Central Bank of Ireland Governor comments on risks facing the investment industry
Central Bank Governor Philip Lane has commented on the risks facing the investment industry in an international context during a speech to the International Capital Market Association Conference. Governor Lane said that as Irish-resident collective investment vehicles are largely invested in offshore assets and are owned by mostly foreign investors, stress arising elsewhere can affect Irish-resident investment vehicles. Governor Lane said it was the Central Bank's role to “work with international peers in the oversight and supervision of non-bank financial intermediaries” in this context. The Governor pointed to the Central Bank’s successes in regulating investment funds by collecting detailed data on collective investment vehicles, prioritising initiatives that make data collection more efficient and effective and developing methods to analyse the risks of investment funds under stressed scenarios in order to inform supervisory priorities.
Council of the EU confirms delayed application of the Markets in Financial Instruments Directive II and Markets in Financial Instruments Regulation
The Permanent Representatives Committee (COREPER) has approved a one-year delay in the transposition and application of MiFID II and MiFIR on behalf of the Council following an agreement with the EU Parliament. The MiFID II was originally meant to be transposed by Member States before 3 July 2016; however the process was hit with technical implementing challenges in relation to essential data infrastructures. MIFID II must now be transposed before 3 July 2017 and the application of both MIFID II and MIFIR will now commence on 3 January 2018.
EU Commission adopts two further delegated acts supplementing the MiFID II
The EU Commission has adopted two delegated regulations to supplement the amended and restated MiFID II. The 'Admission Delegated Regulation' includes rules on the admission of financial instruments to trading on regulated markets, setting out specific criteria for determining if transferable securities are freely negotiable and additional criteria to determine whether transferable securities, units and shares in collective investment undertakings, and derivatives, are being traded in a fair, orderly and efficient manner. The 'Suspension Delegated Regulation' sets out rules for the suspension and removal of financial instruments from trading on regulated markets.
European Securities and Markets Authority proposes amendment to MiFID II Standards on non-equity transparency and position limits
ESMA has issued opinions proposing amendments to two of its draft RTS under MiFID II and MiFIR in response to proposed amendments by the EU Commission on these draft RTS. The draft RTS relating to non-equity transparency contains a four year phase-in regime to facilitate the extension of MiFID II to transparency requirements for non-equity products, similar to the EU Commission's proposal. The phase-in will be automatic, with all stages already prescribed in the RTS, in addition to an annual liquidity assessment by ESMA. In addition, the issuance size of newly issued corporate and covered bonds will be increased, adjusting the liquidity status of those bonds. The second draft RTS, on the methodology for the calculation and application of position limits for commodity derivatives will also be amended, in response to EU Commission concerns about food prices. ESMA proposes to lower the position limits for derivatives with foodstuffs as an underlying to 2.5%. In addition, ESMA proposes adjustments to position limits where deliverable supply and open interest diverge significantly.
European Securities and Markets publishes draft Regulatory Technical Standards on transparency requirements under MiFID II
ESMA has proposed draft RTS on transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives which incorporate some of the amendments proposed by the EU Commission on its text. ESMA will introduce a phased approach for the liquidity criterion 'average daily number of trades’ for "determining the liquidity status of bonds and for the trade percentile for determining the pre-trade size specific to the instruments for certain non-equity classes". In addition ESMA proposes a temporary increase of the issuance size of corporate bonds and covered bonds for the first liquidity assessment of newly issued bonds of those types and the threshold floors in order to ensure transparency. ESMA will also introduce an automatic phase-in approach with annual transition to the next stage, while still monitoring of the impact of the pre-trade transparency regime.
European Securities and MarketsAuthority publishes Final Report requesting amendment of Regulatory Technical Standards on transaction reporting under the Markets in Financial Instruments Regulation
ESMA has published a final report seeking the amendment of Article 2 of RTS 22 on transaction reporting under the MiFIR. The amendment is sought as a result of an unintentional omission from the list of instances which are excluded as being ‘reportable transactions’ under MiFIR. Acquisitions or disposals that are solely a result of a transfer of collateral are now excluded from the list of exclusions from transaction reporting specified in Article 2(5) of the RTS.
European Securities and Markets Authority issues final draft regulatory technical standards on indirect clearing under the Markets in Financial Instruments Regulation and the European Market Infrastructure Regulation
The draft RTS under the MiFIR and the EMIR addresses the indirect clearing arrangements for OTC and exchange-traded derivatives and promote consistency protection for indirect clients. The RTS proposes a system of default management by imposing an obligation to have appropriate default procedures and to commit to trigger these. Under the draft RTS there will be a choice of account structures and the number of accounts required has been simplified. Finally, the draft RTS allow indirect clearing chains to be longer than the standard chains under certain circumstances. The draft RTS are now with the EU Commission for endorsement.
European Securities and Markets Authority issues Opinion on MiFID II Standards On Ancillary Activities
ESMA has issued an Opinion in response to an EU Commission letter asking to amend its draft RTS 20 setting out criteria to be used in the determination of whether a non-financial firm’s commodity derivatives trading activity is considered to be 'ancillary' to its main business and can therefore be exempted from the scope of MiFID II. The EU Commission had asked ESMA to amend the business activity test contained in RTS 20 and to introduce a capital-based test for certain firms. ESMA has maintained that the business activity test, as currently proposed is in line with the objectives of the exemption and is not in favour of the introduction of a capital-based test as an alternative. ESMA has, however, set out proposals which could be taken into account should the EU Commission wish to pursue the capital-based test. ESMA has identified metrics for a numerator and denominator that could be used by the EU Commission to construct a capital test and proposes that entities should be allowed to choose between performing the original main business test based on trading activity or a capital test.