Shearman & Sterling LLP | Financial Regulatory Developments Focus
Financial Regulatory Developments Focus
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The following posts provide a snapshot of the principal U.S., European and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.

  • EU Secondary Legislation for Money Market Funds Published
    07/13/2018

    A Commission Delegated Regulation amending and supplementing the European Money Market Funds Regulation has been published in the Official Journal of the European Union. The MMF Regulation, which applies directly across the EU from July 21, 2018, allows MMFs to invest in securitizations or asset-backed commercial paper and incentivizes the investment in simple, transparent and standardized securitizations. The Delegated Regulation amends the MMF Regulation (or MMFR) by applying the requirements for STS securitizations provided for in the Securitization Regulation (also known as the STS Regulation).

    The MMF Regulation also allows an MMF to enter into a reverse repurchase agreement provided that certain conditions are met. The assets received by the MMF under that agreement must be money market instruments that meet certain requirements. A derogation from those requirements provides that an MMF may also receive instruments that are either: (i) issued or guaranteed by the EU, a central authority or central bank of a Member State, the European Central Bank, the European Investment Bank, the European Stability Mechanism or the European Financial Stability Facility; or (ii) issued or guaranteed by a central authority or central bank of a third country. The Delegated Regulation supplements the MMF Regulation by providing the quantitative and qualitative liquidity requirements for the assets that an MMF receives under a reverse repurchase agreement where the derogation is being used.

    Read more.
    TOPICS: FundsSecurities
  • European Commission Adopts Regulatory Technical Standards Under the EU Benchmarks Regulation
    07/13/2018

    The European Commission has adopted a series of Commission Delegated Regulations comprising all of the Regulatory Technical Standards to supplement the EU Benchmarks Regulation. The Benchmark Regulation, which took effect across the EU in January 2018, sets out the authorization and registration requirements for benchmark administrators, including third-country entities, and the requirements for governance and control of administrators. It provides for different categories of benchmarks depending on the risks involved, imposes additional requirements on benchmarks considered to be "critical" and gives powers to national regulators to mandate, under certain conditions, contributions to or the administration of critical benchmarks. The RTS outline the behaviors and standards expected of administrators of and contributors to benchmarks. The RTS adopted by the Commission are based on draft RTS prepared by the European Securities and Markets Authority in March 2017.

    The European Parliament and the Council of the European Union will now have three months in which to raise any objections to the Delegated Regulations. The Delegated Regulations will take effect 20 days after their publication in the Official Journal of the European Union.

    Read more
  • European Securities and Markets Authority Consults on Minimum Standards for an Exemption from Providing a Prospectus Under the Prospectus Regulation
    07/13/2018

    The European Securities and Markets Authority has published a consultation paper on its draft technical advice to the European Commission on the minimum information content of documents provided for the purpose of describing a takeover, merger or division. ESMA was mandated by the Commission in February 2017 to provide it with technical advice for the circumstance where, under the Prospectus Regulation, issuers can benefit from an exemption to the requirement to supply a prospectus when they offer or admit securities connected with a takeover, merger or division. Issuers may, as an alternative to a prospectus, make available to investors an alternative document, which describes the transaction and its impact on the issuer.

    ESMA's technical advice sets out the minimum information content of documents describing a merger, division or takeover which is necessary for an exemption from the obligation to publish a prospectus. ESMA invites comments on a range of questions on the content of the following sections of such "exempted documents": (i) operative provisions and definitions; (ii) Minimum Information Content Simplified Disclosure Regime for the Issuer; (iii) the Minimum Information Content Securities; (iv) the Minimum Information Content Description and Impact of Takeover, Merger and Division.

    The consultation on the draft technical advice closes on October 5, 2018. ESMA expects to publish its final report on its technical advice in Q1 2019.

    View the consultation.
    TOPIC: Securities
  • European Securities and Markets Authority Seeks Feedback on Proposed Risk Factors Guidelines Under the Prospectus Regulation
    07/13/2018

    The European Securities and Markets Authority has published a consultation paper setting out draft guidelines for national regulators on risk factors under the Prospectus Regulation. ESMA has prepared the draft guidelines following a mandate from the European Commission to assist national regulators in their review of the specificity and materiality of risk factors within prospectuses and of the presentation of risk factors across categories depending on their nature.

    The draft guidelines cover: (i) specificity; (ii) materiality; (iii) corroboration of the materiality and specificity; (iv) presentation of risk factors across categories; (v) focused/concise risk factors; and (vi) risk factors in the summary.

    Comments on the draft guidelines are invited by October 5, 2018.

    View the consultation paper.
    TOPIC: Securities
  • Financial Stability Board Welcomes ISDA Consultation on Fall Backs Risk-Free Rates for Derivatives
    07/12/2018

    The Financial Stability Board has published a statement welcoming the consultation by the International Swaps and Derivatives Association on fall backs based on overnight risk-free rates for certain derivative contracts. The statement has been issued to provide market participants with the FSB's views ahead of the consultation by ISDA. The FSB's view is that overnight RFRs are more robust than interbank or term rates because they are based on active and liquid underlying markets. Overnight RFRs are considered by the FSB to be a better choice than term rates for markets where participants do not need forward-looking term rates. The FSB stated that for those markets where the IBOR may cease, citing the example of LIBOR, a transition to new reference rates will be crucial. The FSB acknowledges the work to reform some IBORS excluding LIBOR. It is therefore unclear whether the FSB has factored in the recently announced changes to LIBOR methodology in making this assessment and reaching these conclusions.

    Read more
  • International Swaps and Derivatives Association Consults on Fall Backs Based on Overnight Risk-Free Rates for Certain Derivatives
    07/12/2018

    The International Swaps and Derivatives Association has launched a consultation in which it proposes to amend its standard documentation to implement fall-backs based on alternative risk-free rates for certain key Interbank Offered Rates - GBP LIBOR, CHF LIBOR, JPY LIBOR, TIBOR, Euroyen TIBOR and BBSW. ISDA states that the back-ups will apply if the relevant IBOR is permanently discontinued, based on defined triggers.

    ISDA is seeking feedback on the approach to address certain technical issues arising from the necessary adjustments that will apply to the RFRs if the fall backs are triggered.

    ISDA intends to consult on the technical issues for these changes for derivatives referencing USD LIBOR, EUR LIBOR and EURIBOR at a later date. It requests preliminary feedback on the technical issues associated with fall-backs for these benchmarks in this consultation.
    Responses to the consultation should be submitted by October 12, 2018. ISDA will determine which approach to adopt based on the feedback and will publish the final approach for review and comment before implementing any changes to the ISDA standard documentation.

    The FSB issued a statement on the same day welcoming ISDA's consultation and encouraging market participants to respond to the proposals.

    View ISDA's consultation.

    View details of the FSB's statement
  • UK Legislation Published to Permit Islamic Bonds to be Traded on More Venues
    07/10/2018

    The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2018 has been made and comes into force on July 11, 2018. The Order amends the definition of "Alternative Finance Investment Bonds" in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. The result of the amendment is that AFIBs, such as Sukuk, will be permitted to trade on multilateral trading facilities or organised trading facilities and ensure AFIBs are treated in the same way as conventional bonds for trading purposes.

    The amendment removes a glitch creating disparity of treatment between AFIBs and conventional bonds, which had created an obstacle to the use of U.K. venues for the issue and trading of AFIBs. This was contrary to the U.K. Government's standing commitment to provide a level playing field for Islamic finance instruments in regulation and taxation in the U.K.

    Read more.
    TOPIC: Securities
  • UK Financial Policy Committee Outlines Steps to Reduce Risks to the UK's Financial Stability
    07/03/2018

    The Bank of England has published a Financial Stability Report, dated June 2018, and a record of the Financial Policy Committee Meeting held on June 19, 2018. The Report sets out the FPC's view of the U.K.'s financial stability, the resilience of the U.K.'s financial system and the risks posed to each of those. Where applicable, the Report also notes the steps that the FPC is taking to address the risks. The record of the meeting provides a summary of issues discussed by the FPC in June.

    Read more
  • New UK Standard on Risk Management Transactions for New Issuances for the Fixed Income Markets
    07/03/2018

    The U.K. Fixed Income, Currency and Commodities Markets Standards Board has published a new Standard on Risk Management Transactions for New Issuances for the Fixed Income markets.

    The FMSB has created several Standards to improve conduct in the FICC markets since its establishment in 2015 in response to the Fair and Effective Markets Review conducted by HM Treasury, the Bank of England and the Financial Conduct Authority. FMSB members commit to applying the FMSB Standards but the Standards do not impose legal or regulatory obligations.

    The new Standard describes expected behaviors to improve the practice and awareness regarding risk management activities conducted in and around the new issuance of bonds and includes 12 Core Principles. Following its consultation at the end of 2017 on the proposed Standard on Risk Management Transactions for New Issuances, the FMSB has made some minor changes, including providing more detail on the nature of the conduct risks and amending the Principle on dissemination of information (Core Principle 9).

    Read more.
  • UK Regulations Implementing Parts of the Prospectus Regulation Published
    06/29/2018

    The Financial Services and Markets Act 2000 (Prospectus and Markets in Financial Instruments) Regulations 2018, dated June 27, 2018, have been laid before Parliament. The U.K. Regulations will come into force on July 21, 2018, implementing parts of the Prospectus Regulation that will apply from that date. The Prospectus Regulation will replace the existing Prospectus Directive and sets out the requirements for a prospectus to be published when securities are offered to the public or admitted to trading on a regulated market. The Prospectus Regulation aims to simplify the rules and administrative obligations for companies wishing to issue shares or debt on the market and reducing the costs of preparing a prospectus, thus fostering cross-border investments in the single market, while at the same time still enabling investors to make informed investment decisions. The remainder of its provisions take effect on July 21, 2019.

    U.K. law is not needed to transpose the Prospectus Regulation, which will be directly applicable across the EU. However, certain U.K. legislation will need to be amended to ensure that there is no conflict of laws. The U.K. Regulations amend the Financial Services and Markets Act by increasing the threshold, from €5 million to €8 million, for which a prospectus is required for an offer of securities to the public within the U.K. The U.K. Regulations also amend the U.K. legislation that implemented the Markets in Financial Instruments Directive, including by correcting the definition of a MiFID investment firm.

    View the U.K. Regulations (S.I. 2018/786).

    View the explanatory memorandum.
    TOPICS: MiFID IISecurities
  • European Money Markets Institute Confirms Certain Changes for Euribor
    06/28/2018

    The European Money Markets Institute has published a feedback summary report on its March 2018 consultation on a hybrid determination methodology for the Euro Interbank Offered Rate (Euribor). EMMI is the administrator for Euribor, a major euro interest reference rate for unsecured interbank short-term lending and borrowing. Euribor was classed as a critical benchmark of systemic importance for financial stability by the European Commission in 2016.

    EMMI consulted on: (i) introducing a three-level "hybrid" methodology for calculating Euribor; (ii) producing an overnight tenor for Euribor following the implementation of the hybrid methodology; (iii) discontinuing the calculation of three of the eight tenors; (iv) clarifying Euribor's underlying interest; (v) ceasing the publication of individual Panel Banks' submissions; and (vi) simplifying the publication process.

    Read more.
  • European Central Bank Consults on Assessing Potential Successors to the EONIA Benchmark
    06/21/2018

    The European Central Bank has published a consultation on behalf of the Working Group on Euro Risk-Free Rates. The ECB provides the secretariat for this Working Group. The Working Group is tasked, among other things, with identifying and recommending alternatives to Euro lending benchmark rates, namely EURIBOR and EONIA.

    The administrator of EONIA announced in February 2018 that, due to prolonged structural change in the underlying interbank lending market that uses EONIA as a benchmark, EONIA's compliance with the EU Benchmarks Regulation by January 2020 "cannot be warranted" and that the ongoing review of EONIA would therefore be discontinued. The consultation invites comments on three euro risk-free rates that could potentially replace EONIA. These are:
    • The euro short-term rate (ESTER), a new wholesale unsecured overnight bank borrowing rate that the ECB proposes to launch before 2020;
    • GC Pooling Deferred, a one-day secured, centrally cleared, general collateral repo rate, which is produced by STOXX, a wholly-owned subsidiary of Deutsche Börse Group; and
    • RepoFunds Rate, a one-day secured, centrally cleared, combined general and specific collateral repo rate, which is produced by NEX Data Services Limited, a wholly owned subsidiary of NEX Group plc, soon to be acquired by CME Group.
    Read more.
  • European Securities and Markets Authority Publishes Annual Report
    06/19/2018

    The European Securities and Markets Authority has published its Annual Report, dated June 15, 2018. The report sets out ESMA's key achievements against its 2017 objectives of promoting supervisory convergence, assessing risks to investors, markets and financial stability, completing a single rulebook for the EU financial markets and directly supervising trade repositories, credit rating agencies and third-country CCPs. The report also discusses ESMA's contributions to the work of the Joint Committee of the European Supervisory Authorities.

    The report does not consider the focus areas for ESMA in 2018, which are set out in ESMA's work programes. However, ESMA indicates that in 2018 it will be, among other things: (i) issuing further opinions on pre-transparency waivers under the Markets in Financial Instruments package; (ii) engaging with credit rating agencies and trade repositories on their strategy, governance, operational matters and preparations for Brexit; and (iii) continuing its work to finalize the technical standards and technical advice under the EU Prospectus Regulation.

    View ESMA's Annual Report.
  • European Money Markets Institute Announces Cessation of Three Euribor Tenors
    06/07/2018

    The European Money Markets Institute has announced the planned cessation of three of the current tenors for the Euro Interbank Offered Rate (Euribor). EMMI is the administrator for Euribor, a major euro interest reference rate for unsecured interbank short-term lending and borrowing. Euribor was classed as a critical benchmark of systemic importance for financial stability by the European Commission in 2016.

    EMMI published a consultation paper in March 2018 seeking views from stakeholders on a proposed hybrid determination methodology for Euribor that will transition Euribor away from a quote-based to a transaction-based methodology. As part of that consultation, EMMI sought feedback on whether to discontinue the calculation and publication of three of the eight tenors it publishes, due to low levels of activity underpinning the markets those tenors represent. The majority of respondents to the consultation supported the discontinuation of the two week, two month and nine month tenors and consequently EMMI will proceed with its proposal.

    Read more.
  • US Office of the Comptroller of the Currency and US Federal Deposit Insurance Corporation Issue Final Rule to Shorten Settlement Cycle
    06/01/2018

    The US Office of the Comptroller of the Currency and US Federal Deposit Insurance Corporation issued a final rule shortening the settlement cycle for securities purchased and sold by OCC- and FDIC-supervised financial institutions.  This final rule follows the transition from a T+3 settlement cycle to a T+2 settlement cycle that occurred in the securities industry on September 5, 2017.  The final rule codifies existing OCC and FDIC guidance published in June and July of 2017, respectively, which notified institutions that they should be in compliance with the T+2 settlement cycle by September 5, 2017.  The final rule follows a September 2017 notice of proposed rulemaking published by the OCC and FDIC suggesting two alternatives to the wording of the final rule; one that made specific reference to the T+2 settlement cycle and one that made reference to the “standard settlement cycle followed by registered broker dealers in the United States.” The OCC and FDIC settled on the latter of these two options in order to maintain better alignment with the settlement cycle followed by the securities industry going forward. The final rule takes effect 30 days from the date of its publication in the Federal Register.

    View full text of the final rule.
    TOPIC: Securities
  • Proposed UK Good Practice on Information Confidentiality for the FICC Markets
    06/01/2018

    The U.K. Fixed Income, Currency and Commodities Markets Standards Board has published for consultation a Transparency Draft of a new Statement of Good Practice on Information and Confidentiality for fixed income and commodities markets. The proposed Statement of Good Practice will apply in the European Fixed Income and Commodities markets. It is not intended to apply to the FX markets to which the FX Global Code applies, or to the precious metals markets, which are covered by the Precious Metals Code. The aim of the proposal is to clarify data sharing in the relevant markets and dealing with confidential information within a firm, including what information should not be shared with parties outside of a firm and what can be revealed when discussing "market color." The proposed Statement of Good Practice consists of nine Statements of Good Practice and an explanation of the rationale for each statement.

    The consultation closes on August 31, 2018. The FMSB intends to publish the final Statement of Good Practice shortly thereafter. The Statements of Good Practice are not part of the FMSB Standards and are not binding on FMSB members, but reflect the FMSB's view of what constitutes good or best practice in the areas covered.

    View the consultation paper.
  • European Commission Publishes Proposal for a Regulation on Sovereign Bond-Backed Securities
    05/24/2018

    The European Commission has published a proposal for a Regulation to provide an enabling framework for a market-led development of Sovereign Bond-Backed Securities, following the publication of an inception impact statement in January 2018. The proposal forms part of the Commission's efforts to enhance the Banking Union and Capital Markets Union.

    SBBSs are to be defined as instruments created by the private sector, whereby a private sector entity would assemble an underlying portfolio of sovereign bonds from the market and would subsequently transfer them to a legally separate, self-standing entity, specifically established for the sole purpose of issuing to investors a series of securities representing claims on the proceeds from this underlying portfolio. Losses from the portfolio would be borne in a certain sequence by tranches of issued securities.

    Read more.
    TOPIC: Securities
  • European Commission Proposes Legislative Package on Sustainable Finance
    05/24/2018

    The European Commission has published a package of legislative reforms on sustainable finance. The aim of the package of reforms, which form part of the Commission's broader Capital Markets Union initiative, is to ensure that environmental, social and governance considerations are consistently integrated into the investment and advisory process across sectors. The proposed measures comprise:

    (i) a proposed Regulation on the establishment of a framework to facilitate sustainable investment. This will establish an EU-wide classification system for environmentally sustainable economic activities and ensure that investment strategies are oriented towards economic activities that genuinely contribute to achieving environmental objectives. The proposed Regulation will empower the European Commission to adopt delegated acts to specify technical screening criteria to assess the contribution of a given economic activity to a particular environmental objective as substantial. A list of six environmental objectives is set out in the proposed regulation, namely: climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy, waste prevention and recycling; pollution prevention and control; and protection of healthy ecosystems (which includes biodiversity conservation).

    Read more.
  • European Commission Proposes Legislation to Promote SME Growth Markets
    05/24/2018

    The European Commission has published a proposal for a Regulation to amend the Market Abuse Regulation and the new Prospectus Regulation. The aim of the proposed Regulation is to promote the use of SME Growth Markets by making technical adjustments to the MAR and the new PR to make the regulatory framework applying to listed Small and Medium-sized Enterprises more proportionate and to foster the liquidity of equity instruments listed on SME Growth Markets, while maintaining a high level of investor protection and market integrity. The proposed Regulation is in line with the objectives of the EU Capital Markets Union of reducing the overreliance on bank funding and diversifying market-based sources of financing for European companies.

    SME Growth Markets are a new sub-category of multilateral trading facility introduced by the revised Markets in Financial Instruments Directive in January 2018. Companies listed on an SME Growth Market are required to comply with MAR and the PR and are impacted by some aspects of MiFID II. The adjustments in the proposal for a Regulation are designed to lower the administrative burden and costs for issuers on SME Growth Markets stemming from compliance with MAR and the PR and to address regulatory shortcomings in MAR that can affect the liquidity of SME financial instruments. The European Commission has also published a separate proposal for a regulation amending delegated legislation under MiFID II to address regulatory barriers to the take-up of the SME Growth Markets.

    Read more.
  • European Commission Proposes MiFID II Amendments to Promote SME Growth Markets
    05/24/2018

    The European Commission has published for consultation a draft Delegated Regulation on registration conditions to promote the use of SME Growth Markets for the purposes of the revised Markets in Financial Instruments Directive. MiFID II introduced SME Growth Markets as a new sub-category of multilateral trading facility in January 2018 to facilitate access to capital for Small and Medium-sized Enterprises. The proposed delegated regulation will amend existing delegated legislation under MiFID II to address regulatory barriers to the take-up of SME Growth Markets. The European Commission has also published separately a legislative proposal to make adjustments to the Market Abuse Regulation and the Prospectus Regulation is to promote the use of SME Growth Markets.

    Read more.
    TOPICS: MiFID IISecurities
  • UK Prudential Regulation Authority Consults on Its Approach to New EU Securitization Framework and Significant Risk Transfer
    05/22/2018

    The U.K. Prudential Regulation Authority has published a Consultation Paper, setting out the PRA's proposals on its approach to supervision under the new EU securitization framework that will take effect from January 1, 2019. The incoming EU framework consists of: (i) the Securitisation Regulation, which imposes general requirements for all EU securitization activity and outlines the criteria and process for designating certain securitizations as "Simple, Transparent and Standardised"; and (ii) revisions to the banking securitization capital framework within the Capital Requirements Regulation.

    Read more.
  • International Bodies Publish Identification Criteria and Capital Treatment for Simple, Transparent and Comparable Short-Term Securitizations
    05/14/2018

    The Basel Committee on Banking Supervision and the International Organization of Securities Commissions have published an updated version of the sound practices document, "Criteria for identifying simple, transparent and comparable short-term securitisations", which was originally published in 2015. The Basel Committee has also published an updated version of its standards document, "Capital treatment for simple, transparent and comparable short-term securitisations".

    The Basel Committee and IOSCO consulted on the proposed updated Criteria in July 2017. The Basel Committee consulted at the same time on proposed additional guidance and requirements for the purpose of applying preferential regulatory capital treatment for banks acting as investors in, or as sponsors of, STC short-term securitisations, typically in asset-backed commercial paper structures.

    Read more.
  • Draft UK Legislation Published to Broaden Range of Permitted Trading Venues for Islamic Finance Instruments
    05/09/2018

    A draft of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2018 has been laid before Parliament. The draft Order makes amendments to the definition of "Alternative Finance Investment Bonds" in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

    AFIBs, such as Sukuk, are currently not permitted to trade on multilateral trading facilities or organised trading facilities, due to the wording of the AFIB definition in the RAO, however conventional bonds can be traded on these venues. This disparity of treatment between AFIBs and conventional bonds creates an obstacle to the use of U.K. venues for the issue and trading of AFIBs and is contrary to the U.K. Government's standing commitment to provide a level playing field for Islamic finance instruments in regulation and taxation in the U.K. The draft Order amends the RAO to expand the criteria for AFIBs to qualify as a specified investment under the RAO. This will allow AFIBs to be traded on U.K. MTFs and OTFs and ensure AFIBs are treated in the same way as conventional bonds for trading purposes.

    Read more.
    TOPIC: Securities
  • EURIBOR Administrator Starts 3-Month Testing Phase for Hybrid Methodology
    05/02/2018

    The European Money Markets Institute has announced the start of the testing phase for a new hybrid methodology it proposes to introduce to determine Euribor. The testing phase will run from May 2, 2018 to July 31, 2018.
     

    EMMI launched a consultation on the introduction of the hybrid methodology and on some related issues in March 2018. That consultation closes on May 15, 2018 and EMMI intends to publish a summary of responses in June 2018.

    The testing phase will involve EMMI conducting data analysis and assessing the methodology's parameters. EMMI hopes to gain a better understanding of panel banks' overall contribution patterns and how they make submissions using Level 3 of three-level "hybrid" methodology. Based on the results, EMMI will launch a second consultation in Q3 2018.

    It is intended that the new hybrid methodology will be launched by Q4 2019 at the latest, in line with the transitional period provided by the EU Benchmarks Regulation.

    View the EMMI announcement.

    View details of the March 2018 consultation.

  • ICE LIBOR Administrator Sets Out Transition Plan for New Submission Methodology
    04/25/2018

    ICE Benchmark Administration, the administrator of the LIBOR benchmark, has published a report setting out how it proposes to transition panel banks to the new "Waterfall Methodology" outlined in its ICE LIBOR Output Statement, which was updated following a feedback statement in March 2017 on the evolution of the London Interbank Offered Rate. LIBOR is a widely used benchmark for short-term interest rates. It is produced for five currencies and seven tenors, resulting in the publication of 35 rates every applicable London business day.

    The ICE LIBOR Output Statement sets out a single LIBOR definition and a more standardized, transaction data-driven methodology for LIBOR panel banks’ submissions. IBA’s intention in introducing the new methodology is to publish, in all market circumstances, a wholesale funding rate anchored in unsecured, wholesale funding transactions to the greatest extent possible.

    Read more.
    TOPIC: Securities
  • Bank of England Confirms Implementation of SONIA reforms
    04/23/2018

    The Bank of England has confirmed that it has implemented its reforms to the SONIA interest rate benchmark. SONIA, the Sterling Overnight Interbank Average Rate, which has been administered since April 2016 by the BoE, is the existing unsecured reference rate for the sterling Overnight Indexed Swap market.

    The BOE announced in October 2017 that the methodology for calculating SONIA would move from being based on a market for brokered deposits (which has limited transaction volumes) to a methodology involving a volume-weighted trimmed mean. The BOE has also separately published the key features and policies for SONIA, which summarize how SONIA is calculated and administered, including the governance arrangements. The BoE intends to publish an assessment of the benchmark's compliance with the International Organization of Securities Commissions' Principles for Financial Benchmarks in Summer 2018.

    View the BoE press release.

    View the SONIA key features and policies document.
  • European Banking Authority Consults on Simple Transparent and Standardized Criteria for ABCP and non-ABCP Securitizations
    04/20/2018

    The European Banking Authority has published consultations on two sets of draft guidelines under the Securitization Regulation (also known as the STS Regulation) which, along with targeted amendments to the Capital Requirements Regulation, forms part of the new EU Securitization Framework for simple, transparent and standardized securitizations from January 2018. The STS Regulation establishes two sets of criteria for STS securitizations, namely for term (i.e. non-Asset Backed Commercial Paper) securitizations and for short-term (i.e. ABCP) securitizations respectively. The EBA is mandated under the STS Regulation to develop, by October 18, 2018, (i) guidelines and recommendations interpreting the STS criteria applicable to non-ABCP securitization; and (ii) guidelines and recommendations interpreting the transaction level and programme level criteria applicable to ABCP securitization.

    Read more.
    TOPIC: Securities
  • UK Regulator Warns CEOs of Listed Companies About Their Obligations on Irredeemable Preference Shares
    04/19/2018

    The U.K. Financial Conduct Authority has published a "Dear CEO" letter to the Chief Executive Officers of U.K. listed companies on capital instruments expressed to be perpetual, irredeemable or in some other way that suggests permanence. The FCA wishes to ensure that investors have access to all the information necessary for them to be able to assess properly the risks and rewards attaching to such shares. The letter lists the information that listed companies may wish to make readily accessible to all holders and potential holders of such shares, including:
    • the terms and conditions of the instrument as included in the original prospectus or similar document issued at the time of the offer or admission of the shares, and details of any changes made after the issue of the shares;
    • the articles of association of the issuer, particularly the articles relevant to the shares concerned; and
    • a Q&A or similar publication.
    Read more.
  • US Securities and Exchange Commission Proposes Broker-Dealer Standard of Care and Guidance on Investment Advisers’ Fiduciary Standard
    04/18/2018

    The U.S. Securities and Exchange Commission published three proposed rules with request for public comment that would seek to enhance and clarify the standards of care applicable to broker-dealers and investment advisers when dealing with retail clients. The three proposals are designed to be interlocked and complementary, and, as noted by SEC Chairman Jay Clayton in his introduction of the proposals, are aimed, in part, at better aligning regulations and obligations of broker-dealers and investment advisers with the expectations of retail investors, and preserving retail investor choice.

    Read more.
    TOPIC: Securities
  • International Standards Body Recommendations for Secondary Corporate Bond Market Transparency and Regulatory Reporting
    04/05/2018

    The International Organization of Securities Commissions has published a final report on regulatory reporting and public transparency in the secondary corporate bond markets. The report discusses the importance to robust capital markets of making information accessible to regulators and the public via regulatory reporting requirements and pre- and post-trade transparency requirements respectively. The report discusses the approach taken in various jurisdictions to impose these requirements before setting out seven recommendations for national regulators.

    The recommendations update IOSCO's 2004 report, "Transparency of Corporate Bond Markets," which discussed the then-existing transparency arrangements for corporate bond markets, as well as the regulatory regimes that were in place in member jurisdictions and set out Core Measures for national regulators to consider to ensure adequate transparency and regulatory reporting arrangements. The recommendations also take into account IOSCO's 2017 report, "Examination of the Liquidity of the Secondary Corporate Bond Markets," which set out the findings of an evidence-based examination of the state of secondary corporate bond markets from 2004 until approximately 2015 and provided a detailed overview and discussion of the markets and how they had evolved since 2004.

    Read more.
    TOPICS: MiFID IISecurities
  • European Securities and Markets Authority Publishes Final Technical Advice under the Prospectus Regulation
    04/03/2018

    The European Securities and Markets Authority has published its final report on its technical advice to the European Commission to supplement the provisions of the Prospectus Regulation with delegated legislation. The Prospectus Regulation entered into force on July 20, 2017 and certain provisions took effect directly across the EU on July 20, 2017. It will further take effect partly on July 21, 2018 with the remainder of its provisions taking effect on July 21, 2019. The Prospectus Regulation is a major part of the European Commission's drive towards EU Capital Markets Union. It will repeal and replace the existing Prospectus Directive as well as its supplemental Regulation on the form and content of a prospectus.

    ESMA was mandated by the European Commission to provide technical advice on possible delegated acts on the format and content of the prospectus, the content, format and sequence of the EU Growth Prospectus (a new type of prospectus for small and medium-sized enterprises and in certain cases non-SMEs for small issuances) and scrutiny and approval of the prospectus. ESMA consulted on its draft technical advice in three consultations launched in July 2017. ESMA has made a number of amendments to its technical advice, based on feedback received on the consultations.

    Read more.
    TOPIC: Securities
  • Final EU Guidelines on Internalized Settlement Reporting Under the Central Securities Depositories Regulation
    03/28/2018

    The European Securities and Markets Authority has published final Guidelines on Internalized Settlement Reporting under the Central Securities Depositories Regulation. The CSDR, which introduces common standards for settlements across the EU, will apply directly across the EU from January 1, 2023 to transferable securities issued after that date and, from January 1, 2025, to all transferable securities. The CSDR requires settlement internalizers to report the aggregated volume and value of all securities transactions that they settle outside of securities settlement systems to their national regulator on a quarterly basis. Settlement internalizers are firms that execute transfer orders on behalf of clients or on own account other than through a securities settlement system. National regulators must, without delay, transmit the information received from settlement internalizers to ESMA and inform ESMA of any resulting potential risk. Regulatory Technical Standards on internal settlement (Commission Delegated Regulation (EU) 2017/391) provide the content of internalized settlement reporting and Implementing Technical Standards (Commission Implementing Regulation (EU) 2017/393) provide the templates and procedures for reporting and transmission of the information.

    The Guidelines on Internalized Settlement Reporting aim to ensure the consistent application of the requirements under CSDR and the related technical standards. The Guidelines set out the scope of data to be reported to national regulators and the entities responsible for reporting the information. The Guidelines also provide the process for submission of information by national regulators to ESMA.

    The Guidelines will apply to national regulators and to settlement internalizers from the date that they are published on ESMA's website in the official languages of the EU.

    View the final Guidelines on reporting internalized settlement.
    TOPIC: Securities
  • European Money Markets Institute Consults on Hybrid Methodology for Euribor
    03/26/2018

    The European Money Markets Institute has published a consultation paper seeking views from stakeholders on a hybrid determination methodology for the Euro Interbank Offered Rate (Euribor). EMMI is the administrator for Euribor, a major euro interest reference rate for unsecured interbank short-term lending and borrowing. Euribor was classed as a critical benchmark of systemic importance for financial stability by the European Commission in 2016.

    Euribor is currently determined using a survey approach entailing the collection of quotes from contributing panel banks active in the euro money markets, supplemented by expert judgement. In line with the Financial Stability Board's 2014 report, "Reforming Major Interest Rate Benchmarks", EMMI has been working towards a methodology which will strengthen Euribor by underpinning it, to the greatest extent possible, with real transaction data. In 2016, EMMI proposed a new determination methodology for Euribor that was fully anchored in real transactions. However, viability testing of the proposed methodology revealed that a seamless transition from a quote-based to a fully transaction-based methodology was not feasible.

    EMMI is now proposing a three-level "hybrid" methodology, under which the calculation of Euribor at particular defined tenors is supported by euro money market transaction data from contributing panel banks whenever available and relies on other related market pricing sources or banks' own appreciation of their funding costs when necessary.

    Read more.
  • Consultation on Proposed EU Technical Standards for Securitization Repositories
    03/23/2018

    The European Securities and Markets Authority has published two consultation papers relating to the regulation of EU securitization repositories under the Securitization Regulation (also known as the STS Regulation). The first consultation paper proposes draft technical standards on applications for registration of a securitization repository and draft Guidelines on data portability between securitization repositories. The second consultation paper consults on draft advice to the European Commission on supervisory fees payable by securitization repositories.

    The Securitization Regulation requires, among other things, securitization special purpose entities, originators and sponsors of a securitization to make certain information available via a securitization repository to holders of a securitization position, to national regulators and, upon request, to potential investors. ESMA will register and supervise securitization repositories, as it does trade repositories under the European Market Infrastructure Regulation and the Securities Financing Transactions Regulation. Unlike EMIR and SFTR, the Securitization Regulation does not contemplate non-EU firms as securitization repositories.

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  • European Central Bank Publishes Second Consultation on a New Euro Unsecured Overnight Rate
    03/15/2018

    The European Central Bank has published a second consultation paper on a new unsecured overnight interest rate for euro transactions. This second consultation follows the ECB's announcement in September 2017 of its intention to develop the new benchmark and an initial consultation in November 2017 on its high level features. The new ECB rate will represent the euro unsecured money market in the very short tenor (i.e. overnight) and will be based entirely on transactions in euro that are reported by banks in accordance with the ECB's money market statistical reporting. It will complement existing benchmark rates produced by the private sector and serve as a backstop reference rate. The ECB proposes to produce the new rate by 2020.

    The second consultation sets out a proposed definition of the underlying interest and scope of the benchmark, based on responses received to the first consultation. On the basis of the proposed definition of the rate's underlying interest, the second consultation considers the defined methodology of the new rate, along with the key operational and technical parameters. The consultation document also proposes contingency calculation rules in case certain representativeness thresholds are not met.

    Read more.
    TOPIC: Securities
  • UK Financial Conduct Authority Outlines its Policy for Compelling Banks to Contribute to LIBOR
    03/14/2018

    The U.K. Financial Conduct Authority has published a policy statement explaining the methodology the FCA would expect to use if it needed to compel banks to contribute to LIBOR (the London Interbank Offered Rate). LIBOR, which is administered by ICE Benchmark Administration, is a long-established and systemically important benchmark that underpins transactions in many different markets globally. The FCA’s powers to compel contributions to LIBOR under the Financial Services and Markets Act 2000 have been superseded by similar powers under the EU Benchmarks Regulation, which came into effect on January 1, 2018. LIBOR has been designated a critical benchmark under the Benchmarks Regulation.

    The FCA published a consultation paper in June 2017 on how its compulsion powers would need to be amended to align it with the Benchmarks Regulation. Since that consultation, the FCA has announced that all 20 panel banks that currently submit to LIBOR have agreed to continue to do so until the end of 2021. The FCA envisages that, by that time, sufficient progress will have been made on the evolution of LIBOR and transition to alternative benchmarks (which will be based on actual transactions) that the FCA may never need to use its compulsion powers.

    View the policy statement (FCA PS18/5).
  • European Commission Provides Clarification on the Law Applicable to the Proprietary Effects of Transactions in Securities
    03/12/2018

    The European Commission has published a Communication on the law applicable to the proprietary effects of transactions in securities. The Commission's objective is to clarify the conflicts of law provisions in the Financial Collateral Directive, the Settlement Finality Directive and the Winding-up Directive. These Directives apply to book-entry securities and instruments, the existence or transfer of which presupposes their recording in a register, an account, or centralized deposit system. All three Directives designate the applicable law based on the place of the relevant register or account. However, there is a degree of uncertainty because the provisions in the Directives use different language and because there is diverse interpretation and application of the provisions across the EU. The Communication confirms the Commission's view that the terms 'maintained' and 'located' used in these Directives mean the same thing and that the different ways across the EU of determining where the account or register is 'maintained' or 'located' are valid. The Commission's views are subject to any potential future decisions of the Court of Justice of the European Union on these issues.

    The Commission will monitor developments in this area and assess whether any further action is necessary. National authorities are called upon to take the Commission's clarifications into account when applying the conflicts of law provisions of the FCD, SFD or WUD. The Communication should be read in conjunction with the Commission's proposed Regulation on the law applicable to the third-party effects of assignments of claims.

    View the Communication.

    View the proposed separate Regulation on assignment of claims.
  • European Commission Proposes Legislation to Provide Legal Certainty for Cross-Border Assignment of Claims
    03/12/2018

    The European Commission has published a proposed Regulation on the law applicable to the third-party effects of assignments of claims. The proposed Regulation was published alongside a Communication on the law applicable to the proprietary effects of transactions in securities.

    Existing conflicts of law rules as to the contractual elements of the assignment of claims are governed at EU-level by the Rome 1 Regulation. However, there are no EU-level conflicts of law rules on the proprietary elements (or third-party effects) of the assignment of claims. The proprietary elements relate to who has ownership rights over a claim, which requirements must be met by an assignee to give him legal title over the claim and the resolution of competing claims. Currently, each Member State's conflicts of law rules govern the assignment of claims. These rules are inconsistent across the EU because they use different connecting factors to determine the applicable law - the rules in some Member States are based on the law of the assigned claim, others are based on the law of the assignor's habitual residence and other conflicts of law rules are based on the law of the assignment contract. In addition, some conflicts of law rules are unclear, particularly where they are not stated in legislation. Without legal certainty, market participants may not be aware of or choose to ignore the risk and then encounter unexpected losses; or they may mitigate the risk by seeking legal advice which will result in higher transaction costs; or they may be dissuaded by the legal risk, choose to avoid it and miss business opportunities.

    Read more
  • European Commission Proposes EU Covered Bonds Legislative Package
    03/12/2018

    The European Commission has published legislative proposals for a new EU covered bonds framework. The legislative package consists of a proposed Directive on the issue of covered bonds and covered bond public supervision and a proposed Regulation to amend the prudential treatment of covered bonds under the Capital Requirements Regulation. The proposals are part of the EU's Capital Markets Union project and follow from the work of the European Banking Authority in this area, in particular, its 2016 recommendations for an EU covered bonds framework.

    The proposed Covered Bonds Directive will apply to covered bonds issued by EU credit institutions, which means that only EU credit institutions will be able to issue covered bonds governed by the framework. Issuers using the EU covered bonds label will need to comply with the proposed Directive but can also use the label with national labels. Covered bonds are debt obligations issued by credit institutions and secured against a ring-fenced pool of assets to which bondholders have direct recourse as preferred creditors. The proposed Directive provides requirements for issuing covered bonds and the structural features of covered bonds, including dual recourse and bankruptcy remoteness. There are also provisions to address liquidity risk through the imposition of a liquidity buffer related to the cover pool and transparency provisions requiring information to be disclosed to covered bond investors. In addition, the proposed Directive provides for supervision at national level of covered bonds.

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  • European Central Bank Confirms Collective Agreement Between TARGET2 Participants
    03/09/2018


    The European Central Bank has confirmed that a collective agreement signed between the central banks operating TARGET2 component systems and the central securities depositories operating on the TARGET2-Securities platform can enter into force. The provisions of the Collective Agreement will take effect on March 20, 2018. The Collective Agreement provides a definition of a “common moment of entry” for payments and securities transfer orders that are matched in the systems of the signatories to the agreement. This common moment of entry will either be the moment at which a transfer order has been declared compliant with the technical rules of T2S by either the T2S platform or, if the CSD is operating a separate matching component, by the CSD. Defining the common moment of entry makes it possible to establish the point at which securities transactions become irrevocable and accordingly will provide certainty regarding the treatment of outstanding transactions if a participant becomes insolvent.

    Read more.

  • European Commission Calls for Acceleration of Completion of the Capital Markets Union
    03/08/2018

    The European Commission has published a Communication on completing the Capital Markets Union by 2019. The Communication confirms the Commissions commitment to completing the CMU by mid-2019 and announces the publication of the FinTech Action Plan, including a proposed Regulation on Crowdfunding, and the Sustainable Finance Action Plan. Legislative proposals on covered bonds, the cross-border distribution of collective investment funds and the law applicable to third-party effects of assignment are expected to be published on March 12, 2018. In May 2018, the Commission intends to publish a proposed Directive on credit servicers, credit purchasers and the recovery of collateral as well as impact assessments on the SME listing regime and the resolution of investment disputes.

    The Commission states that completion of the CMU is more urgent due to the impending exit by the UK from the EU because the UK is currently the EUs largest financial centre. The Commission notes that an effective CMU will need to "open-up markets to give better access to finance for EU businesses and more and innovative investment opportunities for savers." 

    Read more
  • European Securities and Markets Authority Releases Double Volume Cap Data for Dark Pool Trading
    03/07/2018

    The European Securities and Markets Authority has published on its website trading volumes and calculations for the purposes of the Double Volume Cap under the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation. The published data covers the periods January 1, 2017 to December 31, 2017 and February 1, 2017 to January 31, 2018.

    The DVC has been introduced under MiFIR as a measure to limit the amount of dark pool trading, which can harm price formation in equity markets. The DVC places a cap on the volume of equities trading using two of the available waivers from the pre-trade transparency obligations of the MiFIR, namely the negotiated transaction waiver and the reference price waiver. The double cap comprises a per-venue cap of 4% of the total volume of trading in a particular financial instrument on all EU trading venues across over the previous 12 months and an EU-wide cap of 8%. ESMA is required to publish reports on the volume of trades that have relied on the waivers.  National regulators must suspend, for six months, trading under the waivers that exceeds either of the caps.

    The publication of the data follows a delay announced by ESMA in January 2018 due to issues with the quality and completeness of data that had been submitted.

    View the ESMA press release.
    TOPICS: MiFID IISecurities
  • International Standards Body Proposes Recommendations for Trading Venues on Managing Extreme Market Volatility
    03/07/2018

    The International Organization of Securities Commissions has launched a consultation on proposed recommendations for trading venues and their regulators to consider when implementing, operating and monitoring volatility control mechanisms to preserve orderly trading. The consultation supports IOSCO’s objective of ensuring that markets are fair, efficient and transparent and focuses on automatic volatility interruptions and mechanisms to halt trading or reject orders.

    Read more.
  • International Standards Body Seeks to Tackle Conflicts of Interest and Conduct Risks in Equity Capital Raisings
    02/21/2018

    The International Organization of Securities Commissions has published a consultation report in which it seeks feedback on proposed Guidance to address the significant potential conflicts of interest arising from the role of intermediaries during key stages of an equity raising.

    IOSCO has identified a number of key risks. In the early, pre-offering, phase of an equity raising, conflicts of interest can arise where analysts employed by firms managing the securities offering may be under pressure to present a positive view of the issuer. During the investor education and price-formation phase these "connected" analysts may produce conflicted research and conflicts can also be present during the allocation of securities. There can be both conflicts of interest and risks of misconduct where staff employed within firms that are managing an equity raising enter into personal transactions. These issues can damage investor confidence and the effectiveness of the capital markets as route for issuers to raise finance.

    Read more.
  • UK Benchmarks Legislation Amended
    02/20/2018

    The Financial Services and Markets Act 2000 (Benchmarks) (Amendment) Regulations 2018 have been published to correct a drafting issue in the Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018, which are due to implement parts of the EU Benchmarks Regulation with effect from February 27, 2018.

    Under the U.K. Benchmarks Regulations, which were laid before Parliament on February 5, 2018, transitional provisions will apply until revoked on May 1, 2020. The transitional provisions include a provision that applies to existing benchmark administrators only in respect of benchmarks they were administering on or before June 30, 2016. The effect of the transitional provision is that these existing benchmark administrators will not need to obtain regulatory permission under the Financial Services and Markets Act.

    The newly published Amendment Regulations amend the U.K. Benchmarks Regulations to ensure that the transitional provision applies to existing benchmark administrators in relation to benchmarks administered before, on and after June 30, 2016. These benchmarks administrators will also be able to rely on the transitional provision in respect of new benchmarks during the transitional period.

    The Amendment Regulations take effect on February 26, 2018.

    View the Amendment Regulations (S.I. 2018/204).

    View the explanatory memorandum.

    View details of the U.K. Benchmark Regulations.
  • European Securities and Markets Authority Outlines 2018 Plans for EU Supervisory Convergence
    02/07/2018


    The European Securities and Markets Authority has published its Supervisory Convergence Work Programme for 2018. It highlights a total of five key priorities for its work on supervisory convergence in 2018, comprised of three ongoing priorities (application of the revised Markets in Financial Instruments framework, data quality and investor protection) and two new priorities (Brexit and financial innovation).

    In addition to the key priorities, the 2018 programme also sets out ESMA key objectives and main planned outputs in relation to a number of thematic and cross-cutting issues, including: investor protection and intermediaries; secondary markets; investment management; market integrity (including market abuse and benchmarks); post-trading (including CCPs, securities financing and settlement); corporate finance (in particular the new prospectus regime); corporate reporting; market data; financial innovation; IT infrastructure; and peer reviews.

    Read more.

     
  • EU Authorities Appoint Industry Working Group on Euro Risk-Free Rates
    02/07/2018

    Following the November 2017 call for expressions of interest, the European Commission, the European Central Bank, the European Securities and Markets Authority and the Belgian Financial Services and Markets Authority announced the composition of a new working group on euro risk-free rates (that is, excluding bank credit risk). The working group will consist of 21 banks, which will be the voting members, and five non-voting industry associations (the European Money Markets Institute, the European Fund and Asset Management Association, the International Capital Market Association, the International Swaps and Derivative Association and the Loan Market Association). The European Investment Bank has also been invited to join the working group. The Commission, ECB, ESMA and FSMA will participate as observers. The working group is charged with identifying and recommending alternatives to the benchmark rates currently used in the EU – the EURIBOR and EONIA. The choice of alternative reference rates for the euro is expected by the end of 2018. The working group must also develop best practices for contract robustness and an adoption plan for the new reference rates, including any transitional plan for legacy contracts referencing the existing benchmarks.

    View the working group information.

    View the working group terms of reference.
  • Bank of England Confirms its Commitment to Wholesale Market Conduct Codes
    02/06/2018


    The Bank of England has published statements of commitment to the FX Global Code, the UK Money Markets Code and the Global Precious Metal Code. By issuing the statements, the BoE is demonstrating that it will abide by the principles of the three market codes, both when acting as a market participant and also when its activities include acting as agent for HM Treasury in managing the UK's official reserves in the Exchange Equalisation Account. HM Treasury has separately confirmed that it is content with the BoE's ability to adhere to the codes. Six other central banks in the European System of Central Banks have also simultaneously issued their own statements of commitment to the Global FX Code and it is expected all ESCB banks will have done so by May 2018.

    Read more.
  • UK Benchmarks Legislation Published
    02/05/2018

    The Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018 have been laid before Parliament and will come into force mainly on February 27, 2018. Certain provisions will come into force on July 1, 2018 and transitional provisions apply until revoked on May 1, 2020.

    The UK already has a fairly comprehensive regime for benchmark regulation.  The new UK Regulations make the necessary changes to UK primary and secondary legislation to align it with the EU Benchmarks Regulation, which introduces a common framework and consistent approach to benchmark regulation across the EU and which has been directly applicable throughout the EU since January 1, 2018. The UK Regulations appoint the Financial Conduct Authority as "competent authority" for the purposes of the EU Benchmarks Regulation.

    Read more.
  • UK Financial Conduct Authority Consults on Benchmarks Enforcement Powers
    02/05/2018

    The UK Financial Conduct Authority has published a consultation setting out proposed changes to its Decision Procedure and Penalties manual and its Enforcement Guide. The amendments to DEPP and EG reflect changes introduced by the EU Benchmarks Regulation, which took effect on January 1, 2018. The Benchmarks Regulation has been implemented in the UK by the Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018, which will make the necessary changes to the UK statutory framework when they come into force mainly on February 27, 2018.

    Read more.

     
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