Contents

• Regulation of UK wholesale financial markets: FCA speech
• EU EMIR clearing obligation exemption for pension scheme arrangements: European Commission consults on extension
• CMU and impact of Brexit on clearing and derivatives: European Commission speech
• COVID-19: ESMA allows decision on reporting net short positions to expire
• Proposed EU Regulation on pilot regime for market infrastructures based on DLT: ECON draft report

Regulation of UK wholesale financial markets: FCA speech

The Financial Conduct Authority (FCA) has published a speech by Edwin Schooling Latter, Director of Markets and Wholesale Policy, on a forward look at regulation of the UK's wholesale financial markets. In his speech, Mr Schooling Letter comments that the FCA shares the government's determination to ensure the UK regulatory framework is tailored to allow UK financial markets and their users around the globe to thrive. He considers, among other things:

• whether the UK will diverge from the EU reporting regime under the Regulation on reporting and transparency of securities financing transactions (SFTR), with Mr Schooling Latter stating that it is prudent to allow the regime to mature and that divergence could add complications and costs. However, the FCA is open to considering whether to remove commodities lending transactions from scope. The FCA is also assessing evidence on the relative benefits of single versus double-sided reporting;
• how the FCA will soon consult on changes to MiFID rules, with those changes being described as similar but "not absolutely identical" to the European amendments to the MiFID regime to assist economic recovery from the COVID-19 pandemic;
• the FCA considerations about how to implement on a UK-only basis various elements of the MiFID transparency regime. On dark trading, the FCA's initial approach is not to have automated caps in the absence of evidence that the levels of dark trading it has seen harm price formation or execution outcomes for investors, and given there is no need to preserve the alignment of cap application in the absence of the EU accepting the equivalence of the UK share trading regime. In relation to threshold calculation and application, the FCA is considering how to both simplify the rules and increase flexibility to create options for alignments across different jurisdictions; and
• what the FCA is considering following HM Treasury publishing Lord Hill's report on the UK listing regime. Mr Schooling Latter sees real efficiency gains in better aligning prospectus documentation requirements with the type of transaction being undertaken.

EU EMIR clearing obligation exemption for pension scheme arrangements: European Commission consults on extension

The European Commission has published for consultation a draft Delegated Regulation extending the transitional period under Article 89(1) of the European Market Infrastructure Regulation (EMIR).

EMIR provides for a temporary exemption from the clearing obligation for pension scheme arrangements (PSAs) meeting certain criteria. This transitional period is set out under Article 89(1) of EMIR and provides further time for central counterparties (CCPs), PSAs and clearing members to develop viable technical solutions that would allow PSAs to meet the cash variation margin calls of CCPs. The temporary exemption has been extended over the years because no viable technical solution has emerged. The EMIR Refit Regulation extended the temporary exemption until 18 June 2021.

While the aim of EMIR remains central clearing for PSAs, under Article 85(2) of EMIR, it is possible to extend (through two Commission delegated acts) the temporary exemption for PSAs for a maximum period of a further two years. Under the draft Delegated Regulation, the Commission is proposing to prolong the existing exemption by an additional year, to 18 June 2022. The consultation closes on 13 April 2021.

CMU and impact of Brexit on clearing and derivatives: European Commission speech

The European Commission has published a speech by Mairead McGuinness, European Commissioner for Financial Services, Financial Stability, and Capital Markets Union (CMU), in which she considers progress in relation to the CMU and the impact of Brexit on the EU, particularly in relation to clearing and derivatives.

Among other things, Ms McGuinness discusses the UK-EU memorandum of understanding (MoU). She states that the Commission envisages a flexible, non-binding framework similar to its arrangements with the US. Once this framework is in place, the EU will resume the assessment of equivalence with the UK authorities. It will do so progressively, on a case-by-case basis, taking into account the UK's regulatory intentions. However, there cannot be equivalence with wide regulatory divergence and the EU will only grant equivalence when this is in its interest. It will not take a narrow view of that interest, thinking only in terms of costs and market fragmentation. It needs to "look at the big picture and see how to develop our 'open strategic autonomy' – making the best of openness and global cooperation while defending our own interests and values".

The European Securities and Markets Authority (ESMA) is currently re-assessing, with the European Central Bank, the systemic importance of two UK central counterparties (CCPs). ESMA will decide whether to advise the Commission not to recognise these CCPs for some or all the services they offer and whether they should relocate to the EU. In parallel, in January 2021, the Commission established a working group with the ECB and other EU supervisory authorities to better identify the opportunities and challenges for transferring derivatives denominated in euros or other EU currency from the UK to the EU. The working group's recommendations are expected by mid-2021 and will feed into the Commission's reflections on the way forward. While a voluntary scaling back of the industry's exposure to UK CCPs is the preferred option, the Commission will consider very carefully any recommendation from ESMA regarding systemically important UK CCPs.

COVID-19: ESMA allows decision on reporting net short positions to expire

ESMA has announced that it has decided not to renew its decision to require holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority (NCA) if the position reaches, exceeds or falls below 0.1% of the issued share capital. The measure, which applied from 16 March 2020, expired on 19 March 2021. Therefore, the last reporting where the lower threshold of 0.1% applied related to 19 March 2021 and had to be reported to NCAs by 15.30 on 22 March 2021.

From 20 March 2021, positions holders need to send notifications only if they reach or exceed the 0.2% threshold again, while any outstanding net short position between 0.1% and 0.2% will not have to be reported.

The decision is expiring because ESMA's view is that the current situation in financial markets no longer resembles the emergency situation required by the Short Selling Regulation to maintain the measure. The EFTA Surveillance Authority, in cooperation with ESMA, has published a corresponding press release stating it is allowing temporary requirements to expire.

Proposed EU Regulation on pilot regime for market infrastructures based on DLT: ECON draft report

The European Parliament's Economic and Monetary Affairs Committee (ECON) has published a draft report setting out recommendations to the European Commission on the proposal for a Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT). The draft report which was prepared by Rapporteur Johan Van Overtveldt contains a draft European Parliament legislative resolution, the text of which sets out suggested amendments to the proposed Regulation.

The report contains an explanatory statement in which Rapporteur Overtveldt supports the overall objectives of the proposed Regulation. However, he also identifies elements of the proposals that could be strengthened in order to reach those objectives.