2014/EU) (MiFIR); and
- work on the transition to risk-free rates in the context of the clearing obligation under the European Market Infrastructure Regulation (648/2012/EU) (EMIR) and the MiFIR derivatives trading obligation.
Summarising ESMA’s findings on the MiFID review, Ms Cazenave referred to the need for “less complexity, more effectiveness” and commented that removing complexity from the legal framework while ensuring that the rules remain effective should be a guiding principle for the upcoming MiFIR review.
Speech to Futures Industry Association by ESMA Executive Directive, Natasha Cazenave: ESMA’s priorities for derivatives (ESMA70-156-4871)
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MiFID II - ESMA publishes final report on algorithmic trading - 29 September 2021
ESMA has published its final report on algorithmic trading to assist the European Commission in producing a report on the impact of requirements relating to algorithmic trading, including high-frequency trading (HFT), under MiFID II.
The report concludes that no fundamental issues have emerged with respect to the MiFID II algorithmic trading regime, which has, overall, delivered on its objectives. ESMA does, however, make some recommendations that aim to simplify the regime and increase its efficiency.
The report also identifies issues that will be followed up by ESMA via amendments to ESMA technical standards or additional guidance on a number of topics, including the concepts of ‘algorithmic trading’ and ‘direct electronic access’ and the authorisation regime for EU and non-EU algorithmic trading firms (including HFT firms) deploying their strategies on EU trading venues.
ESMA will now submit the report to the Commission and it is expected to be taken into consideration for further legislative proposals on the MiFID II regime.
Report: MiFID/MiFIR review report on Algorithmic Trading (ESMA70-156-4572)
Press release
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Access to and use of credit ratings - ESMA publishes opinion recommending legislative changes - 30 September 2021
ESMA has published an opinion recommending legislative changes to improve access to and use of credit ratings through changes to the Credit Ratings Agencies Regulation (1060/2009/EC) (CRAR) or the adoption of alternative legislation.
ESMA highlights difficulties that users of credit ratings experience and recommends legislative changes to the CRAR to establish the conditions under which credit ratings can be accessed and used for regulatory reporting purposes. These proposals include broadening the scope of the CRAR to cover the distribution of credit ratings to subscribers in a machine-readable, downloadable manner. ESMA notes that its concerns could also be addressed by the adoption of alternative regulation at EU level, for example requiring credit ratings to be published on the European Single Access Point in a format allowing them to be accessed and used for regulatory reporting purposes.
Opinion on improving access to and use of credit ratings in the EU in accordance with the Credit Ratings Agencies Regulation (1060/2009/EC) (ESMA80-196-5819)
Press release
Bank of England
UK EMIR - Bank of England statement on modifying scope of contracts subject to derivatives clearing obligation - 29 September 2021
The Bank of England (the Bank) has published a policy statement on modifying the scope of contracts that are subject to the derivatives clearing obligation under the retained EU law version of the European Market Infrastructure Regulation (648/2012) (UK EMIR) to reflect the ongoing reforms to interest rate benchmarks. The Bank’s final policy will:
- remove clearing contracts referencing EONIA, JPY LIBOR and GBP LIBOR;
- add certain contracts referencing €STR; and
- extend the maturity of contracts referencing SONIA.
The changes come into force on either of 18 October, 6 December or 20 December 2021. The Bank expects to consult on changes to the clearing obligation relating to contract types referencing USD LIBOR in 2022.
Policy statement: Derivatives clearing obligation – modifications to reflect interest rate benchmark reform: Amendments to BTS 2015/2205
Appendix: Technical Standards (Clearing Obligation) Instrument 2021
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UK EMIR - Bank of England consults on scope of contracts subject to derivatives clearing obligation - 29 September 2021
The Bank has published a consultation paper setting out its proposal to add overnight index swaps (OIS) that reference TONA to the scope of contracts that are subject to the derivatives clearing obligation. The Bank notes that this proposal follows recent announcements made by the Japanese authorities, in the wake of which trading and liquidity in interest rate derivatives contracts referencing Japanese yen (JPY) LIBOR have begun to migrate to contracts referencing TONA.
The Bank suggests that the clearing obligation for OIS that reference TONA should come into force on or shortly after 6 December 2021 (when the removal of contracts referencing JPY Libor from the clearing obligation will come into force). In order to achieve this timeline, the consultation period will close on 27 October 2021.
Consultation paper: Derivatives clearing obligation – introduction of contracts referencing TONA: Amendment to BTS 2015/2205
Appendix: Draft version of Technical Standards (Clearing Obligation) (No 2) Instrument 2021
Financial Conduct Authority
LIBOR - FCA arrangements for orderly wind-down at end-2021 - 29 September 2021
The FCA has announced further arrangements for the orderly wind-down of LIBOR at the end of 2021. Of particular interest, the FCA has:
- published a consultation paper (CP21/29) on its proposed decisions regarding (i) the legacy use of synthetic sterling and Japanese yen (JPY) LIBOR in all contracts except cleared derivatives for the duration of 2022 and (ii) the prohibition of most new uses of US dollar LIBOR after the end of 2021; and
- confirmed that, in order to avoid disruption to legacy contracts that reference the one-, three- and six-month sterling and JPY LIBOR settings, it will require the LIBOR benchmark administrator to publish these settings under a ‘synthetic’ methodology, based on term risk-free rates, for the duration of 2022. These six LIBOR settings will be available only for use in some legacy contracts and are not for use in new business.
The consultation closes on 20 October 2021. The FCA will confirm its final decisions as soon as practicable.
The FCA also published a feedback statement (FS21/10) summarising the feedback it received to its consultation, launched in May 2021, on how the FCA uses powers relating to the restriction of use of critical benchmarks that are being wound down (CP21/15). Following the feedback received, the FCA has included an additional factor that may be relevant when deciding whether and how to exercise its legacy use power.
Consultation paper: Proposed decisions on the use of LIBOR (Articles 23C and 21A BMR) (CP21/29)
Feedback statement: FCA use of powers over use of critical benchmarks (FS21/10)
Statement of Policy on the FCA’s power under Article 21A BMR
Statement of Policy on the FCA’s power under Article 23C BMR
Article 23A Benchmarks Regulation: Notice of designation: ICE Benchmark Administration Ltd
Article 23D Benchmarks Regulation: Draft notice of designation: ICE Benchmark Administration Ltd
Article 21(3) Benchmarks Regulation: Notice of first decision: ICE Benchmark Administration Limited
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Press release
International Swaps and Derivatives Association and Futures Industry Association
Recovery and resolution frameworks for CCPs - ISDA and FIA publish comparative review - 24 September 2021
The International Swaps and Derivatives Association (ISDA) and the Futures Industry Association (FIA) have published a review document comparing the central counterparty recovery and resolution frameworks of the Financial Stability Board (FSB), the EU and the UK. The review of the UK framework is inclusive of proposals for an expanded resolution regime made by HM Treasury and published in February 2021.
ISDA/FIA Central Counterparty (CCP) Recovery and Resolution (R&R) Comparative Review 2021
Press release
Futures Industry Association
Regulation of cross-border derivative activity - FIA publishes paper - 28 September 2021
The Futures Industry Association (FIA) has published a policy paper outlining seven key principles which it believes should guide the regulation of cross-border activity in derivatives markets. The paper encourages greater use of domestic regulatory models that place reliance on, and defer to, comparable home country regulation.
The FIA states that it is issuing the paper to address the threat of market fragmentation owing to conflicts, inconsistencies and duplication in cross-border regulation. It observes that some policymakers and regulators are deploying more insulated national policies that favour direct oversight of domestic and foreign entities, as opposed to deferring to home country regulation. It attributes this approach to several global developments, including China’s increasing integration in global financial markets and the separation of London’s financial centre from the European Union.
FIA President and CEO Walt Lukken said: “For the last 40 years, our industry has relied on governments’ willingness to defer to the regulation of other jurisdictions to facilitate these cross-border connections. These recognition and equivalence regimes have worked extraordinarily well. […] It is critical that we remain vocal about finding the right approach to regulation that enables cross-border activity in our markets.”
FIA paper: Principles for cross-border regulation
Press release
FICC Markets Standards Board
FICC markets - FMSB publishes spotlight review on hybrid working - 30 September 2021
The Fixed Income, Currencies and Commodities (FICC) Markets Standards Board (FMSB) has published a spotlight review on hybrid working in FICC markets. The review considers how firms might adapt their risk management frameworks to address risks associated with the emergence of flexible working practices in response to COVID-19.
The review describes the relevant conduct-related risks in five thematic categories:
- cultural change;
- supervision and control impairments;
- execution risks;
- sharing of confidential information; and
- threats to market effectiveness.
Spotlight Review: Hybrid working in FICC markets: Future risk management frameworks
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