EC and Banks Disagree on Capital Markets Union Priorities
Of the five priorities for early action listed in the European Commission's Capital Markets Union green paper (lowering barriers to accessing capital markets, widening the investor base for SMEs, building sustainable securitization, developing European private placement markets, and boosting long-term investment), bankers speaking at the International Capital Market Forum's annual conference earlier this month strongly agreed with only one of them: securitization. The other early priorities were not listed by panelists as immediate concerns.
Panelists agreed that it would make sense to approach first those aspects where there is political will and change is already underway, such as the Prospectus Directive review and regulatory relief for simple and transparent securitizations (which was highlighted as the area where benefits would be seen most quickly).
Participants said that the regulatory distinction between market making and proprietary trading also needed to be an early action item for the CMU, though their other priorities, namely the harmonization of EU insolvency laws, were at odds with the immediate priorities listed in the CMU green paper.
Fair and Effective Markets Review Publishes Final Report
On June 10, 2015, the Fair and Effective Markets Review (FEMR), established by the Chancellor in June 2014 to conduct a review of fixed income, currency and commodity markets, published its final report. The report contains 21 policy recommendations aimed at preventing a repeat of the recent years' misconduct in fixed income, currencies and commodities markets. The recommendations largely rely on market-led initiatives, or suggest legislative reforms to formalize regulators' existing practices and extend incoming reforms to previously under-regulated markets.
The recommendations include the creation of a Market Standards Board to improve dialogue between regulators and the industry, the extension of the senior managers' regime to non-banks and (as the key element of the review) regulation of spot foreign exchange (FX). In the UK, spot FX has previously been treated as falling outside the scope of financial regulation and securities laws since it involves trading cash for cash but the recent probe into FX benchmark rigging in the UK and US identified spot FX as the market where most wrongdoing occurred.
European Supervisory Authorities Launch Second Consultation on Draft Regulatory Technical Standards
The European Supervisory Authorities (ESAs) have launched a second consultation on draft Regulation Technical Standards (RTS) outlining the framework of the European Market Infrastructure Regulation (EMIR). The document is the result of engagement with other authorities and industry stakeholders and focuses only on a narrow set of topics in order to clarify and finalize all the operation issues that may arise from the implementation of the EMIR framework. These draft RTSs prescribe the regulatory amount of initial and variation margin that counterparties should exchange, as well as the methodologies for their calculations, for over-the-counter derivative transactions not subject to central clearing. The RTSs also outline the criteria for eligible collateral, and establish the criteria to ensure that such collateral is sufficiently diversified and not subject to wrong-way risk. The consultation closes on July 10, 2015. Release.
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