On January 30 the European Securities and Markets Authority (ESMA) released a consultation paper on guidelines for ETFs (exchange traded funds) and other UCITS (undertakings for collective investment in securities) issues (ESMA/2012/44).
Continue Reading...On January 24, the EU Council of Ministers (the Council) published a press release setting out its evolving position with respect to the proposed European Market Infrastructure Regulation (EMIR).
Continue Reading...Co-authored by Sam Tyfield.
On December 22, 2011, the European Securities and Markets Association (ESMA) published its final Guidelines on systems and controls in an automated trading environment. These were based on a consultation that ended in October 2011.
The European Commission has published its proposals for the revision of the Market Abuse Directive (2003/6/EC) (MAD). The proposals consist of a directly applicable Regulation to replace MAD (the proposed Regulation) and a Directive containing additional requirements for parallel criminal offences (the proposed Directive).
Continue Reading...The European Parliament has indicated that it will consider the proposed European Market Infrastructure Regulation (EMIR) in its plenary session to be held January 16 to 19, 2012. This vote was originally expected in July 2011. EMIR covers over-the-counter (OTC) derivatives transactions, central counterparties and trade repositories as reported in the July 8, 2011 edition of Corporate and Financial Weekly Digest.
For more information, click here.
On December 8, the text of the Regulation on Energy Market Integrity and Transparency (Regulation 1227/2011) (REMIT) was published in the Official Journal of the European Union.
Continue Reading...On December 5, European Securities and Markets Authority (ESMA) issued an investor warning about foreign exchange (forex) trading. It warns about the risks involved in forex trading and the particular dangers of dealing with unauthorized or unregulated firms.
Continue Reading...On October 20, the European Commission published the MiFID II proposals for amendments to MiFID (the Markets in Financial Instruments Directive (2004/39/EC)) The MiFID II proposals consist of a Regulation (MiFIR) on markets in financial instruments and on OTC derivatives, central counterparties and trade repositories and a Directive (MiFID II) on markets in financial instruments amending MiFID. The use of a Regulation directly applicable into the law of each EU member state reflects the need to achieve a uniform set of rules in certain areas.
Continue Reading...Co-authored by: Fred Santo, Marilyn Selby Okoshi, and Sam Tyfield
The short selling restrictions reported in the August 19 edition of Corporate & Financial Weekly Digest have been extended by Spain and Italy until September 30, and by France until “at least November 11, 2011.” The Belgian and Greek restrictions remain of indefinite duration.
Continue Reading...Co-authored by: Fred Santo, Marilyn Selby Okoshi, and Sam Tyfield
On August 23, the European Securities and Markets Authority (ESMA) published consultation paper ESMA/2011/270 (Consultation on ESMA's draft technical advice to the European Commission on possible implementing measures of the Alternative Investment Fund Managers Directive in relation to supervision and third countries.)
Continue Reading...Co-authored by: Fred Santo, Marilyn Okoshi and Sam Tyfield
On August 11, the financial regulators in Belgium, France, Italy and Spain introduced short selling restrictions on shares of certain named financial institutions and derivatives (e.g., futures) linked to those securities. The restrictions also extend to stock indices of which those securities are components.
The Belgian restrictions apply indefinitely. The three other countries’ restrictions will expire after 15 days, unless extended. Earlier that week, Greece imposed a two-month ban on short sales of all listed securities.
The regulators’ interpretations of their restrictions are constantly evolving. Changes generally are reflected in amendments to published FAQs. The websites below should be consulted for the most up to date information.
Co-authored by: Sam Tyfield
On August 11, in the context of the short selling restrictions introduced by Belgium, France, Italy and Spain, the European Securities and Markets Authority (ESMA) issued a statement reiterating the requirements set out in the European Union Market Abuse Directive (MAD) and implemented in national laws that prohibit the dissemination of information which gives, or is likely to give, false or misleading signals as to financial instruments. This clearly includes the dissemination of rumors and false or misleading information.
On July 22, the European Securities and Markets Authority published a discussion paper Policy Orientations on Guidelines for UCITS Exchange-Traded Funds and Structured UCITS on aspects of the regulatory regime governing Undertakings for Investments in Transferable Securities (UCITS).On July 22, the European Securities and Markets Authority published a discussion paper Policy Orientations on Guidelines for UCITS Exchange-Traded Funds and Structured UCITS on aspects of the regulatory regime governing Undertakings for Investments in Transferable Securities (UCITS).
Continue Reading...On July 20, the European Securities and Markets Authority (ESMA) issued a consultation paper on systems and controls relating to high frequency trading (HFT) and other forms of automated trading.
Continue Reading...On July 20, the European Commission published its proposals for a regulation and a directive which will implement the Basel III capital reforms and replace the existing Capital Requirements Directive (2006/48/EC and 2006/49/EC). This proposal is known as CRD IV or CRD 4.
Continue Reading...On July 13, the European Securities and Markets Authority (ESMA) published a consultation paper on possible Level 2 implementing measures for the Alternative Investment Fund Managers Directive (AIFMD). The paper is entitled ESMA's draft technical advice to the European Commission on possible implementing measures of the Alternative Investment Fund Managers Directive.
Continue Reading...On July 1, the final text of the EU Alternative Investment Fund Managers Directive (AIFMD), passed by the European Parliament in November 2010 and formally adopted by the EU Council in May, was finally published in the EU Official Journal. The AIFMD comes "into force" on July 21, 20 days after publication. The deadline for EU Member States to implement AIFMD into national law is two years after that date, July 22, 2013. Firms requiring authorization as alternative investment fund managers will have until July 22, 2014, to obtain such authorization.
Level 2 regulations dealing with matters of detail under the AIFMD will be adopted by the European Commission, assisted by the European Securities and Markets Authority (ESMA). ESMA's draft level 2 advice to the European Commission is expected to be published before the end of November.
On July 5, the European Parliament (EP), in plenary session, voted on and approved a text of the European Market Infrastructure Regulation (EMIR) based on the text passed by the Parliament's ECON committee in May (see the May 27 edition of Corporate and Financial Weekly Digest). This version will now represent the EP's position when it enters into trilogue negotiations with the European Council and the European Commission to reach an agreed EMIR text.
Trilogue negotiations will not start until the European Council reaches an agreement on its EMIR text. This is expected by October. There is therefore a strong probability that final agreement on the text of EMIR will be reached before the end of 2011.
On May 27, it was announced that the EU Council of Ministers had adopted the final text of the Alternative Investment Fund Managers Directive (AIFMD).
The Directive was adopted by the European Parliament on November 11, 2010 (see the November 19, 2010, edition of Corporate and Financial Weekly Digest).
The Directive will enter into force on the 20th day following its publication in the EU Official Journal (expected to be some time in June). After that member states will have two years to transpose the AIFMD provisions into national law. Accordingly the provisions of the AIFMD will begin to come into force in mid-2013.
On May 24, the European Parliament announced the result of the vote of the Parliament's Economic and Monetary Affairs Committee (ECON) on the proposed European Market Infrastructure Regulation (EMIR).
The draft regulation (which covers over-the-counter (OTC) derivatives, central clearing parties (CCPs) and trade repositories) "aims to bring greater safety, transparency and stability to the OTC derivatives market."
Continue Reading...On March 7, the European Parliament's economic and monetary affairs committee ECON approved a measure which could lead to an EU-wide ban on uncovered shorting of credit default swaps (CDS) on sovereign debt of EU member states. Under the measure as currently drafted, investors would be permitted to short a "naked" sovereign CDS if it held a proxy "asset or portfolio of assets" whose prices have a "high correlation" with government bond prices. The European Securities Markets Authority (ESMA) would also need the permission of the government in question in order to ban naked short selling of sovereign CDS linked to its debt.
The measure requires approval by the European Parliament in plenary session and also by the European Council of Ministers before it can become law. The regulation is expected to be in force by July 2012.
On February 25, the European Commission published an updated agenda and timetable for financial services legislative proposals including the following:
On January 31, the European Securities and Markets Authority (ESMA) published an updated version of its table of EU member states' short-selling measures showing new measures by France and Germany.
France: With effect from February 1, the short positions disclosure regime developed by ESMA will be effective for all French shares admitted to trading on Euronext Paris and Alternext Paris. The French emergency measures adopted in September 2008 will cease to apply.
Germany: BaFin extended its net short-selling position notification and publication requirements in respect of 10 financial stocks. These requirements will continue to apply through March 25.
To view the updated ESMA table, click here.
On January 18, the European Securities and Markets Authority (ESMA) published the responses to the Committee of Securities and Regulators’ (CESR) December 2010 call for evidence on the Alternative Investment Fund Managers Directive (AIFMD) implementing measures. (ESMA replaced CESR on January 1, 2011.)
The call for evidence (see the December 10, 2010, edition of Corporate and Financial Weekly Digest) requested input regarding CESR’s technical advice to the European Commission on the implementing measures for the EU AIFMD. This input will be taken into account by ESMA in the development of its draft advice on the content of the AIFMD implementing measures, which will be published for consultation in 2011. The published responses came from a variety of trade associations and individual firms.
To view the responses, click here.
On January 11, the newly established European Securities and Markets Authority (ESMA) announced that its Management Board had held its first meeting.
At the meeting, the first six members of the Management Board were elected, including nominees from six EU national regulators, one of whom was the UK Financial Services Authority’s Director of Markets. The Board also announced the adoption of internal rules for ESMA, including terms of reference for its decision-making process for the adoption of technical standards and guidelines. The Board also confirmed that all Level 3 measures previously issued by its predecessor entity, the Committee of European Securities Regulators, remain valid.
To read more, click here.
On December 8, the European Commission published a public consultation on the review of the Markets in Financial Instruments Directive (2004/39/EC) (MiFID).
MiFID aims to create a single market in investment services and to increase investor protection. It came into force in November 2007. Developments in the financial markets since 2007 have highlighted areas where changes need to be made.
The consultation includes the following matters:
The consultation is open until February 2. The Commission will use these responses as part of the preparation of a formal proposal for a new MiFID Directive, which is scheduled to be published in May 2011.
On December 3, the Committee of European Securities Regulators (CESR) published a call for evidence seeking view on the “Level 2” implementing measures required under the Alternative Investment Fund Managers Directive (AIFMD). This input is designed to assist CESR and the European Securities and Markets Authority, which will replace CESR with effect from January 1, in the development of draft advice on the content of the AIFMD implementing measures, which will be published for consultation in 2011.
Responses to the call for evidence must be submitted by January 7.
On November 17, the UK government announced another step towards the creation of the new “post-Financial Services Authority” (FSA) UK regulatory regime (as described in the June 18 and July 30 editions of Corporate and Financial Weekly Digest). The projected Consumer Protection and Markets Authority (CPMA) will take responsibility for criminal prosecution of insider dealing as well as the listing role currently handled by the FSA in its capacity as UK Listing Authority.
The UK Treasury emphasized that the government was “absolutely committed to prosecuting financial crime,” adding that “after much consideration we have decided that for the moment the FSA’s powers of prosecution will lie with the new CPMA rather than the new Economic Crime Agency (ECA). The government recognizes the importance to the City of London of a strong markets division being established within the CPMA and giving it these powers will make it a stronger and more credible regulator.”
The Treasury added that the government “remains committed to the creation of a strong and powerful new ECA to tackle serious economic crime coherently and effectively.” The ECA will combine the Serious Fraud Office with parts of the Office of Fair Trading and several smaller agencies.
Read more.
Two of the European Parliament’s groupings, the Socialists and the European People’s Party (EPP), have expressed their approval of the report of Dr. Kay Swinburne MEP, which recommended tougher rules on high-frequency trading and dark pools.
The report suggested that a lack of transparency in the financial system was an “aggravating factor” in the financial crisis. It also blamed the Markets in Financial Instruments Directive (MiFID) for problems in the financial market that have arisen since its adoption in 2007.
Although the economic and monetary affairs committee will not directly impact regulatory changes or legislation, this support for harsher rules is indicative of the European Parliament’s views at a time when the European Commission is preparing for a much-anticipated formal review of the MiFID in 2011.
To read Dr. Swinburne’s report, click here.
On November 11, the European Parliament announced that it had adopted the Alternative Investment Fund Managers Directive (AIFMD) by a vote of 513 to 92 with three abstentions.
The deadline for member state implementation will be a date in 2013, two years after the final approved version of the Directive is published in the EU Official Journal.
The detailed implementation of many areas of the Directive will depend on “level 2” rules and guidelines which will be prepared over the coming months by the European Securities and Markets Authority.
To read the provisional version of the AIFMD, click here.
On November 17, the European Council announced that it had approved the regulation establishing the European Securities and Markets Authority (ESMA). The Council also adopted without debate the so-called “Omnibus I Directive” concerning the powers of other new European supervisory authorities for the banking and insurance industries.
The ESMA will be established with effect from January 1, 2011. As indicated above (in “European Parliament Adopts AIFM Directive”), one of its first priorities will be the preparation of regulations setting out detailed provisions of the regime under that Directive.
On October 19, the Economic and Financial Affairs Council of the European Union (ECOFIN) published a press release announcing that agreement had been reached on the Alternative Investment Fund Managers Directive (AIFMD). The Council hopes for a final text of the AIFMD to be before the European Parliament by November 10 (which would give an implementation deadline of early 2013 for member states).
The ECOFIN proposal appears to be based on the compromise proposal released on October 15 by the Belgian presidency of the EU Council (the Proposal). The Proposal sets out a dual system allowing non-EU managers to apply for a passport from 2015, while EU managers would be able to obtain a passport from implementation. The existing private placement regime would be replaced by this system in 2018 if the passport for non-EU managers was successful.
Under the Proposal, funds managed by EU managers must have depositaries, which must be liable to the fund, or to investors, for the loss of any financial instruments which they hold for the fund. This liability remains even where responsibility for custody has been delegated to a third party.
For more information, click here.
Click here to read an October 20 Katten Client Advisory on the AIFMD.
On September 15, the European Commission published its proposed regulation on over-the-counter (OTC) derivatives, central counterparties and trade repositories. The proposed regulation encompasses all OTC derivatives and is applicable to financial and non-financial firms who either use OTC derivatives or have large positions in OTC derivatives. It has two key aims: (1) increased transparency, and (2) reduced counterparty and operational risk.
The proposed regulation seeks to implement the objectives of the September 26, 2009, G20 Summit, which outlined compulsory clearing of standardized OTC derivative contracts and reporting of OTC derivatives contracts to trade repositories. (An earlier version of this proposal was described in the June 18 edition of Corporate and Financial Weekly Digest.)
The main elements of the proposed regulation are:
There will be certain exemptions from the clearing requirement, for example, where OTC derivatives are used for hedging business risk. However, in such cases firms will be required to hold more capital against the contracts.
On September 15, the European Commission published its proposal for the regulation of short selling and credit default swaps (CDS). The proposal largely follows the Committee of European Securities Regulators’ recommendations, as described in the March 5 and June 18 editions of Corporate and Financial Weekly Digest.
The three main objectives of the regulation are: (1) the creation of a harmonized pan-European short selling regulatory regime; (2) increased transparency; and (3) the reduction of risk.
The Commission has proposed a two-tier disclosure regime: investors will be required to disclose net short positions to their national regulators once a threshold of 0.2% of the issued share capital of the relevant company is crossed and to make public disclosure to the market at a higher threshold of 0.5%. Naked short selling is severely restricted. There will also be a regime whereby market participants must inform regulators about credit default swap positions related to EU sovereign debt issuers.
The regulation contemplates the possibility of competent national authorities being given the power to temporarily ban or restrict short selling and CDS in emergency circumstances.
The proposal is now with the European Parliament and the European Council for their approval. Once adopted, the regulation would apply from July 1, 2012.
On July 19, the Committee of European Securities Regulators (CESR) published a consultation paper (CESR/10-610) on the standardization and exchange trading of over-the-counter (OTC) derivatives, seeking views on a number of issues, including:
The consultation period ends on August 16. CESR intends to send technical advice to the Commission, based on responses to the consultation, in September 2010.
On July 29, the Committee of European Securities Regulators (CESR) published advice to the European Commission after conducting a reviewing of and consultation on the EU Markets in Financial Instruments Directive (MiFID) If adopted, the reforms proposed by CESR would significantly change the EU regulatory landscape.
Continue Reading...On July 19, the Committee of European Securities Regulators (CESR) published consultation paper CESR/10-809 setting out proposals for transaction reporting for over-the-counter (OTC) derivatives and the extension of the scope of transaction reporting obligations.
CESR’s OTC derivatives transaction reporting proposal is based on the assumption that all persons not exempted from European Market Infrastructure Legislation (EMIL) (including Markets in Financial Instruments Directive (MiFID) authorized firms) would have to report their OTC derivatives transactions to trade repositories (TRs) after these will have been established and registered under EMIL.
Continue Reading...On July 20, the Committee of European Securities Regulators published the following four consultation papers on the key investor information document (KII) under the Undertakings for Collective Investments in Transferable Securities (UCITS) Directive (2009/65/EC) (knows as “UCITS IV”).
On July 7, the European Parliament approved, by a large majority, measures which will significantly restrict bonus payments by banks. They were passed in the context of amendments to the EU Capital Requirements Directive for banks and investment firms (proposal for a directive of the European Parliament and of the European Council amending Directives 2006/48/EC and 2006/49/EC as regards capital requirements for the trading book and for re-securitizations, and the supervisory review of remuneration policies).
The proportion of bonuses payable in cash may not exceed 30% of the total bonus amount (20% for large bonuses). Between 40% to 60% of all bonus must be deferred and can be clawed back if performance in subsequent years is not adequate. 50% of the total bonus would be paid as “contingent capital”—funds which can be called upon by the bank for use as capital if required. Bonuses must also be “capped to salary.” Each bank will have to establish limits on bonuses related to salaries, based on EU guidelines. There will be more stringent rules applicable to part-nationalized banks.
The detailed provisions implementing the above guidelines have not yet been published.
Separate draft remuneration rules for fund managers falling within the ambit of the draft Alternative Investment Funds Directive are being considered in the ongoing trialogue process between the European Commission, Council and the Parliament, under which the competing drafts produced by the European Council and the Parliament are being harmonized. An agreed text is expected to be passed to the Parliament for a plenary vote in September.
On June 14, the European Commission published a consultation on Derivatives and Market Infrastructures. This follows on from its October communication on future policy actions to ensure efficient, safe and sound derivatives markets (as reported in the October 23, 2009, edition of Corporate and Financial Weekly Digest).
The consultation addresses a number of topics, including: clearing and risk mitigation of over-the-counter derivatives contracts; requirements for central counterparties (CCPs); interoperability between CCPs; and reporting obligations and requirements for trade repositories.
The consultation closes on July 10, 2010. The Commission will then prepare a formal legislative proposal, currently scheduled to be published in September.
On June 14, the European Commission published a consultation on short selling, which sets out options being considered by the Commission for a pan-European regime for the regulation of short selling.
The consultation focuses on five key areas: scope; transparency; risks of uncovered short sales; emergency powers for national regulatory authorities; and potential exemptions.
The consultation closes on July 10, 2010. The Commission will then prepare a formal legislative proposal, currently scheduled to be published in September.
On May 26, the Committee of European Securities Regulators (CESR) published its report CESR/10-453 Technical Details of the Pan-European Short Selling Disclosure Regime.
CESR/10-453 follows on from CESR’s A Model for a Pan-European Short Selling Disclosure Regime (CESR/10-088) (see the March 5, edition of Corporate and Financial Weekly Digest).
The technical details set out in CESR/10-453 relate to the key areas identified in CESR/10-088 as needing in-depth explanation and elaboration. Accordingly, further detail is provided on the following issues:
1) Determination of economic exposure for the purposes of calculating a net short position
2) Calculating changes of net short positions
3) Netting and aggregation within an organizational structure
4) The mechanics of disclosure
5) Exemptions from disclosure obligations
As a result of votes on May 17 and May 18, respectively, of the European Parliament’s Economic and Monetary Affairs Committee (ECON) and European finance ministers at the meeting of the Economic and Financial Affairs Council (ECOFIN), there are now Parliament and Council draft texts of the Alternative Investment Fund Managers (AIFM) Directive. These competing texts will serve as the basis for negotiations at a series of “trilogue” meetings, which will take place starting shortly between representatives of the Parliament, Council and European Commission. Once a compromise text is agreed and approved by ECOFIN, it will be sent for approval by a plenary session of the Parliament. At present, the target date for the plenary vote is July 6. The provisions of the Directive when formally approved will then be implemented by individual EU member states and will come into force in July 2012 or later.
Among the areas on which there is substantial divergence between the ECON and ECOFIN texts are the terms under which funds and managers established outside the EU can market to EU investors. Accordingly, until the trilogue process is completed and the final text of the Directive has been published, it will not be possible to know the shape of the regulatory regime that will begin to apply from 2012.
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