Financial Services Regulation & Compliance - Investment Firms Dec 2017

DOMESTIC:

Central Bank publishes Statement on the Variation Margin Requirements under EMIR for physically settled FX forwards

The Central Bank has issued a statement  setting out their intended response to the requirement for financial counterparties to exchange mandatory variation margin (VM) for physically-settled FX forwards from 3 January 2018 pending the amendment of the Regulatory Technical Standards (RTS) on risk mitigation techniques for OTC derivatives not cleared by a central counterparty coming into effect. The Central Bank of Ireland has confirmed that it will apply its risk-based supervisory powers in the day-to-day enforcement of applicable legislation in a proportionate manner.

EUROPEAN:

Update on MiFID II registers from 3 January 2018

In line with requirements under MiFID II/MiFIR, updated registers information will be introduced by ESMA. The 3 January 2018 launch updated existing registers under MiFID and also provides for new registers under MiFID II/MiFIR. The registers are compiled based on data provided by the National Competent Authorities of the Member States on and from 3 January 2018. While ESMA is working on a new release of the registers for Q1 2018, they will provide an interim solution by publishing the latest registers information on a fortnightly basis.

ESMA data systems for MiFID II/MiFIR and MAR

ESMA will operate four major data systems related to the implementation of MiFID II and MAR respectively. The systems will provide market participants and national authorities with data required under MiFID II and MAR related to data reporting and transparency requirements. These include:

  • Financial Instruments Reference Data System (FIRDS)
  • Transaction Reporting Exchange Mechanism (TREM)
  • Transparency Calculations System (FITRS)
  • Double Volume Cap Mechanism System (DVCAP)

ESMA publishes key transparency calculations for MiFIDII/MiFIR implementation

ESMA has published the MiFID II/MiFIR transitional transparency calculations (TTC) for equity and bond instruments. TTC for all asset classes, applicable from 3 January 2018, are now available to market participants, infrastructures and authorities as required under the new regulatory framework. The execution of the TTC has been delegated to ESMA by National Competent Authorities (NCAs). Steven Majoor, the Chair if ESMA stated that the publication completes the provision of data needed, by financial market participants and their supervisors, for the implementation of one of the key elements of the MiFID/MiFIR reforms, more transparent securities markets.

The TTC is applicable from 3 January 2018. The equity instruments TTC will apply until 31 March 2019 and for bond instruments (liquidity assessment) until 15 May 2018.

ESMA provides further guidance for transactions on thirdcountry trading venues for post-trade transparency and position limits under MiFID II/MiFIR

ESMA has published two revised opinions providing guidance related to third-country trading venues for post trade transparency and position limits under MiFIDII/MiFIR. The opinions address the treatment of transactions executed by EU investment firms on third-country trading venues, for post-trade transparency under MiFIR, and the treatment of positions held in contracts traded on those venues for the position limit regime under MiFID II.

They state that pending an assessment by ESMA of more than 200 third-country trading venues under the criteria in the two opinions, transactions on third-country trading venues do not need to be made post-trade transparent and/or positions held in those third-country venue contracts are not considered to be economically equivalent over-the-counter (EEOTC) contracts. ESMA will carry out the determination of third-country trading venues and publish the results in the course of 2018.

ESMA provides overview of MiFID II deferral regimes

ESMA has published a table compiling the supplementary deferral regimes applicable in different Member States for trading in non-equity instruments under MiFIR. The purpose of the table is to provide an overview to market participants of the different regimes for supplementary deferral that national competent authorities have opted for to facilitate compliance and convergent application. The table may be updated by ESMA if and when required.

Opinion on position limits on ICE Brent Crude contracts

Following a notification from the Financial Conduct Authority (FCA) under Article 57(5) of MiFID II regarding the position limits for the ICE Brent Crude commodity futures and options contracts, ESMA delivered an opinion that this spot month limit does not comply with the methodology established in RTS 21 and is consistent with the objectives of MiFID II. Further, the other months’ position limit does comply with the methodology established in RTS 21 and is consistent with the objectives of Article 57 of MiFID II.

MiFID II: ESMA updates on commodity derivatives

ESMA has updated its Q&As regarding commodity derivatives under MiFID II and MiFIR. The update relates to position limits and position reporting. ESMA also updated its list of liquid commodity derivative contracts for position limit purposes to include the position limits and opinion in relation to ICE Brent Crude contract.

ESMA updates MiFID II Q&As on post-trading issues

ESMA has updated its Q&As on post-trading issues regarding the implementation of the Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR). The updated Q&A includes a new answer in relation to indirect clearing.

ESMA updates its MiFID II Q&As on transparency and market structures

ESMA has updated its Q&As regarding transparency and market structures issues under MiFID II and MiFIR. This update includes new answers regarding:

  • the scope of the tick size regime
  • application of MiFID II after 3 January 2018, including issues of ‘late transposition’
  • equity transparency
  • non-equity transparency
  • pre-trade transparency waivers

ESMA updates its EMIR Q&A

ESMA has issued an update of its Q&A on practical questions regarding the implementation of the European Markets Infrastructure Regulation (EMIR). The updated Q&A includes new answers in relation to:

  • indirect clearing
  • reporting of collateral
  • swap reporting to trade repositories
  • OTC Derivatives
  • trade repositories
  • contracts with no maturity

ESMA updates its Q&As on MiFID II/MiFIR investor protection topics

European Securities and Markets Authority (ESMA) has added ten new Q&As to its Q&A document on the implementation of investor protection topics under MiFID II and MiFIR. The new Q&As cover the topics of inducements, suitability, and provision of investment services and activities by third-country firms.

ESMA review finds good supervision of CCPs' default management

ESMA has issued the results of a peer review it conducted into how national competent authorities (NCAs) ensure that central counterparties (CCPs) comply with requirements under the European Markets Infrastructure Regulation (EMIR). ESMA’s peer review covered the supervision by NCAs of CCPs’ default management procedures (DMP), including how they simulate the default of a clearing member (fire drills).

Overall, ESMA found that NCAs supervise DMPs adequately and that most EU CCPs have performed fire drills. However, the report also highlights the areas where divergences emerged with respect to NCAs’ supervisory approaches related to reviewing and testing of DMP and fire drills.

ESMA issues statement on LEI implementation under MiFID II

ESMA has issued a statement to support the smooth implementation of Legal Entity Identifiers (LEI) requirements under MiFIR.  ESMA and national competent authorities (NCAs) learnt that not all investment firms will succeed in obtaining LEI codes from all their clients ahead of the entry-into-force of MiFIR on 3 January 2018. This may be the case for trading venues’ non-EU issuers whose financial instruments are traded on European trading venues, who are also obliged to identify issuers of financial instruments traded on their systems with an LEI code.

ESMA will allow for a temporary period of six months so that:

  • Investment firms may provide a service triggering the obligation to submit a transaction report to the client, from which it did not previously obtain an LEI code, under the condition that before providing such service the investment firm obtains the necessary documentation from this client to apply for an LEI code on his behalf.
  • Trading venues report their own LEI codes instead of LEI codes of non-EU issuers currently not having their own LEI codes.

ESMA provides guidance on cross-border investment services and MiFID transposition

ESMA has issued guidance to national competent authorities (NCAs) and market participants on the topic of continuity of cross-border provision of investment services in the transition between MiFID I and MiFID II, including in the event that there is late transposition of the Directive by some Member States. The new Q&As cover both secondary markets and investor protection related issues including:

Secondary markets:

  • validity of authorisations
  • continuity of the provision of services by regulated market
  • provision of data reporting services

Investor protection:

  • validity of authorisations
  • existing passport notifications validity
  • continuity of the provision of investment services
  • new passport notifications

ESMA updates MiFID II trading halts procedure

ESMA has published a revised procedure and template to be used by national competent authorities (NCAs) for the purpose of reporting the parameters used by trading venues under their jurisdiction for halting trading in accordance with Article 48(5) of MiFID II. The reporting template has been amended with the main objective to reduce, to the extent possible, fields with free text and replace those fields with hard-coded input. This is to facilitate extraction, computation and ultimately the analysis of the files.

ESMA updates Q&A on MiFIR data reporting

ESMA has updated its Q&As regarding data reporting under MiFID II and MiFIR. The update includes updated Q&As on:

  • unknown date of admission
  • concept of underlying
  • non-EU branches of EU Investment firms

ESMA publishes updated key transparency calculations for MiFIDII/MiFIR implementation

ESMA has published an updated version of the MiFID II/MiFIR transitional transparency calculations (TTC) for equity and bond instruments. The updated version reflects changes in the classification of instruments and the related parameters and resubmission of data by some trading venues. The TTC is applicable from the 3 January 2018 and the equity instruments TTC will apply until 31 March 2019 and for bond instruments (liquidity assessment) until 15 May 2018.

MiFID II: Commission adopts equivalence decision on Swiss share trading venues

The European Commission has adopted a decision to recognise trading venues in Switzerland as eligible for compliance with the trading obligation for shares set out in the new MiFID II/MiFIR, which apply in the EU as of 3 January 2018.The decision, which is limited to one year, ensures that businesses and markets can continue to operate smoothly and without any market disruptions after 3 January 2018. The Commission will continue to monitor the impact of the decision and consider the broader political context.

Capital Markets Union: more proportionate and risk-sensitive rules for stronger investment firms 

The European Commission has proposed a two-track overhaul to make life simpler for smaller investment firms, while bringing the largest, systemic ones under the same regime as European banks. Under the proposals the majority of investment firms in the EU would no longer be subject to rules that were originally designed for banks. This would reduce administrative burden, boost competition and increase investment flows, without compromising financial stability. At the same time large, systemic investment firms which carry out bank-like activities and pose similar risks as banks would be subject to the same rules and supervision as banks.

MiFID II/MiFIR data now available

ESMA, in cooperation with national competent authorities (NCAs) in the European Economic Area (EEA), has overseen the launch of MiFID II and MiFIR on Wednesday 3 January. The availability of data to market participants – firms and trading venues – and National Competent Authorities is key to ensuring the proper functioning of the new regime. The data is available on ESMA's website and will be continuously updated.

ESMA provides overview of MiFID II deferral regimes

ESMA has published a table compiling the supplementary deferral regimes applicable in different Member States for trading in non-equity instruments under MiFIR. The purpose of this table is to provide an overview to market participants of the different regimes for supplementary deferral that national competent authorities have opted for to facilitate compliance and convergent application.

Double Volume Cap System - instructions on download and use of double volume cap results files

ESMA has produced a document which provides details on the files containing double volume cap calculation results that ESMA will be publishing, how to access them and how to use them. The document is produced for EU market participants and National Competent Authorities that need to make use of the results of double volume cap calculations for the purpose of MiFIR.

Commission Implementing Regulation (EU) 2017/2382

This Implementing Regulation sets out common standard forms, procedures and templates for the submission of information required when investment firms, market operators, and, where required by Directive 2014/65/EU, credit institutions wish to provide investment services and perform activities in another Member State under the freedom to provide services or under the right of establishment.

Regulation (EU) 2017/2401 of the European Parliament and of the Council of 12 December 2017 amending Regulation (EU) No 575/2013

This regulation amends Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms. The amendments to Regulation (EU) No 575/2013 apply to all securitisation positions held by an institution. However, in order to mitigate transitional costs insofar as possible and to allow for a smooth migration to the new framework, institutions should continue to apply, the previous framework, namely the relevant provisions of Regulation (EU) No 575/2013 that applied prior to the date of application of this regulation, to all outstanding securitisation positions that they hold on the date of application of this regulation, until 31 December 2019.

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

Date Published: 10 January 2018