Recent regulatory developments of interest to financial institutions and markets. Includes updates relating to MAR, MiFIR, EMIR, short selling, and more.

Contents

• MAR: FCA Primary Market Bulletin No 29
• Reporting market abuse: FCA updated webpages
• COVID-19: ESMA extends reporting of short selling positions exceeding 0.1%
• EMIR: draft Delegated Regulation on fees charged by ESMA to third-country CCPs
• EMIR: draft Delegated Regulation on identifying systemically important third-country CCPs
• EMIR: draft Delegated Regulation on comparable compliance assessment of third-country CCPs
• EMIR REFIT technical standards for TRs: ESMA extends consultation period
• EMIR: trade associations request extension of derogation from clearing requirements for intragroup transactions
• COVID-19: FCA and ESMA statements on MiFIR open access regime for trading and clearing ETDs
• Capital markets union: high-level forum final report
• LIBOR transition: FMSB case studies on navigating conduct risks
• Non-default losses: WFE guidance for CCPs

MAR: FCA Primary Market Bulletin No 29

The UK Financial Conduct Authority (FCA) has published Primary Market Bulletin No. 29 which includes the final version of a best practice note on identifying, controlling and disclosing inside information. The note is aimed at government departments, industry regulators and public bodies. The FCA also discusses the changes it made to its original draft in response to consultation responses it received, and gives feedback on that earlier consultation (included in Primary Market Bulletin No. 25).

Reporting market abuse: FCA updated webpages

The FCA has updated its webpage on "How to report suspected market abuse as a firm or trading venue". It has also published a new webpage on "How to report suspected market abuse as an individual".

The firm/trading venue page includes a new section on submitting a "market observation" – activity that is not required to be reported as a suspicious transaction or order (STOR). For example, where the firm or trading venue is not involved in the activity and therefore does not have complete information. In these cases, they should submit a market observation by logging in to Connect and completing the market observation form under "Notifications".

COVID-19: ESMA extends reporting of short selling positions exceeding 0.1%

The European Securities and Markets Authority (ESMA) has renewed its decision to temporarily require the holders of net short positions in shares traded on an EU regulated market to notify the relevant national competent authority (NCA) if the position exceeds 0.1% of the issued share capital. ESMA notes that while EU financial markets have partially recovered since 16 March 2020, COVID-19 continues to have serious adverse effects on the real economy in the EU and future recovery remains uncertain.

The measure applies from 17 June 2020 for a period of 3 months.

The EFTA Surveillance Authority, in cooperation with ESMA, has adopted a corresponding decision, also effective as of 17 June, applicable to EEA EFTA States' markets.

EMIR: draft Delegated Regulation on fees charged by ESMA to third-country CCPs

The European Commission is consulting on a draft Delegated Regulation (downloadable from the webpage) supplementing the European Market Infrastructure Regulation (EMIR) with regard to fees charged by ESMA to third-country central counterparties (CCPs).

Following implementation of EMIR 2.2, under Article 25d of EMIR, ESMA is required to charge fees to third-country CCPs to cover all costs incurred for the recognition and the performance of its tasks in relation to third-country CCPs. It also empowers the Commission to adopt a delegated act to specify further the types of fees, the matters for which fees are due, the amount of the fees, and the manner in which fees are to be paid (both by third-country CCPs that apply for recognition and recognised third-country CCPs).

Comments can be made on the draft Delegated Regulation until 9 July 2020. Once the consultation has closed, the next step will be for the Council of the EU and the European Parliament to consider the draft Delegated Regulation. If neither the Council nor the Parliament object, it will be published in the Official Journal of the EU (OJ) and will enter into force the day after its publication.

EMIR: draft Delegated Regulation on identifying systemically important third-country CCPs

The European Commission is consulting on a draft Delegated Regulation on the criteria ESMA should take into account to determine whether a third-country CCP is systemically important, or likely to become systemically important, for the financial stability of the EU or one or more member states under Article 25(2a) of EMIR.

Comments can be made on the draft Delegated Regulation until 9 July 2020. After the consultation, if neither the Council nor the Parliament object, the Delegated Regulation will be published in the OJ and will enter into force the day after its publication.

EMIR: draft Delegated Regulation on comparable compliance assessment of third-country CCPs

The European Commission is consulting on a draft Delegated Regulation on the minimum elements to be assessed by ESMA when assessing third-country CCPs' requests for comparable compliance and the modalities and conditions of that assessment under Article 25a(3) of EMIR.

Under Article 25a of EMIR, a third-country CCP that is considered systemically important, or likely to become systemically important, for the financial stability of the EU or for one or more member states (a "Tier 2" CCP) may ask ESMA to assess its "comparable compliance", i.e. whether the CCP may be in compliance with EMIR through compliance with its domestic law.

Comments can be made on the draft Delegated Regulation until 9 July 2020. After the consultation, if neither the Council nor the Parliament object, the Delegated Regulation will be published in the OJ and will enter into force the day of publication.

EMIR REFIT technical standards for TRs: ESMA extends consultation period

In light of COVID-19, ESMA has extended the response date for its consultation on technical standards on reporting, data quality, data access and registration of trade repositories (TRs) under EMIR REFIT from 19 June to 3 July 2020.

EMIR: trade associations request extension of derogation from clearing requirements for intragroup transactions

The International Swaps and Derivatives Association (ISDA), the European Banking Federation (EBF) and the Futures Industry Association (FIA) have sent a letter to the European Commission and ESMA requesting an extension to the clearing obligation for cross-border intragroup transactions under EMIR.

In a detailed letter explaining their concerns, the trade associations ask that, in view of the forthcoming expiry in December 2020 of the intragroup exemption from the clearing obligation under EMIR:

• the necessary equivalence decisions be adopted as a matter of urgency in relation to all jurisdictions that have implemented clearing rules in line with the G20 commitments; and
• that the Clearing RTS (Commission Delegated Regulations (EU) 2015/2205, (EU) 2016/1178 and (EU) 2016/592) should be amended to extend the current temporary derogation from clearing requirements for intragroup transactions with non-EU affiliates for a further three years for all other jurisdictions.

COVID-19: FCA and ESMA statements on MiFIR open access regime for trading and clearing ETDs

On 11 June 2020, the FCA published a statement relating to the open access regime for trading and clearing exchange traded derivatives (ETDs) under the Markets in Financial Instruments Regulation (MiFIR). The FCA notes that, from 4 July 2020, trading venues and central counterparties (CCPs) offering the trading and clearing of ETDs will be subject to the MiFIR open access regime, as set out in Articles 35 and 36 of MiFIR. Under these provisions, trading venues and CCPs may only deny access where the operational risk and complexity arising from granting access would cause undue risk. The specific factors trading venues and CCPs should consider when evaluating access requests are set out in Commission Delegated Regulation 2017/587.

To meet their responsibilities, trading venues and CCPs are expected to put in place processes to assess any open access requests against those factors. The operation of these processes will require senior management, legal, risk, compliance and IT resources. The FCA notes that responding to an open access request in current market conditions while relevant staff work from home is likely to involve extra resources and operational complexity that would introduce additional elements of risk and may detract from the priority of maintaining resilient and orderly markets.

Accordingly, when making or assessing open access requests, trading venues should continue to prioritise the maintenance of orderly markets and the continuity of their critical services to the market even if this may delay the assessment of an open access request. Where a recipient delays an assessment, it should communicate its position to the requester without delay. The FCA will monitor any requests received by FCA-regulated venues.

The FCA supports ESMA's approach in its statement, also published on 11 June 2020.

In its statement, ESMA recommends that NCAs have regard to the risks raised by COVID-19 in relation to open access for ETDs. It states that NCAs should consider the impact on the orderly functioning of markets and financial stability of migrating flows of transactions and changing IT infrastructure as a result of providing access in the current fragile environment. NCAs should also assess whether CCPs and trading venues are able to adequately implement significant changes to their risk management procedures and models, including credit, operational and legal risks.

ESMA therefore issued its statement to inform the market that NCAs are expected to take into consideration, to the extent relevant, these adverse developments when taking decisions on open access requests. In particular, given the limited two-month timeframe provided under MiFIR for NCAs to assess access requests, it may be challenging for NCAs to soundly assess whether an open access request may threaten the smooth and orderly functioning of the markets, or adversely affect systemic risk in the current market circumstances.

ESMA expects CCPs and trading venues to have the necessary operational capacity to process access requests once the exceptional market circumstances have cleared up.

Capital markets union: high-level forum final report

The high-level forum on capital markets union (CMU) has published its final report on "A new vision for Europe's capital markets". In the report, the forum makes 17 recommendations (summarised in a table on p28-29 of the report and detailed in its Annex) intended to move the CMU towards completion,

The European Commission seeks feedback from stakeholders on the report. The deadline for responses is 30 June 2020. It intends to publish an action plan on the CMU in the fourth quarter of 2020.

LIBOR transition: FMSB case studies on navigating conduct risks

The Fixed Income, Currencies and Commodities (FICC) Markets Standards Board (FMSB) has published a spotlight review, "LIBOR transition: Case studies for navigating conduct risks". The publication includes good practice observations and practical case studies to support firms when offering new products to clients or changing performance benchmarks.

Four practical case studies cover cash and derivative products and performance benchmarks. They are relevant across the sell-side, buy-side and corporates.

Non-default losses: WFE guidance for CCPs

The World Federation of Exchanges (WFE) has published guidance on non-default loss (NDL).

The WFE explains that NDLs are losses that may arise from any risk event that is not a clearing member default, including operational, custody and investment risks. These categories of risk would not necessarily lead to a loss, given the operational resilience of CCPs and the risk mitigation practices they use. However, such an extreme scenario may arise in rare circumstances.

A CCP's rulebook and recovery plan governs the allocation of different types of NDLs. Allocation should depend on the type of risk causing the loss and, more granularly, the facts and circumstances surrounding a given NDL. The guidance is designed to help CCPs ensure that NDLs are allocated in a transparent, predictable and equitable manner. It outlines the approach CCPs have taken to address NDLs.

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