The following posts provide a snapshot of selected UK, EU and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
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ESMA response to EC's review of commodity derivatives markets
6 May 2025
The European Securities and Markets Authority (ESMA) has published a response to the European Commission's consultation on the functioning of commodity derivative markets and certain aspects of spot energy markets. ESMA provides its input on the issues identified in the consultation, including inefficiencies and overlaps in reporting under MiFIR, EMIR and REMIT. The response covers the following issues from the consultation paper:- Data harmonisation. ESMA recalls the findings of the EC's 'Fitness Check of EU 2 Supervisory Reporting Requirements' which identified inefficiencies, lack of standardisation and duplications between EMIR, MiFIR and REMIT reporting obligations. ESMA agrees there is a need for streamlining the reporting frameworks.
Read more.Topic : Derivatives -
FCA Handbook Notice 129
2 May 2025
The UK Financial Conduct Authority (FCA) has published Handbook Notice 129 which sets out changes to the classes of derivatives subject to the derivatives trading obligation (DTO), following policy statement PS25/2 published in April (please see our update). The DTO requires certain financial and non-financial counterparties to trade specific standardised and liquid over-the-counter (OTC) derivatives on regulated trading venues or equivalent third-country venues. The FCA determines the classes of derivatives that are subject to the DTO. The FCA has decided to expand the classes of secured overnight financing rate overnight index swaps (SOFR OIS) to increase the benefits of on-venue trading. It also establishes a new framework to provide exemptions from the DTO for transactions arising from the use of post-trade risk reduction (PTRR) services. The PTRR services now expand beyond portfolio compression and exemptions have been extended so they are also not subject to best execution and trading venue authorisation obligations, in addition to the current DTO exemption. The changes are set out in the following draft instruments:- Technical Standards (Markets in Financial Instruments Regulation) (Derivatives Trading Obligation and Transparency) (Amendment) Instrument 2025, amending Commission Delegated Regulation (EU) 2017/2417 with regards to regulatory technical standards on the trading obligation for certain derivatives.
- Markets in Financial Instruments Regulation (Post-trade Risk Reduction Services Rules) (Amendment) Instrument 2025, amending the glossary and GEN Sch 4 in the Handbook. It also introduces a new chapter MAR 12 containing the relevant rules.
Both instruments come into force on 30 June.Topic : Derivatives -
ECB survey on euro-denominated securities financing and OTC derivatives
2 May 2025
The European Central Bank (ECB) has published the results of its latest survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives, with a press release. The survey is a qualitative survey conducted every three months among large banks and dealers active in the relevant euro-denominated markets. The results are from the March 2025 survey, which covered changes in credit terms between December 2024 and February 2025. Key findings include: (i) overall credit terms remained largely unchanged during the relevant period; (ii) financing rates/spreads and haircuts in securities financing transactions decreased across most asset classes; and (iii) demand for funding secured against domestic government bonds decreased for the first time since 2021. The survey also highlights there were no net changes to price terms, with only minor net changes to non-price terms, as well as a slight increase found in hedge funds with regards to the use of financial leverage. For the various types of non-centrally cleared OTC derivatives, few changes were recorded for initial margin requirements, credit limits and liquidity. However, respondents pointed out a change with regard to the duration and persistence of valuations disputes, which decreased across all types of derivatives.Topic : Derivatives -
FMSB Spotlight Review on Uncleared Margin for OTC Derivatives
1 May 2025
The Financial Markets Standards Board (FMSB) has published a spotlight review on ways to improve uncleared margin for over-the-counter (OTC) derivatives, along with a press release. It builds on findings from the Bank of England's Post-Trade Task Force, which highlighted multiple inefficiencies in its report 'Charting the Future of Post-Trade' published in April 2022. This review specifically focused on uncleared margin practices for bilaterally negotiated OTC traded derivatives, where clearing and settlement is also carried out noncentrally between the two parties. The working group generally agreed on the drivers of inefficiencies, but there were differences of opinion on the scale of these problems, and their potential solutions and viability. It conducted a survey to draw out the extent of agreement on a range of problems and their potential solutions to emphasise the specific topics which the industry may have the most success in taking forward in the future.
Read more.Topic : Derivatives -
ESMA report on the quality and use of data
30 April 2025
The European Securities and Markets Authority (ESMA) has published its 2024 report, along with a press release, on the quality and use of data, showcasing significant increase in data use by authorities. The report covers datasets from the European Market Infrastructure Regulation (648/2012) (EMIR), the Securities Financing Transactions Regulation ((EU) 2015/2365) (SFTR), the Markets in Financial Instruments Regulation (600/2014) (MiFIR), the Securitisation Regulation (2017/2402/EU), the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD) and the Money Market Funds Regulation ((EU) 2017/1131) (MMF Regulation). This edition also expands the scope to include the European Single Electronic Format (ESEF) data and short-selling data. The report is divided into different sections.
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FMSB Statement of good practice on the governance of sustainability-linked products
30 April 2025
The Financial Markets Standards Board (FMSB) has issued a Statement of Good Practice (SoGP) on the governance of sustainability-linked products (SLPs), along with a press release. SLPs are products where the financial and/or structural characteristics can vary depending on whether the user (i.e., borrower or issuer of, or counterparty to, SLPs) achieves specific sustainability or ESG objectives. They can be used for general corporate purposes, which allows many users (e.g., borrowers, issuers or counterparties to SLPs) to access the sustainable finance market in a more flexible way. With the growth of SLP issuances and accompanying concerns around the credibility of such instruments, the SoGP is intended to: (i) codify good practices for the governance of SLPs and (ii) support the adoption of consistent governance approaches across asset classes and jurisdictions. This is aimed to enhance the quality and integrity of SLPs; boost market confidence; help mitigate greenwashing risk; and support the development of a deeper, more robust sustainability-linked product market. The SoGP will apply to service providers (e.g., firms acting as sustainability-linked loan lenders, bookrunners or lead arrangers on a sustainability-linked bond issuance or counterparties to a sustainability-linked derivative) or users of SLPs in wholesale financial markets and to support, and be read in conjunction with, existing asset-class specific guidance (notably ICMA, LMA and ISDA principles). -
ESMA calls for clarity on the qualification of fractional shares
9 April 2025
The European Securities and Markets Authority (ESMA) has published a letter to the European Commission on the inconsistent regulation of trading of fractional shares across the EU. There has been an increase in the significance of fractional shares, which accounted for more than 10% of the total number of transactions reported in 2023-2024. However, shares and fractional shares are not uniformly defined under the Markets in Financial Instruments Directive (MiFID II) or the Markets in Financial Instruments Regulation (MiFIR), resulting in regulatory inconsistencies across the EU. ESMA states that while it has already taken action through its 2023 public statement to protect retail investors, uncertainty continues. The inconsistent treatment of fractional shares has the following key effects: (i) it impacts transparency and reporting requirements, (ii) it affects compliance with the MiFID systematic internaliser and share trading obligation rules; and (iii) it impacts the calculation of thresholds for data reporting services providers derogation criteria. ESMA believes consistent classification would help create a level playing field for firms and support retail participation in this market segment. ESMA suggests it would be beneficial to clarify that fractional shares, which replicate the key characteristics and trading environment of shares, should remain subject to the MiFIR rules for shares. -
EMIR 3: ESMA proposes clearing thresholds
8 April 2025
The European Securities and Markets Authority (ESMA) has published a consultation paper setting out draft regulatory technical standards (RTS) amending the RTS on the clearing thresholds (CTs) under the European Markets Infrastructure Regulation (EMIR). Under the latest revisions to EMIR, known as EMIR 3, the calculation of CTs will be amended (once these RTS enter into force), shifting away from distinguishing between exchange-traded derivatives (ETD) and over-the-counter (OTC) derivatives (where only OTC derivatives counted towards the threshold) to a framework based on the level of OTC-uncleared transactions. Financial counterparties (FCs) will need to calculate their uncleared positions and their aggregate OTC exposure (both cleared and uncleared) to determine if they exceed the CTs. Non-financial counterparties (NFCs) will be required to count only their uncleared positions towards the CTs.
Read more.Topic : Derivatives -
ESMA MiFIR review consultation package on derivatives transparency, package orders and CTP data
3 April 2025
The European Securities and Markets Authority (ESMA) has launched its consultation in relation to derivatives transparency, package orders, and input and output data for consolidated tape providers (CTPs). This is the fourth ESMA consultation package under the EU's MiFIR review workstream, and proposes a new standalone set of regulatory technical standards (RTS) for derivative transparency ahead of a future comprehensive recast of the current RTS on non-equity transparency (RTS 2). It also includes draft amends to the respective RTS for package orders and data for CTPs. ESMA proposes a new derivatives transparency regime as per the new scope defined by MiFIR, which was amended so that the regime applies to derivatives based on certain characteristics rather than simply delineating between those traded on- and off-venue. The consultation sets out detailed calibrations as to liquidity determination (relevant for both pre-trade transparency waivers and post-trade deferrals), and the size thresholds, and duration periods to be used for the new deferral regime. The deadline for comments is 3 July. ESMA will then publish its final report, and submit the technical standards to the European Commission in Q4. -
ESMA 2024 CCP peer review report
2 April 2025
The European Securities and Markets Authority (ESMA) has published its 2024 peer review report in respect of central counterparties (CCPs), as required by Regulation (EU) No 648/2012 (EMIR). The focus of the report is supervisory activities related to the EMIR requirements for outsourcing and intragroup governance arrangements. The report covered supervisory activities of all competent authorities of authorised CCPs conducted in 2022 and 2023 and found that for the most part, competent authorities managed CCP colleges compliantly. In terms of the three supervisory expectations specified in the mandate for this peer review, the report concluded the following:- Regarding the notification process for new outsourcing arrangements, most competent authorities met (fully or largely) this expectation with the exception of three authorities which did not require CCPs to have complete written outsourcing agreements in place.
- Regarding the compliance of CCP outsourcing arrangements with EMIR requirements, all competent authorities met this expectation.
- Regarding the compliance with EMIR of CCP governance arrangements in relation to outsourcing, all competent authorities met (fully or largely) this expectation.
The report includes recommendations directed at specific competent authorities in respect of areas identified for improvement. Authorities are expected to address these recommendations within a year from the publication of the report. -
UK regulators consult on changes to margin requirements for non-centrally cleared derivatives
27 March 2025
The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have opened a consultation on margin requirements for non-centrally cleared derivatives. The proposals are to:- Make permanent the current temporary exemption, which is due to expire 4 January 2026, for single-stock equity options and index options from the UK bilateral margining requirements. The EU had the same temporary exemption until 24 December 2024 when the latest revisions to the European Market Infrastructure Regulation, known as EMIR 3, made the exemption permanent. We discuss this change and others in our client bulletin, "EMIR 3 - Impact on uncleared OTC derivatives markets". Both the UK and EU allow provision for the exemptions to change, if in future other jurisdictions implement margin requirements for these derivatives.
Read more.Topic : Derivatives -
UK moves to permanently exempt UK and EEA pension schemes from the derivatives clearing obligation
18 March 2025
A draft of the Pension Fund Clearing Obligation Exemption (Amendment) Regulations 2025 has been published alongside an explanatory memorandum. The draft Regulations will amend the UK European Market Infrastructure Regulation (EMIR) to make permanent the temporary exemption from the derivatives clearing obligation for UK and EEA pension scheme arrangements. The temporary exemption is due to expire on 18 June. The draft Regulations will come into force on the day after they are made. The EU EMIR was recently amended by EMIR 3 to provide a permanent exemption from the clearing obligation where a counterparty trades with a non-EU pension scheme arrangement, subject to certain conditions being met.Topic : Derivatives -
EU recognition of UK CCPs extended
17 March 2025
Following the extension of EU equivalence for UK CCPs to 30 June 2028 under the EU European Market Infrastructure Regulation (EMIR), on 17 March, the European Securities and Markets Authority (ESMA) announced the extension of the tiering and recognition of the three UK CCPs: ICE Clear Europe, LCH Ltd and LME Clear. The Bank of England published a press release on the same day welcoming ESMA's decision to ensure that EU market participants can continue to access the clearing services of the UK CCPs. In addition, ESMA and the Bank have agreed an amended Memorandum of Understanding governing cooperation and information sharing regarding UK CCPs, which take account of the changes brought in by EMIR 3. -
ESMA notifies EC of delay of certain deliverables
6 March 2025
The European Securities and Markets Authority (ESMA) has published a letter (dated 3 March) addressed to the European Commission on the prioritisation of ESMA's 2025 deliverables. ESMA's letter sets out specific items which ESMA intends to delay or which have been cancelled. In some instances the delays are made with the purpose of aligning ESMA's work with other initiatives. For example, the technical standards on buy-in under the Central Securities Depository Regulation Review are delayed until T+1 implementation is complete. The EU has committed to moving to T+1 by 11 October 2027. ESMA identifies the following as being included in its highest priority workstreams: (i) implementation of the latest amendments to the European Market Infrastructure Regulation, known as EMIR 3; (ii) the Markets in Financial Instruments Directive and Regulation Review; (iii) the Listing Act; (iv) the Central Securities Depository Regulation Review; (v) the T+1 project; and (vi) the review of the Alternative Investment Fund Managers Directive. ESMA is also prioritising new supervisory responsibilities relating to Consolidated Tape Providers, Green Bond verifiers, ESG Rating providers and oversight powers under the Digital Operational Resilience Act. -
EBA publishes discussion paper on EMIR fees for pro forma margin model validation
5 March 2025
The European Banking Authority (EBA) has published a discussion paper on fees to validate pro forma models under the revised European Market Infrastructure Regulation (known as EMIR 3). EMIR 3 requires that counterparties apply for authorisation to their competent authorities before using, or adopting a change to, a model for initial margin calculation used as a risk-mitigation technique for OTC derivative contracts not cleared by a CCP. The EBA is charged with establishing a central validation function for the elements and general aspects of pro forma models, and changes to those, and must charge an annual fee, per pro forma model, to counterparties using the pro forma models it validates. The EBA's discussion paper is intended to assist it in responding to a request from the European Commission for technical advice for preparing the delegated act setting out the method for the determination of the amount of the fees and the modalities of the payment of the fees.
In the discussion paper, the EBA outlines its approach to budgeting, the expected costs it will incur in carrying out this new role, expected fees per counterparty including the calculation methods and the modalities of payment. The EBA is seeking feedback on the (i) scope of the new tasks and corresponding costs; (ii) calculation of the monthly average outstanding notional amount of non-centrally cleared OTC derivatives over the past 12 months; (iii) fee calculation methods; and (iv) payment modalities. Responses to the discussion paper may be provided until 7 April. The EBA intends to provide its technical advice by 30 June.Topic : Derivatives -
UK FCA reminds derivatives market participants of impending end of reporting transitional period
4 March 2025
The UK Financial Conduct Authority (FCA) has published a reminder for derivative market participants to update their outstanding derivative reports to comply with the amended reporting requirements introduced in February 2023. The UK amended its reporting requirements under the UK European Market Infrastructure Regulation. The changes took effect on 30 September 2024, subject to a transitional period which ends on 31 March. The FCA states that firms should review their reporting arrangements to ensure that they have taken the required steps to amend their outstanding derivative reports ahead of 31 March. The FCA encourages firms that do not believe that they will be able to comply to proactively engage with the regulator regarding their circumstances.Topic : Derivatives -
EC consultation on commodity derivatives market
26 February 2025
The European Commission has published a targeted consultation document on a review of the functioning of commodity derivatives markets (including for these purposes emissions allowances) and certain aspects relating to spot energy markets. The outcome of this consultation will feed into the Markets in Financial Instruments Directive report with a view to making the EU commodity derivatives markets more efficient and resilient.
The consultation seeks stakeholders' feedback on a broad range of issues, including: (i) data aspects relating to commodity derivatives; (ii) the ancillary activity exemption; (iii) position management and position reporting; (iv) position limits; (v) circuit breakers; and (vi) other elements stemming from the Draghi report on EU competitiveness. Responses must be submitted by 9 April. -
UK Financial Conduct Authority policy statement on reforming commodity derivatives regulatory framework
5 February 2025
The Financial Conduct Authority (FCA) has published a policy statement (PS25/1) on reforming the commodity derivatives regulatory framework. The policy statement sets out the FCA's response to feedback on its consultation paper on the subject (CP23/27) and includes its final rules and guidance to be included in the FCA Handbook. Key changes made in response to the consultation feedback include: Scope of the position limits regime: the regime will be limited to the 14 critical contacts consulted on, including LME Aluminium and LME Tin. However, the approach to contracts that are closely related to these critical contracts but outside the scope of position limits will be less prescriptive than consulted on, allowing trading venues more discretion to calibrate scope. Exemptions: the FCA's proposed requirement for trading venues to only grant the hedging exemption where they are satisfied that the exempt positions can reasonably be managed—the so-called risk management condition—is being amended to be less prescriptive. Non-financial entities will no longer be required to submit a detailed stress test.
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European Central Bank publishes FAQs on initial margin models under EMIR 3
31 January 2025
The European Central Bank(ECB) has published FAQs on initial margin (IM) model approvals under EMIR 3. EMIR 3 requires, for the first time in the EU, counterparties to apply for authorisation before using, or adopting a change to, their IM calculation model. Applying validation and authorisation requirements for IM models was expected to cause difficulties for national competent authorities (NCAs) and counterparties immediately upon entry into force of EMIR 3. In 2024, the European Banking Authority (EBA) therefore published a no action letter confirming NCAs should not prioritise supervisory or enforcement action in relation to processing IM model authorisation applications.
The ECB's FAQs provide further information on the application of the new EMIR IM model authorisation regime, including: (i) which banks are affected by the EBA's no action letter on the application of EMIR; (ii) the ECB's interim approach to processing IM model applications, until the EBA's technical standards/guidelines become applicable; (iii) the approach significant institutions should take to obtaining authorisations for IM models in light of EMIR 3; (iv) the approach to be taken when more than one legal entity within a banking group is using an IM model; and (v) the length of time an approval process is expected to take.Topic : Derivatives -
Commission Implementing Decision extends temporary equivalence of UK CCPs
31 January 2025
Commission Implementing Decision (EU) 2025/215 has been published in the Official Journal of the European Union, extending EU equivalence for UK CCPs under the European Market Infrastructure Regulation (EMIR). The Decision will apply from 1 July 2025 (the day after the EU's current equivalence decision expires, on 30 June 2025) and will expire on 30 June 2028. The European Commission published a press release on the same date, noting that the extension is designed to provide time for the implementation of EMIR 3. -
International bodies report on effective practices for streamlining variation margin in centrally cleared markets
January 15, 2025
The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published a final report on examples of effective practices for streamlining variation margin in centrally cleared markets. The report sets out eight effective practices which aim to provide examples of how standards set out in the CPMI-IOSCO Principles for Financial Market Infrastructures, as supplemented by the relevant guidance, can be met.
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International bodies report on streamlining variation margin processes and initial margin responsiveness of margin models in non-centrally cleared markets
January 15, 2025
The Basel Committee on Banking Standards and International Organization of Securities Commissions published a final report on streamlining variation margin processes and initial margin responsiveness of margin models in non-centrally cleared markets. The report follows on from the BCBS-CPMI-IOSCO September 2022 review of margining practices.
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International bodies issue final report on transparency and responsiveness of initial margin in centrally cleared markets
January 15, 2025
The Basel Committee on Banking Standards, Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions has published a final report on transparency and responsiveness of initial margin in centrally cleared markets. The report sets out ten final policy proposals, with the aim of increasing the resilience of the centrally cleared market ecosystem in times of market stress. The proposals are also designed to improve market participants' understanding of centrally cleared initial margin calculations and potential future margin requirements.
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European Banking Authority publishes no action letter on application of European Market Infrastructure Regulation 3 with respect to initial margin model authorization
December 17, 2024
The European Banking Authority has published a no action letter stating that competent authorities should not prioritize any supervisory or enforcement action in relation to the processing of applications for initial margin (IM) model authorization received as a result of the entry into force of EMIR 3.
EMIR 3 requires that counterparties apply for authorization to their competent authorities before using, or adopting a change to, a model for initial margin calculation. Compliance with this requirement immediately after EMIR 3 enters into force may cause difficulties for competent authorities and counterparties until the EBA has established its central validation function and the draft regulatory technical standards and guidelines setting out key requirements have been published.
The no action letter sets a registration process for counterparties in scope of IM model authorization for any first application submitted after EMIR 3 enters into force and for subsequent changes to such IM models. As per the no action letter, however, competent authorities should not prioritize the processing of such applications, until the draft RTS on Initial Margin Model Validation and the guidelines on application and authorization process mandated under EMIR 3 come into application. -
UK Financial Markets Standards Board transparency draft statement of good practice on the governance of sustainability-linked products
December 17, 2024
The Financial Markets Standards Board has published a consultation on its transparency draft of its statement of good practice on the governance of sustainability-linked products. SLPs are products whose financial and/or structural characteristics can vary depending on whether the user (i.e., borrower or issuer of, or counterparty to, SLPs) achieves specific sustainability or ESG objectives. They can be used for general corporate purposes, which allows many users (e.g., borrowers, issuers, or counterparties to sustainability-linked products) to access the sustainable finance market in a more flexible way. The FMSB's statement is intended to codify good practice for the governance of SLPs and support consistent approaches across asset classes and jurisdictions. It is hoped this will enhance the quality and integrity of SLPs; boost market confidence; help mitigate greenwashing risk; and support the development of a deeper, more robust sustainability-linked product market. The statement of good practice is intended to apply to service providers (e.g., firms acting as sustainability-linked loan lenders, bookrunners, or lead arrangers on a sustainability-linked bond issuance or counterparties to a sustainability-linked derivative) or users of SLPs in wholesale financial markets and to support, and be read in conjunction with, existing asset-class specific guidance (notably ICMA, LMA, and ISDA principles). The deadline for comments is February 21, 2025. -
Financial Stability Board publishes final report on liquidity preparedness for margin and collateral calls
December 10, 2024
The Financial Stability Board has published a final report on liquidity preparedness for margin and collateral calls. The report sets out policy recommendations to enhance the liquidity preparedness of non-bank market participants for margin and collateral calls in centrally and non-centrally cleared derivatives and securities markets (including securities financing such as repo). The FSB has analyzed recent incidents of liquidity stress, as well as completed a survey of financial authorities and feedback from industry stakeholder outreach events. Together, the FSB has found there is need for policy adjustments to deal with liquidity strains in the NBFI sector arising from spikes in margin and collateral calls during times of market stress. The findings suggest that while margin and collateral calls are a necessary protection against counterparty risk, they can also amplify the demand for liquidity by market participants if they are unexpected in times of stress and affect a large enough part of the market. The increase in such calls can impact market participants differently depending on the size of positions and level of liquidity preparedness. The FSB also identified liquidity risk management and governance weaknesses of some market participants as key causes of their inadequate liquidity preparedness for margin and collateral calls.
The FSB's eight policy recommendations in this report cover: (i) liquidity risk management and governance; (ii) stress testing and scenario design; and (iii) collateral management practices of non-bank market participants, focusing on liquidity risks arising from spikes in margin and collateral calls, including under extreme but plausible stressed conditions. The FSB explains that the recommendations should be applied proportionately to the underlying risks of different non-bank market participants. -
EMIR 3 Published in the Official Journal of the European Union
December 4, 2024
The EMIR 3 Regulation and Directive have been published in the Official Journal of the European Union and will enter into force on December 24, 2024. The EMIR 3 Regulation amends the European Market Infrastructure Regulation and applies from December 24, 2024, except for the amendments to the calculation of the clearing thresholds for financial counterparties and non-financial counterparties which will only apply once the related technical standards enter into force. The EMIR 3 Directive amends the Directive on Undertakings for the Collective Investment in Transferable Securities, the Capital Requirements Directive and Investment Firm Directive. Member States must transpose the EMIR 3 Directive into national laws and bring those into force by June 25, 2026. This aligns with the implementation date for CRD VI.
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The Markets in Financial Instruments (Equivalence) (Singapore) Regulations 2024
December 3, 2024
The Markets in Financial Instruments (Equivalence) (Singapore) Regulations 2024 have been published, together with an explanatory memorandum and de minimis assessment. The Regulations set out HM Treasury's determination that Singapore's regulatory and supervisory regime for trading in derivatives continues to be equivalent to the U.K.'s under U.K. MiFIR and allows U.K. counterparties to fulfil their derivatives trading obligation when they trade derivatives instruments on trading venues in Singapore.
Commission Implementing Decision (EU) 2019/541, granting equivalence to Singaporean trading venues became part of assimilated law in the U.K. under the EU Withdrawal Act. However, equivalence applies only to those authorized trading venues listed in the Decision's Annex. Since assimilation, seven additional trading venues have been authorized and therefore the Decision, at the request of the Monetary Authority of Singapore, needs to be re-enacted and updated.
The Regulations come into force on December 31, 2024 and will replace the assimilated implementing decision, which will be revoked at the same time. -
New UK Financial Conduct Authority Direction for the Derivatives Trading Obligation
November 29, 2024
The U.K. Financial Conduct Authority has published a new direction for the U.K. derivatives trading obligation, together with an explanatory memorandum. The FCA's existing direction modifying the U.K. DTO using its Temporary Transitional Power expires on December 31, 2024. This allows firms subject to the U.K. DTO, trading with, or on behalf of, EU clients subject to the corresponding obligation under EU MiFIR, namely the EU DTO to be able to transact or conclude those trades on EU trading venues, providing that certain conditions are met. The purpose of this new direction is to provide continuity in the outcomes achieved through the TTP. In the continuing absence of mutual equivalence between the U.K. and the EU for the purposes of the U.K. DTO and EU DTO, certain market participants would be caught by a conflict of law between the U.K. DTO and EU DTO—in particular branches of EU firms in the U.K.—unless a new direction is issued. The new direction set out the same conditions as the existing direction, however the new direction only applies to derivatives subject to the DTO in both the U.K. and the EU. The new direction takes effect on the expiry of the previous one. -
International Organization of Securities Commissions Report on Principles for the Regulation and Supervision of Commodity Derivatives Markets
November 25, 2024
The International Organization of Securities Commissions has published a report on a targeted implementation review on principles for the regulation and supervision of commodity derivatives markets. In October, IOSCO conducted a targeted implementation review of five selected principles: Principles 9, 12, 14, 15, and 16 that aim to address excessive commodity market volatility, OTC derivatives transparency, and orderly functioning of the commodity derivatives markets. IOSCO believes that an appropriate implementation of the selected principles would help mitigate the impact of external factors which may disrupt commodity markets, as recently experienced. As such the report sets out IOSCO's recommendations to its members for improving the implementation of specific elements of the selected principles, as well as the intention to conduct further work in the OTC markets area.
Overall, the survey results show that the majority of respondents were broadly compliant with the selected principles. However, both regulators and exchanges identified significant challenges in implementing certain elements of the selected principles within OTC markets. Based on the results of the review, IOSCO anticipates additional work related to the issues with the ability of exchanges and certain regulators to collect and aggregate, on both an ad hoc and regular basis, information about OTC positions. The specifics of this work are still being determined, but IOSCO is committed to ensuring that any future developments align with IOSCO's strategic goals. -
International Organization of Securities Commissions' Final Report on Post Trade Risk Reduction Services
November 25, 2024
The International Organization of Securities Commissions has published its final report on post trade risk reduction services. The report highlights potential policy considerations and risks associated with the using and offering of PTRRS and presents seven sound practices in this area as guidance to IOSCO members and regulated users of PTRRS. The seven sound practices cover the following areas: (i) transparency, governance, comprehensibility, and fairness of the algorithm; (ii) operational risk; (iii) data integrity and security and regulatory data; (iv) legal certainty; (v) considerations of potential counterparty risk by IOSCO members and PTRRS users; (vi) market concentration and competition; and (vii) standardization and predictability of runs and file formats. The sound practices are designed to improve and complement existing market practices. The report reflects the results of the public consultation launched in January. -
European Securities and Markets Authority Consults on EMIR 3 Active Account Requirement
November 20, 2024
The European Securities and Markets Authority has published a consultation on the conditions of the Active Account Requirement under the amended European Market Infrastructure Regulation (EMIR 3). The active account requirement requires EU counterparties active in certain derivatives to hold an operational and representative active account at a Central Counterparty authorized to offer services and activities in the EU.
ESMA is seeking stakeholder input on several key aspects of the active account requirement, including the: (i) three operational conditions to ensure that the clearing account is effectively active and functional, including stress-testing; (ii) representativeness obligation for the most active counterparties; and (iii) reporting requirements to assess their compliance with the active account requirement. The deadline for comments is January 27, 2025. ESMA will then consider the feedback it receives to this consultation in Q1 2025 and expects to publish a final report and submission of the draft technical standards to the EC for endorsement as soon as possible. -
UK Conduct Authority Consults on Changes to the Derivatives Trading Obligation
July 26, 224
The Financial Conduct Authority has launched a consultation on three proposed amendments to different aspects of the U.K. derivatives trading obligation. The consultation is part of the Wholesale Markets Review. The Markets in Financial Instruments Regulation imposes a "trading obligation," requiring mandatory on-venue trading for financial counterparties and non-financial counterparties where they engage in transactions in derivatives that: (i) have been declared subject to the clearing obligation under the U.K.'s European Market Infrastructure Regulation; (ii) are admitted to trading or traded on at least one U.K. trading venue (a regulated market, multilateral trading facility or organised trading facility) or a third-country equivalent trading venue; and (iii) are sufficiently liquid. Responses to the FCA's consultation may be submitted until September 30, 2024. The FCA intends to publish its direction on the modification of the DTO in Q4.
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European Securities and Markets Authority Issues Public Statement on Use of Collateral by Non-Financial Counterparties Acting as Clearing Members
July 10, 2024
The European Securities and Markets Authority has published a public statement on deprioritizing supervisory actions linked to the eligibility of uncollateralised public guarantees, public bank guarantees, and commercial bank guarantees for Non-Financial Counterparties acting as clearing members, pending the entry into force of the latest revisions to the European Market Infrastructure Regulation, known as EMIR 3. We discuss EMIR 3, which is anticipated to enter into force in Q4 2024, in our note "EMIR 3 and Clearing in the EU".
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European Commission Consults on Draft Delegated Regulation for OTC Derivatives Identifying Reference Data
June 12, 2024
The European Commission has published consultation for a draft Delegated Regulation supplementing the Markets in Financial Instruments Regulation as regards OTC derivatives identifying reference data to be used for the purposes of the transparency requirements laid down in Article 8a(2) and Articles 10 and 21 of MiFIR. Following the MiFIR Review, MiFIR now clarifies that the pre- and post-transparency requirements for non-equity instruments applies to both exchange-traded and OTC derivatives. The post-trade disclosure obligation for investment firms was also amended and that obligation no longer applies to derivatives "traded on a trading venue," but it does apply to OTC derivatives traded by an investment firm either on its own account or on behalf of clients. The transaction reporting obligation applies to both types of derivatives.
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EU Consultation on Amendments to Commodity Derivatives Technical Standards
May 23, 2024
The European Securities and Markets Authority has published a consultation paper on proposed changes to the rules for position management controls and position reporting. These proposals arise out of the MiFID Review, and the resulting changes to the Markets in Financial Instruments Regulation and Directive, which were published in March. MiFID II requires national regulators to establish and apply position limits on the size of a net position in commodity derivatives traded on trading venues and economically equivalent OTC contracts. The limits apply to the size of a position that a person can hold, including any other positions held on behalf of that person by group entities. Trading venues are required to apply position management controls, including monitoring of open interest and obtaining information about the size and purpose of a position entered into, beneficial or underlying owners, concert arrangements, and any related assets or liabilities. Trading venues also have powers to require termination or reduction of positions and to require a person to provide liquidity back into the market at an agreed price and volume to mitigate the effect of a large or dominant position. The position reporting regime is intended to support the application and enforcement of position limits.
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EU Eases EMIR 3 Clearing Mandate
02/19/2024
The Council of the European Union and European Parliament have reached provisional political agreement on the latest revisions to the European Market Infrastructure Regulation, publishing on February 14, 2024, the agreed text of the EMIR 3 Regulation and EMIR 3 Directive. The controversial mandate for EU counterparties to hold "active accounts" at EU CCPs for all products, and to use such accounts for some products, has been substantially watered down from the European Commission's December 2022 proposal (we discussed the Commission's proposals in our client note, "Clearing in the EU After EMIR 3").
According to the final draft text, in-scope counterparties for the new "active account" requirement will be required to open and maintain accounts with EU CCPs and clear some transactions through EU CCPs for in-scope products. However, the Commission's (and some member states') ambitious and misguided attempt to force market relocations into Europe seem to have faltered. Even the largest EU derivatives traders (with EUR 6 billion + of open positions) need only clear a minimum of five (5) trades per annum for sub-categories each of the in-scope categories of products. In-scope products are interest rate derivatives denominated in euro and Polish zloty; and Short-Term Interest Rate Derivatives (STIR) denominated in euro. It had previously been proposed for CDS denominated in euro to be included, but this product is no longer in scope.
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UK Regulator Consults on Proposed Reforms to the Commodity Derivatives Regulatory Framework
12/08/2023
The U.K. Financial Conduct Authority has launched a consultation on proposals for reforming the commodity derivatives regulatory framework, which covers position limits, the exemptions from those limits, position management controls, the reporting regime and the ancillary activities test. Responses to the consultation may be submitted until February 16, 2024.
The Financial Services and Markets Act 2023 has already made several reforms to the U.K.'s commodity derivatives regulatory regime. The MiFID II requirement for commodities position limits to be applied to all exchange-traded contracts and over-the-counter, or non-venue traded ("OTC"), contracts that are economically equivalent to exchange-traded commodity derivatives was revoked. Instead, the FCA will decide the scope of the commodity derivates to which position limits will apply. In addition, the powers for setting position controls were transferred from the FCA to the operators of trading venues. This contrasts with the EU approach, where position limits are not just set by the regulators, but actually in formulae in legislation, which have proven ill-thought-through and problematic for numerous markets. The FCA has retained the power to set position limits if certain conditions are satisfied, and has new rulemaking powers to establish how trading venues should set and apply position limits and what position management controls they should operate. Generally, the reversion of position limit controls to exchanges as self-regulatory organisations reflects the U.K.'s status quo ante, i.e., prior to MiFID II.
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HM Treasury Seeks Views on Clearing Exemption for Pension Schemes
11/29/2023
U.K. EMIR (the onshored European Market Infrastructure Regulation) generally requires the clearing at a central counterparty of all interest rate swaps and credit default swaps. As announced earlier this year, HM Treasury has launched a review of an applicable exemption for pension funds, with the publication of a call for evidence. Currently, pension schemes meeting certain requirements are exempt from the clearing obligation for a temporary period. The exemption was included in EMIR due to the difficulty that pension funds would find in funding margin calls; nominally, to provide CCPs with time to develop solutions for the transfer of non-cash collateral by pension schemes to meet variation margin calls. CCPs require highly liquid collateral, mostly cash, as variation margin, but pension schemes are not set up to hold large amounts of cash and would have to amend their business model at high costs to do so. In June, the Pension Fund Clearing Obligation Exemption and Intragroup Transaction Transitional Clearing and Risk-Management Obligation Exemptions (Extension and Amendment) Regulations 2023 extended the temporary exemption for pension schemes to June 18, 2025.
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UK Extends Clearing Obligation Exemption for Pension Funds and Intragroup Transactions
05/03/2023
On April 28, 2023, the Pension Fund Clearing Obligation Exemption and Intragroup Transaction Transitional Clearing and Risk-Management Obligation Exemptions (Extension and Amendment) Regulations 2023 were published, with an explanatory memorandum. These Regulations come into effect on June 12, 2023, and will extend the expiry date of the:- Exemption from the clearing obligation for pension schemes from June 18, 2023, to June 18, 2025. This means that U.K. and EEA pension funds will remain exempt from the U.K. clearing obligation. This change is made by amending U.K. EMIR, as provided for in the Over the Counter Derivatives, Central Counterparties and Trade Repositories (Amendment, etc., and Transitional Provision) (EU Exit) (No. 2) Regulations 2019.
- Temporary intragroup exemption provisions from December 31, 2023, to December 31, 2026. This means that the U.K. clearing obligation and risk mitigation measures will not apply to OTC derivative contracts between U.K. firms and their overseas group entities.
This is the first time that HM Treasury has used its powers to extend these dates.Topic : Derivatives -
UK Government Publishes Draft Legislation Revising Application of the Ancillary Activities Test for Commodity Derivatives and Emission Allowances
03/30/2023The U.K. government has published a draft statutory instrument (and related explanatory memorandum), which will be known as the Financial Services and Markets Act 2000 (Commodity Derivatives and Emission Allowances) Order 2023. The draft SI will simplify the process for determining when a firm satisfies the “ancillary activities” test and reduce the burden on firms that apply the test. The changes were discussed under the Wholesale Markets Review and announced as part of the Edinburgh Reforms.
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EU EMIR 3 Proposals Published
01/19/2023
The European Commission published proposals to amend the EU's European Market Infrastructure Regulation (EMIR) in December 2022 (EMIR 3). According to the Commission, some of these measures are aimed at improving the competitiveness of EU CCPs and of EU clearing activities, and to reduce existing reliance by EU counterparties on U.K. CCPs. Since the Brexit referendum, the EU has been grappling with the bloc's continued reliance on U.K. CCPs. The most controversial aspect is a new mandate for EU counterparties to hold "active accounts" at EU CCPs for all products, and to use such accounts for some products.
EMIR 3 would also bring in several technical changes relating to the clearing thresholds and how these operate for non-EU exchange trade derivatives (ETDs) and the exemption for certain intragroup transactions. Other proposals seek to mitigate some of the issues arising from the strain on the energy market, in particular the difficulties in fulfilling margin obligations.
Our client note, "Clearing in the EU After EU EMIR 3" describes the EMIR 3 proposals in more detail. -
UK Regulators Propose Changes to Margin Requirements for Non-Centrally Cleared Derivatives
07/12/2022
The U.K. Prudential Regulation Authority and Financial Conduct Authority have issued a joint consultation paper on proposals to amend the U.K. Binding Technical Standards on margin requirements for non-centrally cleared derivatives (i.e., the U.K. version of Commission Delegated Regulation (EU) 2016/2251 on risk mitigation techniques). The BTS on risk mitigation techniques were onshored for Brexit, and the PRA and FCA are responsible for setting the requirements and are empowered to make adjustments, subject to approval from HM Treasury. The BTS supplement the European Market Infrastructure Regulation as onshored for Brexit, which requires counterparties to uncleared OTC derivative transactions to implement risk mitigation techniques to reduce counterparty credit risk. The BTS prescribe required 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 listing securities eligible as collateral, such as sovereign bonds, covered bonds, some securitization instruments, corporate bonds, gold and some equities. Responses to the consultation may be submitted until October 12, 2022. The regulators will consider the feedback and then send their proposed draft amending BTS to HM Treasury for approval. It is proposed that the changes would take effect on publication by the regulators of the revised BTS.
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LIBOR Transition: Further Proposed Changes to EU Clearing and Derivatives Trading Obligations
07/11/2022
The European Securities and Markets Authority has opened a consultation on proposals to amend the EU clearing and trading derivative obligations to reflect recent benchmark transitions from LIBOR to so-called risk-free rates. The scope of the EU derivatives clearing and trading obligations for interest rate derivatives based on LIBOR denominated in EUR, GBP, JPY and USD were amended earlier this year. Amendments to the Regulatory Technical Standards, which took effect on May 18, 2022, removed interest rate derivative classes referencing GBP and USD LIBOR from the clearing and trading obligations, removed IRD classes referencing EONIA and JPY LIBOR from the clearing obligation, and introduced a clearing obligation for IRD classes referencing three new risk-free rates, namely €STR, SONIA and SOFR.
ESMA is proposing to further amend the RTS to:- introduce a clearing obligation for overnight index swaps referencing TONA (JPY);
- expand the maturities in scope of the clearing obligation for OTC interest rate swaps referencing SOFR (USD); and
- introduce a derivatives trading obligation for certain classes of OTC interest rate swaps referencing €STR (EUR).
Responses to the consultation may be submitted by September 30, 2022. ESMA will consider the feedback before submitting for approval by the European Commission final draft amending RTS. -
European Securities and Markets Authority Publishes Regulatory Technical Standards on Revised Commodity Derivative Clearing Threshold
06/03/2022
The European Securities and Markets Authority has published a final report and Regulatory Technical Standards on its proposed increase to the commodity derivative clearing threshold under the European Market Infrastructure Regulation. ESMA published a discussion paper on the EMIR clearing thresholds in November 2021. Following feedback, ESMA's proposed RTS will increase the clearing threshold for commodity derivatives from €3bn to €4bn.
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HM Treasury Confirms Policy Approach on Wholesale Markets Review
03/01/2022
HM Treasury has published its consultation response to the Wholesale Markets Review, setting out summaries of responses received to its proposals and how changes will be progressed. There are certain areas that HM Treasury will not progress at this stage, and which will be subject to further consideration.
For the proposals that are being taken forward, implementation may be by legislation or pursuant to the Financial Conduct Authority's rules. HM Treasury states that legislation will be brought forward when Parliamentary time allows. In certain instances, where details are currently set out in legislation, but would sit better in regulatory rules, the government intends to legislate to delegate responsibility to the FCA for preparing detailed rules, which it states will be part of the implementation of the Future Regulatory Framework review. The FCA is expected to consult on its proposals for existing rule amendments in the first half of this year.
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EU Grants Further Time-Limited Equivalence for UK CCPs
02/09/2022
An EU Commission Implementing Decision extending the equivalence of U.K. CCPs to June 2025 has been published in the Official Journal of the European Union. The equivalence decision applies to U.K. CCPs already established and authorized in the U.K. on December 31, 2020 and will apply from July 1, 2022, which is when the existing equivalence decision expires. Andrew Bailey, in his speech at TheCityUK Annual Dinner in February 2022, questioned why the equivalence decisions are time-limited. Most equivalence decisions for CCPs in other jurisdictions are not time-limited, although the EU is able to revoke a decision if a jurisdiction is deemed not to maintain equivalence with the EU regime.
The Decision follows the announcement yesterday by the Commission on the extension and the launch of a targeted consultation on the review of the central clearing framework in the EU. The consultation is seeking views on ways to improve the competitiveness of EU CCPs and clearing activities while also ensuring the appropriate supervision of their risks. The consultation closes on March 8, 2022. -
EU Consultation on CCP Procyclicality of Margin Requirements
01/27/2022
The European Securities and Markets Authority has opened a consultation in which it proposes to amend the requirements on EU CCPs relating to an additional charge related to the procyclicality of margin. Responses to the consultation should be submitted by March 31, 2022. The European Market Infrastructure Regulation requires CCPs to impose, call and collect margins to limit their credit exposures from clearing members. A CCP must also regularly monitor and, if necessary, revise the level of its margins to reflect current market conditions considering any potentially procyclical effects of those revisions. Procyclicality of margin is the term used to describe the fact that margin requirements for the same portfolio are higher in times of market stress and lower in calm conditions. Regulatory Technical Standards under EMIR set out requirements for CCPs to use at least one of three options to limit procyclicality to the extent that the financial soundness of the CCP is not negatively affected. Generally, the EU imposes higher (more costly) margin charges than most other jurisdictions, including the U.S. and other major financial centres, which have essentially no extra procyclicality charge for CCPs.
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European Securities and Markets Authority Provides Regulatory Forbearance for EU Clearing and Derivatives Trading Obligations in Support of LIBOR Transition
12/16/2021
The European Securities and Markets Authority has issued a statement in which it states that EU national regulators should not, from January 3, 2022, prioritize supervisory action for any failures by firms to comply with the mandatory clearing obligation under the European Market Infrastructure Regulation, for interest rate derivatives referencing EONIA, GBP LIBOR, JPY LIBOR or USD LIBOR and the derivatives trading obligation for IRD classes referencing GBP LIBOR or USD LIBOR. On November 18, 2021, ESMA submitted final draft Regulatory Technical Standards to amend the EU clearing and trading derivative obligations in support of the benchmark transition to risk-free rates. However, ESMA is aware of the time that the approval process may take and therefore considers that regulatory forbearance is appropriate. -
European Securities and Markets Authority Publishes Discussion Paper on Clearing Thresholds Under European Market Infrastructure Regulation
11/22/2021
The European Securities and Markets Authority has published a report and discussion paper seeking feedback on its review of the clearing thresholds under the European Market Infrastructure Regulation. Responses should be submitted by January 19, 2022.
Read more.Topic : Derivatives