Financial Services Regulation & Compliance - Investment Firms August 2018


Markets Update Issue 12 2018

The CBI has published Issue 12 of its Markets Update 2018. The Markets Update includes ESMA updated of the validation rules under EMIR, updates on MiFID II bond liquidity data and an update on equity derivatives and equity-like instruments' transitional transparency calculations for MiFID II/ MiFIR. The update also includes a Central Bank communication in relation to pension scheme arrangement and trading obligation and a statement on the Prospectus (Directive 2003/71/EC) (Amendment) Regulations 2018 which came into operation on 21 July 2018


ESMA publishes data for the systematic internaliser calculations for equity, equity-like instruments and bonds

ESMA has published data for the systemic internaliser calculations for equity, equity-like instruments and bonds under MiFID II and MiFIR. ESMA has published the total number of trades and total volume over the period January - June 2018 for the purpose of the systematic internaliser (SI) calculations. The results are published only for instruments for which trading venues submitted data for at least 95% of all trading days over the 6-month observation period. The publication of the data for the SI calculations for derivatives and other instruments will start on 1 February 2019 as set out in the plan announced by ESMA on 12 July 2018.

ESMA updates equity derivatives, equity and equity-like instruments' transitional transparency calculations for MiFID II/ MiFIRE

ESMA has published an updated version of the MiFID II/MiFIR transitional transparency calculations (TTC). The update relates to the transitional transparency calculations for: equity derivatives (equity derivatives I), equity and equity-like instruments; and tick size band assessment. Trading venues are expected to apply the new results from 13 August 2018.

ESMA makes new bond liquidity data available

ESMA has made available new data for bonds subject to the pre-and post-trade requirements through its data register. ESMA has begun to make available, the second quarterly liquidity assessment for bonds. This assessment which is dependent on the data submitted to ESMA, experienced data quality issues. This issue is also affecting the Systematic Internalisers regime publication for non-equity, published on 1 August. The content of the non-equity file has now been updated by removing the affected instruments. ESMA will continue to update its bond market liquidity assessments quarterly. However, additional data and corrections submitted to ESMA may result in further updates within each quarter, published in FITRS. The information will also be available through the Register system in due course.

ESMA to regularly publish the Double Volume Cap Register

The double volume cap mechanism, (DVCM) provided for by Article 5 of MiFIR, aims to limit the trading under the reference price waiver and the negotiated transaction waiver for liquidity in an equity instruments. ESMA shall publish regularly the results of the DVCM on its website in the Double Volume Cap Register. On a temporary basis, the results of the DVCM will be published on the ESMA website in spreadsheet format.

EBA publishes Q&A on Investment firms' exposures to credit institutions

The EBA published a Q&A as to whether MIFID investment firms, which are subject to the CRR, calculate the credit risk requirement for the clients’ funds deposited in a credit institution. The EBA advised that per Article 16(9) of Directive 2014/65/EU (MIFID II) and Article 4 of Directive 2017/593/EU, Investment Firms are subject to an obligation to make adequate arrangements to safeguard investor's ownership and rights in respect of funds entrusted to them. The EBA noted that it is arguable whether there would be an exposure towards the institution where client funds are deposited according to Article 119 CRR for the purposes of credit risk. For prudential purposes, the legal and reputational risk arising if firms do not exercise all due skill, care and diligence in the selection of the depositary and concentration risks arising from the deposit would already be addressed by the operational risk requirements under the CRR and the Pillar II CRDIV framework.

Commission releases text of ITS governing provision of information to ESMA

The Commission published the text of an Implementing Regulation on 8 August 2018 laying down implementing technical standards with regard to procedures and forms for the provision of information by competent authorities to ESMA under Regulation (EU) 2016/1011 of the European Parliament and of the Council. The legislation provides for, inter alia, the notifications to ESMA of benchmarks by recognised administrators, requests for information and replies to these requests and confidentiality.

ESMA updates validation rules under EMIR

ESMA updated its validation rules regarding the revised technical standards on reporting under Article 9 of EMIR. The amendments will be applicable from 5 November 2018. ESMA updated its validation rules for the submitted reports for reporting timestamp, reporting counterparty ID, ID of the Other Counterparty, underlying identification and confirmation means.

ECB issues opinion on the proposed legislation on the review of prudential treatment of investment firms

The ECB has issued opinion on a proposal for a Regulation on the prudential requirements of investment firms and amending Regulations (EU) No 575/2013, (EU) No 600/2014 and (EU) No 1093/2010 and a proposal for a Directive on the prudential supervision of investment firms and amending Directives 2013/36/EU and 2014/65/EU. Whilst the ECB supports the purpose of subjecting systemically important investment firms to the same prudential rules as credit institutions, it was noted that the proposed acts should be carefully assessed in order to avoid unintended consequences for other Union legal acts due to the change in the definition of credit institutions. The interplay between the proposed acts and Directive 2013/36/EU and Regulation (EU) No 575/2013 should be assessed in order to avoid unintended consequences due to the change in the definition of credit institutions. It is suggested to avoid the replication of existing definitions. For instance, the term ‘management body in its supervisory function’ is defined both in Directive 2013/36/EU and in the proposed directive.

For further information please contact a member of the Financial Regulation team.

Date Published: 7 September 2018