Securities and markets regulatory news, July 2020 #4

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Recent regulatory developments of interest to financial institutions and markets. Includes various updates relating to Brexit, the EU and UK Benchmarks Regulations and MiFIR.

Contents

  • UK BMR: HM Treasury policy statement on extending transitional period for third-country benchmarks
  • BMR: Commission Delegated Regulations on sustainable finance issues
  • MiFIR: ESMA opinion on assessment of pre-trade transparency waivers
  • MiFIR: ESMA final report on MiFIR transparency requirements for non-equity instruments
  • Brexit: ISDA updates FAQs

UK BMR: HM Treasury policy statement on extending transitional period for third-country benchmarks

HM Treasury has published a policy statement explaining the government's reasons for extending the transitional period for third-country benchmarks under the retained EU law version of the Benchmarks Regulation (UK BMR) to 31 December 2025. The transitional period currently ends on 31 December 2022.

The UK BMR requires that only third-country benchmarks approved for use via one of the prescribed routes set out in the EU Benchmarks Regulation (EU BMR) may continue to be used within the UK. This means that third-country administrators must become approved via equivalence, recognition or endorsement for continued access to UK markets after the end of a transitional period. In September 2019, the UK extended the transitional period for third-country benchmarks from end-2019 to end-2022 through the Financial Services (Electronic Money, Payment Services and Miscellaneous Amendments) (EU Exit) Regulations 2019 (SI 2019/1212) to provide additional time for third-country benchmark administrators to apply to the UK Financial Conduct Authority (FCA).

This means that by end-2022, third country benchmarks will need to have applied for endorsement of a specific benchmark(s), for recognition as an administrator or benefit from an equivalence determination made by HM Treasury for their benchmark(s) to continue to be used in the UK.

However, HM Treasury explains that as of June 2020, only a limited number of third-country benchmarks or administrators have come through the current EU BMR access routes, and provides reasons (including a lack of clarity around the legal framework for endorsement and recognition prescribed in the EU BMR).

HM Treasury will bring this measure forward at the next legislative opportunity. It believes the proposed extension will provide economic and legal certainty for UK markets for longer. The government will also consider and operationalise potential changes to ensure an appropriate third country benchmarks regime for the UK.

 

BMR: Commission Delegated Regulations on sustainable finance issues

The European Commission has published the adopted text of the following Delegated Regulations supplementing the EU BMR on sustainable finance issues:

If neither the Council nor the Parliament object to the Delegated Regulations, they will be published in the Official Journal of the EU and apply 20 days thereafter.

The Commission was mandated to produce these Regulations following amendments to the EU BMR made by the Low Carbon Benchmarks Regulation.

 

MiFIR: ESMA opinion on assessment of pre-trade transparency waivers

The European Securities and Markets Authority (ESMA) has published an opinion on the assessment of pre-trade transparency waivers for equity and non-equity instruments under the Markets in Financial Instruments Regulation (MiFIR).

Before granting a waiver of the MiFIR pre-trade transparency obligations, national competent authorities (NCAs) must notify ESMA of the intended use of each individual waiver and provide an explanation regarding its functioning. ESMA is required to issue an opinion to the NCA assessing the compatibility of the waiver with the MiFIR requirements.

In the opinion, ESMA sets out guidance on recurring issues that it has identified in assessing the compliance of notified waivers.

The document replaces previous guidance by the Committee of European Securities Regulators, ESMA's predecessor, and ESMA's opinions on waivers from pre-trade transparency under the Markets in Financial Instruments Directive (MiFID).

 

MiFIR: ESMA final report on MiFIR transparency requirements for non-equity instruments

ESMA has published its final report on the transparency regime for non-equity instruments under the MiFIR. ESMA is required to produce a report under Article 17 of Commission Delegated Regulation (EU) 2017/583 (RTS 2), which analyses whether it is appropriate to move to the following stage in terms of transparency. This is with regard to the average daily number of trades (ADNT) threshold used for the quarterly liquidity assessment of bonds, and the trade percentile used for determining the pre-trade size specific to the financial instrument (SSTI) thresholds. To help make its decision, ESMA consulted on the issue in March 2020. ESMA's analysis of feedback to the consultation is in sections 3 and 4 of the report.

In light of its consultation, ESMA is suggesting to the European Commission to move to the next stage for both the:

  • criterion ADNT threshold used for the quarterly liquidity assessment of bonds; and
  • trade percentiles that determine the pre-trade SSTI thresholds for bonds.

The above measures are designed to increase the transparency available to market participants in the bond market.

ESMA does not recommend moving to the next stage for the trade percentiles that determine the pre-trade SSTI thresholds for other non-equity financial instruments. It considers such a move premature as the first annual transparency calculation for these non-equity instruments will only be published later on in 2020.

In light of its assessment and the conclusions reached, ESMA has drafted an amended version of the applicable regulatory technical standards (RTS) as foreseen in RTS 2.

The next stage is for the Commission to endorse the amended RTS. Once endorsed, the RTS will be subject to a non-objection procedure by the European Parliament and the Council of the EU.

 

Brexit: ISDA updates FAQs

The International Swaps and Derivatives Association (ISDA) has updated its Brexit FAQs which address possible outcomes for the derivatives market post-Brexit.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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