Terms of Reference for Wheatley Review of LIBOR Published
On July 30, HM Treasury published a press release setting out the terms of reference for the independent review of LIBOR to be carried out by Martin Wheatley, Chief Executive-designate of the Financial Conduct Authority. Press Release.
Issues to be considered are:
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Whether participation in the setting of LIBOR should be a regulated activity.
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The construction of LIBOR, including the feasibility of using actual trade data to set the benchmark.
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The appropriate governance structure for LIBOR.
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The potential for alternative rate-setting processes.
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The financial stability consequences of a move to a new regime and how a transition could be appropriately managed.
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The adequacy and scope of sanctions for tackling LIBOR abuse. In particular, it will cover the scope of the UK authorities' civil and criminal sanctioning powers with respect to financial misconduct, particularly market abuse and abuse relating to the setting of LIBOR and equivalent rate-setting processes, as well as the FSA's approved persons regime and investigations into market misconduct.
There will be a four-week public consultation starting on August 10 with Mr. Wheatley aiming to publish his conclusions and recommendations by the end of September. The UK government intends to implement the findings of the review in the Financial Services Bill 2012-13.
SFO Confirms Criminal Offences are Capable of Covering LIBOR Conduct
On July 30, the Serious Fraud Office (“SFO”) published a press release stating that the Director of the Serious Fraud Office, David Green QC, is satisfied that existing criminal offences are capable of covering conduct relating to the alleged manipulation of LIBOR and related interest rates. Press Release.
German Legislation to Regulate Algorithmic Traders and Trading Strategies on German Trading Venues
On July 30, the German Ministry of Finance presented new draft legislation in the form of an “Act for the Prevention of Risks and the Abuse of High Frequency Trading” (Entwurf eines Gesetzes zur Vermeidung von Gefahren und Missbräuchen im Hochfrequenzhandel).
Highlights include:
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Inclusion of an extended definition of proprietary trading which will trigger a license requirement as a financial services institution under the German Banking Act as well as supervision by the German financial authority (“BaFin”).
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High Frequency Trading (“HFT”) firms will be subject to the general regulatory framework applicable to investment firms under the German Banking Act and the German Securities Trading Act including a proposed “speed limit” for electronic trading in its regulated markets and multilateral trading facilities.
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Investment firms, management companies and investment companies that are engaged in algorithmic trading would be subject to specific organisational requirements.
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Trading participants will be obligated to ensure an adequate ratio between their purchase and sales orders and transactions which are actually executed.
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Increased Enforcement Powers of Stock Exchange Supervisory Authorities and BaFin.
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Certain HFT strategies will in the future fall under the revised German market abuse rules.
The new legislation will be adopted after the summer recess and will come into force in Q3/Q4 of 2012.
Q&As Published on FSA's Transition to the FCA
On July 31, the FSA published a set of questions and answers on the transition to the new Financial Conduct Authority (“FCA”). Q&As.
The Q&As confirmed that:
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Firms will not need to reapply for authorisation under the new regime.
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There were be a six month transition period following confirmation of the new disclosure wording concerning firms' regulatory status.
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There will be little change to existing financial crime oversight and the approach to allocating fees.
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The FCA will retain the FSA's online notifications and applications and online regulatory reporting systems.
The FSA plans to publish an FCA approach document in October.
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