U.S. Commodity Futures Trading Commission Acting Chairman J. Christopher Giancarlo appointed Daniel Gorfine to serve as Director of LabCFTC and Chief Innovation Officer, effective immediately. Gorfine will be responsible for coordinating with international regulatory bodies, other US regulators, and Congress to determine best practices in implementing digital and agile regulatory frameworks for the CFTC.

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The European Securities and Markets Authority has published proposed amendments to its Regulatory Technical Standards under the European Markets Infrastructure Regulation, following a public consultation between December 2016 and February 2017. ESMA provided final draft RTS to the European Commission in 2012 specifying the frequency and the details of the information to be made available by Trade Repositories to the relevant authorities and the information to be published by TRs. The RTS also specified the operational standards required to aggregate and compare data across TRs and for the relevant authorities to have access to information as necessary.

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The U.S. Commodity Futures Trading Commission issued an Order of Registration to LedgerX LLC (LedgerX) granting their request to register as a Swap Execution Facility (SEF). As a result, LedgerX becomes the 25^th SEF registered with the CFTC.  The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorized the creation of SEFs, which are under the CFTC’s jurisdiction and function as platforms for the trading of swaps.

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The European Commission has published legislative proposals to amend the European Market Infrastructure Regulation and the Regulation establishing the European Securities and Markets Authority. The proposals are on the supervision of CCPs, both EU CCPs and third country CCPs, and include the controversial new proposals for a formal EU "location policy" for CCPs.

Read more.

A Commission Delegated Regulation exempting central banks in six countries - Australia, Canada, Hong Kong, Mexico, Singapore and Switzerland - from complying with the European Market Infrastructure Regulation was published in the Official Journal of the European Union. EMIR imposes clearing, reporting and risk mitigation obligations for derivatives. EU central banks and EU public bodies managing public debt are exempt from EMIR. The European Commission may exempt central banks and public bodies managing public debt from other countries following analysis of the international treatment of the relevant entities in a particular country. Central banks and public bodies responsible for the management of debt in the United States and Japan were the first to be added to the list of exempted bodies through a Commission Delegated Regulation. These new exemptions will come into effect on June 30, 2017.

View the Delegated Regulation.

The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) and Division of Clearing and Risk (DCR) issued a no-action letter extending the relief provided in CFTC Staff Letter No. 16-58, which was set to expire on June 15, 2017. CFTC Staff Letter No. 16-58 extended relief form several CFTC regulations to allow swap execution facilities (SEFs) and designated contract markets (DCMs) to fix clerical or operational errors that resulted in a swaps failing to clear, and thus becoming void, and smilar errors discovered after a swap has been cleared.

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The U.S. Commodity Futures Trading Commission (CFTC) unanimously approved a series of amendments to the CFTC’s Whistleblower Rules with the goal of strengthening anti-retaliation protections for whistleblowers and improving the review process for whistleblower claims.

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Acting Chairman of the US Commodity Futures Trading Commission, Christopher Giancarlo, gave a speech at the International Swaps and Derivatives Association 32nd Annual Meeting in Lisbon calling for regulators in both the U.S. and abroad to “recalibrate bank capital requirements to better balance systemic risk concerns with healthy economic growth."  In the speech, Acting Chairman Giancarlo stated that global swap market reforms have failed to adequately address whether the amount of bank capital that has been taken out of trading markets because of bank capital requirements has been calibrated to the amount of capital needed in the global markets to "support overall market health and durability”. In addition, Acting Chairman Giancarlo spoke in support of moving the CFTC to a more flexible, outcomes-based approach for cross-border equivalence and substituted compliance.

View text of the speech.

The European Commission has published a legislative proposal to amend the European Market Infrastructure Regulation. This proposal is the result of an extensive assessment of EMIR between 2015 and 2016. The proposal covers a wide-range of areas within EMIR, including reporting requirements, non-financial counterparties, exemptions and trade repositories.

Read more.

An amending Commission Delegated Regulation extending the deadline for compliance with clearing obligations for certain counterparties dealing with OTC derivatives has been published in the Official Journal of the European Union.

Read more.

The European Securities and Markets Authority has published an Opinion addressed to EU national regulators on the portfolio margining requirements for CCPs under the European Market Infrastructure Regulation. The Regulatory Technical Standards on portfolio margining that supplement the European Market Infrastructure Regulation provide that a CCP can offset or reduce the required margin across instruments, which it clears if the price risk of one instrument is significantly and reliably correlated to the price risk of other financial instruments. In those cases, a CCP may apply portfolio margining. European legislation provides certainty over the requirements only to a limited degree because there is no indication as to which instrument or product can be considered the same or which elements are needed for an instrument or product to be considered the same. ESMA's Opinion aims to provide clarification as to when two contracts can or cannot be considered the same instrument for the purpose of portfolio-margining, referencing all asset classes. In addition, ESMA confirms that CCPs have to limit the reduction in margin requirement when conducting portfolio-margining across different instruments.

View ESMA's Opinion.

A Commission Delegated Regulation has been published in the Official Journal of the European Union that extends the transitional exemption period under the European Market Infrastructure Regulation for pension funds to comply with the EU clearing obligation for a further year. The original date was extended from August 16, 2015 to August 16, 2017 by the European Commission in 2015 over concerns that if pension funds were subjected to the clearing obligation, they would need to source cash for the margin requirements of CCPs. The Commission, and other EU regulators, have asked CCPs to develop a solution that would allow pension funds to clear derivatives without the obligation being too burdensome for pension funds but which would also allow CCPs to liquidate positions rapidly in the event of a default. The Commission is of the opinion that no sufficiently appropriate technical solutions have been found by CCPs yet. The Delegated Regulation extending the transitional exemption period to August 16, 2018 entered into force on April 1, 2017.

View the Delegated Regulation.

The European Securities and Markets Authority has published a report and final draft Implementing and Regulatory Technical Standards for the Securities Financing Transactions Regulation. The majority of the SFTR came into effect on January 12, 2016. One exception is a new reporting obligation for SFTs, which is in the process of being phased in according to counterparty type. Securities financing transactions involve the use of securities to borrow cash or other higher investment-grade securities, or vice versa. Such transactions can include repurchase transactions, securities lending and sell/buy backs. The SFTR requires, amongst other things, all securities financing transactions to be reported to EU recognized trade repositories, including details on the composition of collateral, whether collateral is available for reuse or has been reused, the substitution of collateral and any haircuts applied. The reporting obligation will apply to financial and non-financial counterparties, subject to exceptions for central banks and similar bodies.

Read more. 

The CFTC’s Division of Market Oversight (DMO) issued a no-action letter extending relief associated with swap trade confirmation requirements that previously was provided in CFTC Staff Letter 16-25, which expires March 31, 2017.
 
The letter extends the relief until the effective date of any revised CFTC regulations regarding trade confirmation requirements. The relief is subject to terms and conditions in the letter.

Read more.

The CFTC announced that it was extending the comment period for the proposed rule on capital requirements applicable to swap dealers and major swap participants. In addition to proposing minimum capital and financial reporting requirements for swap dealers and major swap participants, the proposed rule would also establish specific capital requirements for futures commission merchants that engage in swaps or security-based swaps that are not cleared by a clearing organization. The original comment period was due to expire on March 16, 2017. The new comment period will expire on May 15, 2017.

View text of federal register notice extending the comment period.

The Financial Stability Board began a consultation on draft governance arrangements for the Unique Transaction Identifier. The UTI is a critical element for the production and sharing of global aggregated derivatives reporting data. The purpose of the global UTI would be to uniquely identify each OTC derivative transaction required by authorities to be reported to trade repositories, thus minimizing the potential for the same transaction to be counted more than once. Numerous countries have implemented legislative and regulatory requirements for the reporting of OTC derivatives aimed at improving transparency, mitigating systemic risk and preventing market abuse. To date, 26 trade repositories have been established in 16 countries. 

The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published Technical Guidance on the harmonization of the Unique Transaction Identifier on February 28, 2017. That Guidance has implications for the governance of the UTI because it envisages that the UTI will be generated by a wide range of entities in a decentralized way and that there is not likely to be a requirement for a central registry for those entities.

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The European Commission published a report on the international treatment of Central Banks and public entities managing public debt with regard to OTC derivatives transactions. The European Market Infrastructure Regulation imposes clearing, reporting and risk mitigation obligations for derivatives. EU central banks and EU public bodies managing public debt are exempt from EMIR. The European Commission may exempt central banks and public bodies managing public debt from other countries following analysis of the international treatment of the relevant entities in a particular country. In the first of these reviews conducted in 2013, the Commission added central banks and public bodies responsible for the management of debt in the United States and Japan to the list of exempted bodies through a Commission Delegated Regulation.

The Commission has concluded in its second report that central banks and public bodies managing debt in Australia, Canada, Hong Kong, Mexico, Singapore and Switzerland should also be exempt from certain parts of EMIR. These new exemptions will come into effect once the new Commission Delegated Regulation is published in the Official Journal of the European Union. The Commission will continue to monitor the progress of other countries in implementing similar requirements for OTC derivatives.

View the Commission's report.

The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published Technical Guidance on the harmonization of the Unique Transaction Identifier. The development of a UTI was identified in September 2014 by the Financial Stability Board as a critical element for a mechanism to produce and share global aggregated derivatives reporting data, along with the development of a unique product identifier and the harmonization of other key data elements. The purpose of the global UTI would be to uniquely identify each OTC derivative transaction required by authorities to be reported to trade repositories. Numerous countries have implemented legislative and regulatory requirements for the reporting of OTC derivatives aimed at improving transparency, mitigating systemic risk and preventing market abuse. To date, 26 trade repositories have been established in 16 jurisdictions. The aggregation of data from those trade repositories is key to giving authorities a comprehensive view of the OTC derivatives market and activity.

Read more. 

A Commission Delegated Regulation amending the Regulatory Technical Standards on margin requirements for uncleared derivatives was published in the Official Journal of the European Union. The amending RTS relate to the phase-in of the variation margin requirements for intra-group transactions and supplement the European Market Infrastructure Regulation. EMIR requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The original RTS prescribe how margin should be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as specifying a list of securities eligible as collateral for the exchange of margins, such as sovereign securities, covered bonds, specific securitizations, corporate bonds, gold and equities.

Read more. 

The European Supervisory Authorities, the Financial Conduct Authority, the US prudential regulators, including the Federal Reserve Board and the Office of the Comptroller of the Currency, and the International Organization of Securities Commissions issued guidance as to the March 1, 2017 implementation of variation margin requirements on uncleared swaps. The guidance indicates how the respective supervisory authorities and regulators will approach compliance with the variation margin requirements.

The ESAs expect national regulators to apply their risk-based supervisory powers in day-to-day enforcement of the applicable legislation, including taking into account the size of the exposure to the counterparty and its default risk. The ESAs expect firms to document the steps taken toward full compliance and put in place alternative arrangements to ensure that the risk of non-compliance is contained. The ESAs are not delaying application of the rules but are signaling that compliance will be evaluated on a case-by-case basis and they expect any compliance issues to be overcome in the next few months. This is a not dissimilar to the approach taken to reporting under EMIR, when practicalities prevented many persons from being able to connect to a trade repository on time, and no prosecutions were made for late compliance.

Read more. 

The US Securities and Exchange Commission adopted amendments to the expiration dates in its interim final rules that provided exemptions for certain securities-based swaps. The July 2011 interim final rules provided for exemptions under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Trust Indenture Act of 1939 for security-based swaps that were security-based swap agreements prior to July 16, 2011 but are defined as “securities” under the Securities Act of 1933 and the Securities Exchange Act of 1934 solely because of Title VII of the Dodd-Frank Act. Under the July 2011 interim final rules, the exemptions were set to expire on February 11, 2013. The SEC has previously extended the exemption, first to February 11, 2014, then to February 11, 2017, and now to February 11, 2018. In its release, the SEC noted that the extension was being granted to avoid disruption in the security-based swaps market while the SEC continues to consider the impact of Title VII and whether regulatory action is appropriate.

View the interim final rule.

The US Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued a time-limited no-action letter (CFTC staff letter 17-11) which provides that, from March 1, 2017 to September 1, 2017, DSIO will not recommend an enforcement action against a swap dealer for failure to comply with the variation margin requirements for swaps that are subject to a March 1, 2017 compliance date. The no-action letter does not postpone the March 1, 2017 compliance date for variation margin, rather it allows market participants a grace period to come into compliance. DSIO believes that without a sufficient transition period, there could be a significant impact on the ability to hedge positions for pension funds, asset managers and insurance companies that manage Americans’ retirement savings and financial security. This sort of phased compliance has been used many times in the implementation of the swaps rules contained in the Dodd-Frank Act.

Read more.

The European Banking Authority published final draft Regulatory Technical Standards on the procedures for excluding transactions with non-financial counterparties established in a third country (which do not hold positions over the clearing threshold, or so called NFC-s) from the own funds requirement for credit valuation adjustment risk. The final draft RTS will supplement the requirements of the Capital Requirements Regulation. The EBA consulted on proposed draft RTS in August 2015. Firms' transactions with any NFC- will be excluded from the own funds requirements for CVA risk under the CRR, whether or not the NFC- is established in the EU. As NFC-s established in non-EU countries are not subject directly to EU regulation, the final draft RTS clarify that firms are responsible for: (i) taking the necessary steps to identify all NFC-s under this exemption and calculating accordingly their own funds requirements for CVA risk; (ii) ensuring that exempt counterparties established outside the EU would qualify as NFC-s if they were established in the EU; and (iii) ensuring that counterparties calculate the clearing threshold according to the relevant provisions in EMIR and do not exceed those thresholds. The EBA has also included an option for firms to verify the status of third country counterparties at the time of trade inception or on a periodic basis to take account of the situation that firms frequently enter into trades with NFC-s established in a third country. The final draft RTS align the treatment of NFC-s established in a non-EU country with the treatment of NFC-s established in the EU as recommended by the EBA in its February 2015 report. The final draft RTS has been submitted to the European Commission for endorsement. 

View the RTS.

The CFTC’s Division of Market Oversight issued a time-limited no-action letter stating that, from February 14, 2017 to August 14, 2017, it will not recommend an enforcement action for failure to file a notice when relying on certain aggregation exemptions from federal position limit levels. Absent this relief, on February 14, 2017, market participants would have been required to file notices to rely on certain aggregation exemptions under CFTC regulation 150.4(c).

DMO also announced the availability of a portal that provides the form and manner for filing aggregation exemption notices. This new portal is available on the Forms & Submissions page of www.cftc.gov.

Although the no-action letter provides temporary relief from the aggregation notice filing compliance date of February 14, 2017, DMO is providing the portal for participants who choose, of their own accord during the relief period, to file a notice with the CFTC of their intent to take advantage of certain aggregation exemptions under CFTC regulation 150.4(c).

View CFTC staff letter.

The European Securities and Markets Authority announced details of the 2017 EU-wide CCP stress test exercise. The European Market Infrastructure Regulation requires ESMA to conduct the exercise at least once per year to assess the resilience and safety of the EU’s CCPs from a systemic risk viewpoint. The exercise covers 17 EU CCPs and includes all products currently cleared by the CCPs. ESMA may issue recommendations to address any issues that are highlighted by the exercise. The results of the exercise are expected to be published in Q4 2017.

View ESMA's announcement and framework methodology. 

The European Securities and Markets Authority launched a consultation on proposed Guidelines on the transfer of data between trade repositories. The European Market Infrastructure Regulation requires counterparties and CCPs to report trades to a trade repository while ensuring that details of their derivatives contracts are reported without duplication. EMIR also requires trade repositories to maintain reported information for a period of ten years following the termination of the derivative. 

The European Securities and Markets Authority published an open letter to the European Commission asking it to consider several issues relating to its supervisory and sanctioning powers under the European Market Infrastructure Regulation and emphasizing similar aspects relating to Credit Rating Agencies. The letter follows the Commission's Report, published on November 23, 2016, assessing the issues arising from the implementation of the requirements of EMIR in which the Commission proposed a legislative review of EMIR in 2017. ESMA submitted four reports to the Commission in 2015 on the functioning of EMIR which included recommendations on how EMIR could be enhanced. The letter highlights the areas in those reports that ESMA considers the Commission should consider as part of the EMIR review this year. 

Read more.

The European Securities and Markets Authority published an Opinion on Spanish-based pension schemes that are to be exempted from the clearing obligation under the European Market Infrastructure Regulation. The Opinion was requested by Comisión Nacional del Mercado de Valores (the Spanish Regulator responsible for supervising and inspecting Spanish Stock Markets). Transitional exemptions from the clearing obligation under EMIR can be granted to pension scheme arrangements that meet certain criteria, essentially, when over-the-counter derivatives contracts are entered into and are used for hedging purposes. To obtain an exemption, requests must be made by the pension scheme to a national regulator and the national regulator must then seek an Opinion from ESMA before making a final exemption decision. ESMA must consult the European Insurance and Occupational Pensions Authority before adopting an Opinion.

ESMA has adopted the Opinion on the basis that the Spanish Regulator is of the view that Personal Pension Funds would encounter difficulties in meeting variation margin requirements for centrally-cleared transactions due to limited holdings of cash within the entity (e.g. lower investment returns or transaction costs) and the risk of inefficiencies as a result of converting assets into cash. 

View ESMA’s Opinion.

A Commission Implementing Regulation amending Implementing Technical Standards on the format and frequency of trade reports submitted to trade repositories was published in the Official Journal of the European Union. The original ITS, published in the Official Journal on December 21, 2012, supplements the reporting requirements in the European Market Infrastructure Regulation. The European Securities and Markets Authority provided final draft amending ITS to the European Commission in November 2015. ESMA considered that the original standards needed to be updated to incorporate the feedback and Q&As during implementation of the reporting requirement under EMIR since 2013. The text of the final amending ITS differs from the text of ESMA's final draft ITS, however, the changes are minor. 

Read more.

A Commission Delegated Regulation amending Regulatory Technical Standards on the minimum details of data to be reported to trade repositories was published in the Official Journal of the European Union. The original RTS were published in the Official Journal on February 23, 2013 and supplement the reporting requirements imposed by the European Market Infrastructure Regulation. The European Securities and Markets Authority provided final draft amending RTS to the European Commission in November 2015. ESMA considered that the current standards need to be updated to incorporate the feedback and Q&As during implementation of the reporting requirement under EMIR since 2013. The text of the final amending RTS differs from the text of ESMA's final draft RTS; however, the changes are minor. The revisions to the original RTS include: (i) allowing the use of multiple reports for the reporting of complex derivatives provided that counterparties agree the number of reports to be submitted; (ii) adding a new definition for the notional amount of a derivative; (iii) clarifying the reporting requirements for cleared trades; and (iv) requiring that all collateral that has been posted and received is reported, including amending the fields for reporting of collateral to, amongst other things, split the value field into initial margin posted and variation margin posted. The amending RTS will enter into force on February 10, 2017. The revised reporting obligations will apply from November 1, 2017, which should allow counterparties enough time to prepare for the incoming changes.

View the amending RTS.

The European Commission published a draft Commission Delegated Regulation amending the Regulatory Technical Standards on margin requirements for uncleared derivatives. The amending RTS relate to the phase-in of the variation margin requirements for intra-group transactions and supplement the European Market Infrastructure Regulation. The original RTS on risk mitigation techniques for uncleared OTC derivatives was published in the Official Journal of the European Union on December 15, 2016. The correction is due to a technical error in the adoption process which resulted in the two paragraphs on the phase-in of the variation margin requirements to intra-group transactions being omitted.

EMIR requires counterparties to uncleared over-the-counter derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The original RTS prescribe how margin is to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated, as well as specifying a list of securities eligible as collateral for the exchange of margins, such as sovereign securities, covered bonds, specific securitizations, corporate bonds, gold and equities.

Read more.

The US Commodity Futures Trading Commission’s Division of Enforcement issued two new Enforcement Advisories outlining the factors the Enforcement Division will consider in evaluating cooperation by individuals and companies in the agency’s investigations and enforcement actions.

The CFTC gives credit for cooperation in determining whether enforcement action is warranted, the nature of charges that should be brought and the appropriate level of sanctions to impose or seek. With the issuance of the recent advisories, the Enforcement Division aims to further incentivize individuals and companies to cooperate fully and truthfully in CFTC investigations and enforcement actions, including by providing high-quality cooperation, self-reporting to the Enforcement Division and providing early and material assistance to the Division.

The advisories complement the CFTC’s Office of the Whistleblower and Whistleblower Program, which provide monetary incentives to individuals who report possible violations of the Commodity Exchange Act that lead to a successful enforcement action, as well as privacy, confidentiality and anti-retaliation protections for whistleblowers who share information with or assist the CFTC.

View the advisories.

And view advisories.

The US House of Representatives passed H.R. 238, the Commodity End-User Relief Act, a bipartisan bill to reauthorize the US CFTC. Although the bill largely mirrors previous legislation to reauthorize the CFTC, it included several regulatory reforms, including a provision regarding the regulation of cross-border swaps, and a provision that would require the CFTC to vote in order to change the current de minimis swap dealer registration threshold of $8 billion.

View text of the bill.

The European Securities and Markets Authority published the results of a peer review it has conducted into how national regulators ensure and assess compliance by CCPs with the margin and collateral requirements under the European Market Infrastructure Regulation. Under EMIR, ESMA has a coordination role between national regulators to build a common supervisory culture and consistent supervisory practices. ESMA is required to conduct a peer review of the supervisory activities of the national regulators of CCPs at least annually. ESMA's report on the peer review provides an overview of the approaches of national regulators and sets out ESMA's assessment of the degree of convergence between those approaches. ESMA found inconsistencies in the frequency and depth of the supervision of CCPs (even for CCPs of a similar size or complexity). ESMA highlights various areas for improvement to enhance supervisory convergence, including identification of new services which require an extension of a CCP's authorization, determining significant changes to a CCP's risk model and the ongoing review of CCP collateral policies. The report sets out some examples of good practice that ESMA observed during the review, such as having direct access to the data of a supervised CCP. ESMA intends to follow up on the findings from the peer review by, amongst other things, identifying appropriate tools to enhance supervisory convergence. 

View ESMA's peer review report.

The US CFTC issued time-limited no-action relief to derivatives clearing organizations (DCOs) and reporting entities for certain swaps reporting obligations amended by the Amendments to Swap Data Recordkeeping and Reporting Requirements for Cleared Swaps that was released on June 27, 2016. The no-action relief letter relieves DCOs from their obligations to report original swap terminations as required by the rule for up to six months or until DCOs can sufficiently test required changes to their reporting systems.

The CFTC also announced no-action relief for entities submitting swaps for clearing with DCOs acting under exemptive orders or no-action relief that has been provided by the CFTC. Entities submitting such swaps are relieved from obligations to terminate the original “alpha” swap and to report any swaps between DCO counterparties acting under such exemptive orders or no-action relief. Entities are also relieved from their obligation to report certain primary economic terms data fields for swaps intended to be cleared by such DCO counterparties as cleared swaps. The relief is conditioned upon the entity providing certain information to fulfil its reporting obligations.

View no-action letters.

Also view no-action letters.

Ten decisions on the equivalence of third country regulatory regimes under the European Market Infrastructure Regulation were published in the Official Journal of the European Union. 

CCPs established in third countries whose supervisory and legal regimes have been deemed to be equivalent to the EU regime may provide clearing services to clearing members or trading venues established in the Union. Such a CCP must be recognized by the European Securities and Markets Authority in accordance with the processes outlined in EMIR. The regulatory and legal regimes of India, New Zealand, Japan, Brazil, Dubai International Financial Centre and the UAE have been granted equivalence in relation to CCPs. 

Read more.

The US CFTC issued a no-action relief letter for swaps executed between certain US swap market participants and their affiliated counterparties located in Australia or Mexico. The letter permits US swap market participants to rely on a provision of the inter-affiliate exemption from required clearing that has previously been available to counterparties located in the European Union, Japan, and Singapore. According to the CFTC, the letter was issued in light of the December 13, 2016 compliance date for the CFTC’s recent expansion of its clearing requirement to include fixed-floating interest rate swaps denominated in Australian dollars and Mexican pesos, as well as basis swaps denominated in Australian dollars.

View no-action relief letter.

The European Securities and Markets Authority published proposals for amending the Regulatory Technical Standards on the data to be published and made available by trade repositories and operational standards for aggregating, comparing and accessing the data. The European Market Infrastructure Regulation requires trade repositories to regularly publish aggregate positions by class of derivatives on the contracts reported to it and to provide access to the data that it collects and maintains to relevant authorities and regulators. ESMA was responsible for preparing the original RTS on the frequency and the details of the information to be made available as well as the operational standards required for aggregation and comparison of data across trade repositories. 
 

A Commission Delegated Regulation outlining Regulatory Technical Standards supplementing the European Market Infrastructure Regulation on risk mitigation techniques for uncleared OTC derivatives was published in the Official Journal. EMIR requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. These RTS prescribe the regulatory margin amounts to be posted and collected and the methodologies by which the minimum amount of initial margin and variation margin should be calculated as well as outlining a broad list of securities eligible as collateral for the exchange of margins, such as sovereign securities, covered bonds, specific securitizations, corporate bonds, gold and equities.

The RTS provide for the largest counterparties to begin providing and collecting margin one month after the RTS enter into force. The requirements relating to variation margin will apply from one month after the RTS enter into force where both counterparties have, or belong to groups each of which has, an aggregate average notional amount of uncleared OTC derivatives above EUR 3,000 billion. For all other counterparties, the variation margin requirements will apply from the latest of 1 March 2017 or one month after the RTS enter into force.

Read more. 

The Commodity Futures Trading Commission voted unanimously to repropose regulations implementing limits on speculative futures and swaps positions as called for in the Dodd-Frank Act. In a separate vote, the CFTC approved final aggregation regulations, which are a key component of the CFTC’s existing position limits regime. The reproposal will be open for public comment for 60 days after publication in the Federal Register.

Read more.

The CFTC issued a proposed rule establishing minimum capital requirements for Swap Dealers and Major Swap Participants. As required by section 731 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules mandate minimum levels of qualifying capital for certain Swap Dealers and Major Swap Participants that are not subject to the capital rules of a prudential regulator. Under the proposed rule, the calculation of capital may be performed using the alternative approaches method, which are based on existing US bank regulators’ capital requirements or the CFTC’s future commission merchant and the SEC’s broker-dealer net liquid asset capital requirements. In addition, Swap Dealers that predominantly engage in non-financial activities and Major Swap Participants can elect minimum capital requirements based on the tangible net worth of the entities or can use internal models to compute their regulatory capital, subject to CFTC or National Futures Association approval. The proposal also requires some Swap Dealers and Major Swap Participants to satisfy certain liquidity requirements as well as reporting, record-keeping and notification requirements. In a statement issued concurrently with the proposal, CFTC Chairman Timothy Massad expressed support for the rule, stating that the revised rule recognizes the diversity of business models amongst swap dealers. Comments on the proposal are due 90 days following the publication of the proposed rule in the Federal Register.

Read more.

The CFTC extended the relief granted under No-Action Letters 15-62 and 15-63 until December 31, 2017. The extended no-action relief in CFTC Letter No. 16-80 exempts inter-affiliate swaps from the trade execution requirement under section 2(h)(8) of the Commodity Exchange Act, subject to certain requirements. In addition, CFTC Letter No. 16-81 extends temporary relief from the trade execution requirement to certain affiliate counterparties.

View text of CFTC Letter No. 16-80.

View text of CFTC Letter No. 16-81.

The European Commission published a Report assessing the issues arising from the implementation of the requirements of the European Market Infrastructure Regulation. EMIR imposes reporting and clearing obligations, risk mitigation techniques for derivatives that are not cleared and requirements on CCPs and trade repositories. The Report summarizes the issues that stakeholders and market participants have raised in response to the Commission's public consultation on EMIR, as well as input from EU authorities such as the European Securities and Markets Authority. The Report does not propose any legislative changes but sets out particular areas where future legislative amendments might be needed or which are to be studied further. The Commission is proposing a legislative review of EMIR in 2017.

Read more.

The CFTC released a no-action letter extending further no-action relief from swap data reporting requirements for swap dealers and major swap participants established under the laws of Australia, Canada, the EU, Japan or Switzerland that are not part of an affiliated group in which the ultimate parent is a US swap dealer, major swap participant, bank, bank holding company or financial holding company for an additional year, from December 1, 2016 to December 21, 2017. In a December 20, 2013 no-action letter, the CFTC had exempted such registered swap dealers and major swap participants from these jurisdictions from the swap data reporting rules in Parts 45 and 46 of the CFTC’s regulations, an exemption which it later extended in 2014 and 2015. As the CFTC had not yet made comparability determinations as to whether the regulatory requirements of the foreign jurisdictions are comparable to and as comprehensive as its own, it believed that the extension of no-action relief is appropriate. The no-action relief will expire at the earlier of: (1) 30 days following the issuance of a comparability determination with respect to the reporting rules of the non-US swap dealer or non-US major swap participant’s jurisdiction; or (2) December 1, 2017.

View no-action letter.
 

The CFTC released the results of supervisory stress tests of five major clearinghouses in the US and UK. The tests included eleven scenarios focusing on the most highly traded products at each clearinghouse. The tests focused on the largest clearing members at each clearinghouse, analyzing both their house and customer accounts. The CFTC noted three key findings: (1) clearinghouses have the pre-funded resources to remain resilient through a variety of extreme market price changes; (2) risk was diversified across the clearinghouses tested; and (3) clearing member risk was also diversified — no single scenario of the eleven accounted more than 19% of the worst outcomes.

View CFTC press release.

The European Securities and Markets Authority published an Opinion outlining a common supervisory approach for regulators dealing with central counterparties that seek to extend or change their existing authorization under the European Market Infrastructure Regulation or to adopt a significant change to their risk model and parameters. The purpose of the Opinion is to build a common supervisory culture by creating uniform procedures and consistent approaches throughout the EU. EMIR requires a CCP wishing to extend its business to additional products and services not covered by its initial authorization to apply to its regulator for an extension, and to obtain validation before adopting any significant changes to its risk model and parameters. EMIR does not define or specify what “additional services and activities” are, nor the notion of “significant change.” The Opinion provides indicators to assist regulators to identify when a change is significant and to seek the college’s opinion, as required by EMIR, on the extension of services and activities. 

Read more.

Timothy Massad, Chairman of the CFTC, spoke to the CME Global Financial Leadership Conference regarding derivatives regulation. In light of the election result, he highlighted three areas that his term as Chairman has focused on that he believes will continue to be important: technological changes in markets, the effects of the Dodd-Frank reforms and international concerns.

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The European Securities and Markets Authority published a Report recommending that the clearing obligation for financial institutions with low trading volumes be delayed until June 21, 2019. The European Market Infrastructure Regulation imposes a clearing obligation on certain classes of derivatives. ESMA has so far assessed that the clearing obligation should apply to interest rate swaps denominated in seven currencies (EUR, GBP, JPY, USD, NOK, PLN and SEK) and to two classes of credit default swaps indices: iTraxx Europe Main and iTraxx Europe Crossover. The clearing obligation is being phased in, with those with the largest derivatives trading activity becoming subject to the obligation first. The obligation to clear OTC IRS denominated in the G4 currencies (EUR, GBP, JPY and USD) applied to entities that are clearing members of EU CCPs from June 21, 2016.

ESMA's Report includes draft Regulatory Technical Standards which would amend the timing of the clearing obligation for financial institutions with a low volume of derivatives trading activity (namely those in category three). ESMA is proposing that the clearing obligation for these financial institutions would apply from June 21, 2019 for the clearing of OTC IRS and CDS. The European Commission has three months to decide whether to endorse the amending RTS.

View the final report.

The US Commodity Futures Trading Commission announced its unanimous approval of a final rule amending CFTC regulation 3.3 to provide for a 90-day window after the end of an institution’s fiscal year for the filing of chief compliance officer annual reports.  The amendment applies to futures commission merchants, swap dealers and major swap participants.  The amendment also clarifies the filing requirements for swap dealers and major swap participants in jurisdictions for which the CFTC has granted a comparability determination on the reports’ contents.  The rule will be effective upon publication in the Federal Register.

View final rule.

The CFTC announced that Chairman Massad had signed the Counterpart to a Memorandum of Understanding with the Superintendent of Securities for Newfoundland and Labrador and the Canadian Minister for Intergovernmental Affairs. The MOU was originally executed on March 25, 2014, and the scope of the MOU contemplates cooperation on regulation of markets and organized trading platforms, central counterparties, trade repositories and intermediaries, dealers and other market participants.

View text of Counterpart to MOU.