Securities and markets regulatory news, September 2020 # 2

Hogan Lovells

Hogan Lovells

Recent regulatory developments of interest to financial institutions and markets. Also check our General regulatory news in the related materials links.


  • Annual transparency calculations for non-equity instruments: ESMA grants option to postpone to 21 September 2020
  • FICC markets: FMSB spotlight review on measuring execution quality
  • MAR: FIA guidelines on surveillance and market abuse
  • CSDR mandatory buy-ins: ICMA briefing note
  • SFTR: ICMA ERCC updates recommendations
  • Sustainable finance: AFME white paper

Annual transparency calculations for non-equity instruments: ESMA grants option to postpone to 21 September 2020

The European Securities and Markets Authority (ESMA) has announced that trading venues and investment firms may postpone, for operational reasons, the application of the annual transparency calculations for non-equity instruments except bonds to 21 September 2020. The decision also applies to the quarterly calculations for the purpose of the systematic internaliser (SI) regime for non-equity instruments other than bonds.

ESMA has taken this decision following concerns raised by stakeholders that the original application date of 15 September 2020 coincides with the quarterly expiry week of many equity derivatives, which is a week characterised by high trading volumes and a higher level of volatility due to the rolling over of many contracts. To avoid technical issues that might be exacerbated by high market volatility during the current sensitive period, ESMA has agreed that trading venues and investment firms may apply the non-equity transparency calculations from 21 September 2020 instead.

In addition, to avoid potential misalignments between the application of the non-equity transparency calculations and the start of the mandatory SI-regime for non-equity instruments other than bonds, investment firms applying the non-equity transparency calculations on 21 September instead of 15 September 2020 may perform the SI-test for non-equity instruments other than bonds by 21 September 2020.

The transparency requirements based on the results of the annual transparency calculations for non-equity instruments will apply from 15 September 2020, with the option to delay application to 21 September 2020, until 31 May 2021. From 1 June 2021, the results of the next annual transparency calculations for non-equity instruments, to be published by 30 April 2021, will become applicable.

ESMA will publish the next quarterly release of data for the purpose of the SI regime by 1 November 2020 with an application date of 15 November 2020 for equity and equity-like instruments, bonds and non-equity instruments.

FICC markets: FMSB spotlight review on measuring execution quality

The Fixed Income, Currencies and Commodities (FICC) Markets Standards Board (FMSB) has published a spotlight review looking at the challenges in measuring the quality of trade execution and how this varies across different FICC market participants and segments.

While the various regulatory requirements for measuring execution quality vary by jurisdiction and asset class, the FMSB notes that wholesale FICC markets face specific challenges in achieving high standards of transparency, openness and fairness. This review explores the root cause of these challenges, highlights the progress made in regulation and market participants' practices with regard to data reporting and best execution, and sets out key points of focus for firms in navigating the challenges.

The review considers:

  • the observability of relevant data sources;
  • the reliability and quality of data sources;
  • variations in data observability and reliability across different products;
  • obligations and priorities in measuring execution quality; and
  • a role for industry standards.

The spotlight review is intended to benefit front office trade execution on the buy-side as well as within market makers, and those responsible for overseeing regulatory requirements in compliance and risk functions.

MAR: FIA guidelines on surveillance and market abuse

The Futures Industry Association (FIA) has published new guidelines to assist market participants in fulfilling obligations set by UK and European regulators in relation to surveillance and market abuse requirements.

The guidelines aim to provide a useful implementation standard for requirements under the EU Market Abuse Regulation (MAR) and the Criminal Sanctions for Market Abuse Directive, in particular the surveillance systems and controls that are required under Article 16 of MAR.

CSDR mandatory buy-ins: ICMA briefing note

The International Capital Market Association (ICMA) has published a briefing note on its concerns relating to mandatory buy-ins under the Central Securities Depositories Regulation (CSDR) and the requirement to appoint a buy-in agent.

SFTR: ICMA ERCC updates recommendations

The International Capital Markets Association (ICMA) European Repo and Collateral Council (ERCC) has published an updated version of the ICMA Recommendations for Reporting under the Securities Financing Transactions Regulation (SFTR). This is the fourth public edition of the document, which was initially released on 24 February 2020 and previously updated on 30 June 2020.

The aim of the ICMA Recommendations is to help members interpret the regulatory reporting framework specified by ESMA and to set out complementary best practice recommendations to provide additional clarity and address ambiguities in the official guidance.

Sustainable finance: AFME white paper

The Association for Financial Markets in Europe (AFME) has published a white paper on governance, conduct and compliance to help firms navigate the transition to sustainable finance.

The paper sets out 15 key principles that firms may wish to consider when developing their approach. The principles cover objectives and governance, risk management, compliance and monitoring, and impact measurement. The paper also contains some practical questions that seek to help firms implement and embed the principles into internal programmes in a systematic manner. The focus is on the EU regulatory framework. Firms operating globally need to consider the interaction with wider international initiatives in this area.

AFME notes that each firm's approach will differ depending on its individual business type and structure and the market in which it operates. The discussion of risks and possible approaches in the paper are therefore not intended to be comprehensive or uniformly applicable to a firm's individual circumstances.

Alongside the paper, AFME has published a survey, conducted between April and June 2020, to identify how banks begin to integrate sustainable finance related considerations across internal functions. The survey is based on the anonymised and aggregated responses of 13 of the largest globally active financial and capital market participants. The findings highlight that sustainable finance is a priority board issue and that banks have made considerable progress in adapting their business model to deliver on sustainable finance targets.

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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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