Germany's Lower House Approves High Frequency Trading Bill
On February 28, the Bundestag (Germany's lower house of parliament) approved a bill aimed to prevent the abuse and associated dangers of high frequency trading. The bill requires that high frequency traders obtain authorization, which has been unregulated up to now. It also requires market participants to ensure that they have properly configured trading systems which will not cause market disturbances. Additionally, a fee will be imposed on traders who make excessive use of high frequency trading systems and limits will be introduced in respect to the ratio between abandoned and executed orders.
Bafin (the German regulator) will have responsibility for supervising high frequency trading and will have information and intervention rights under the proposed legislation. In particular, it will have the power to request a description of algorithmic trading patterns and trading parameters, and can prohibit the use of certain algorithmic trading strategies if they violate exchange rules or cause disruption in the markets. Trading strategies which are conducted with the intention of disturbing trading or deceiving the markets will be considered to be market manipulation.
EU Agrees to Cap Bankers' Bonuses
On February 27, the Council of the EU and the European Parliament announced that they had reached preliminary agreement on the legislative proposals for the CRD IV reforms, including on the key contentious issue of bankers' bonuses. Bonus payments to bankers are to be capped at twice their annual salary and banks will be subject to a strict transparency regime. The basic agreement is a 1:1 ratio on salary relative to variable pay, which can rise to 1:2 in the event of shareholder approval consisting of at least 65% of shareholders owning half the shares represented (or 75% of votes in the event that there is no quorum). As well as the bonus cap, it was also agreed that banks must reveal their taxes and profits on a country-by-country basis from 2015, assuming that this measure is not judged as being an impediment to inward investment by the European Commission.
Member states will be required to transpose the CRD IV Directive by January 1, 2014, and it is expected that the European Parliament will vote on the provisional agreement, once formally endorsed by the Council, in its plenary session from April 15-18.
FSA Temporary Prohibition on Short-Selling of Certain Italian Shares
On February 27, the FSA published a statement announcing an immediate temporary ban on the short selling of shares in four Italian companies – Banco Popolare, Mediolanum, Intesa and Banca Carige. The prohibition was announced in light of a similar measure introduced by CONSOB, the Italian regulator, and following significant drops in the share price of the affected companies. In explaining its decision to impose the ban, the FSA noted that the move was justified in order to prevent disorderly falls in the share price.
Leading up to the prohibition, the price movements in all four companies' shares crossed one of the thresholds set out in the Short Selling Regulation (Regulation 919/2012), which sets out criteria for determining a significant fall in price.
EMIR Regulatory Technical Standards: Delegated Regulations Published
On February 23, six delegated regulations containing regulatory technical standards relating to EMIR (Regulation 648/2012) were published in the Official Journal of the European Union. The regulatory technical standards provide detailed information of requirements relating to OTC derivatives, central counterparties and trade repositories in the following areas:
risk mitigation requirements; and
registration requirements for central counterparties and trade repositories.
The regulatory technical standards will enter into force on March 15, 2013, (being 20 days from their publication in the Official Journal) and trigger the effective date of several key EMIR obligations, such as the requirement for financial and non-financial entities to confirm their non-centrally-cleared OTC derivative transactions on a timely basis.
ESMA has not yet released draft technical standards relating to the margin and capital requirements for non-centrally cleared trades.