Euro shorts 25.10.13

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Euro shorts 25.10.13

  1. 1. Welcome to Euro Shorts, a short briefing on some of the week’s developments in the financial services industry in Europe. If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers. Claire Cummings 020 7585 1406 claire.cummings@cummingslaw.com www.cummingslaw.com AIFMD: MoU table published ESMA has published a table showing the state of play of AIFMD MoUs signed by EU national supervisors with non-EU regulators worldwide. The AIFMD MoUs are co-operation agreements that allow the exchange of information between EU and non-EU supervisors, enabling non-EU fund managers to market alternative funds within the EU. According to the table, the FCA has entered into MoUs with all non-EU regulators listed in the table. MiFID IIl The European Parliament and EU states have broadly agreed on a package to regulate high frequency trading, which accounts for more than 30 per cent of trading volumes on some European exchanges. The package is part of the MiFID II proposals, but crucially excludes the socalled minimum resting period which the Parliament had demanded and which had attracted widespread criticism. The resting period would have required a share order to stay on an order book for 500 milliseconds, effectively killing off high-frequency trading and other dealers too who now operate at much faster speeds measured in microseconds. Similarly, sponsored access appears set to stay, albeit under tough controls. The deal on speed trading and progress on market access has raised hopes of an overall agreement in principle on MiFID during a series of negotiations planned for November.
  2. 2. EMIR ESMA is consulting on procedural rules for the exercise of its power to impose fines and periodic penalty payments on trade repositories. The consultation paper sets out ESMA's preferred options for the rules, which include the following: (i) a reasonable time limit for written submissions; (ii) procedures regarding access to files by the persons subject to investigation, and the protection of confidential information affecting third parties; (iii) documents to be submitted; (iv) limitation periods for the imposition or enforcement of penalties; and (v) methods for collecting fines or periodic penalty payments. ESMA considers that a panel or committee should be appointed to carry out particular steps of the procedure, considering this to achieve a more effective process. Comments are invited by 15 November 2013. ESMA has also updated its Q&As on the implementation of EMIR, which were last updated in August 2013. CRD IV The European Banking Authority has published a consultation paper on the applicable notional discount rate for variable remuneration under CRD IV. CRD IV establishes that the variable component shall not exceed 100% of the fixed component of the total remuneration for those categories of staff whose professional activities have a material impact on the risk profile of the institution. Member States may set a lower maximum percentage. A higher ratio of up to 200% may be allowed, subject to shareholder approval. When calculating the ratio between variable and fixed component, Member States may allow institutions to apply a discount rate of 25% (or less subject to national laws) of the variable remuneration, provided the latter is paid in instruments that are deferred over a period of not less than five years. The consultation period ends on 18 January 2014. The EBA will finalise the draft guidelines at the beginning of 2014. LIBOR re-fixing BBA LIBOR Ltd (BBALL) and the Interim LIBOR Oversight Committee (ILOC) have published a joint consultation paper on the proposed introduction of intraday re-fixing for LIBOR. Re-fixing allows the administrator of a financial benchmark to take account of late submissions or calculation errors that it may have been notified to it after the initial fixing of the daily rate. In the case of intraday re-fixing, the refixed value is published several hours later that same day. The consultation paper analyses what LIBOR re-fixing would entail and seeks views on its introduction. The consultation closes on 30 November 2013. Meanwhile, the CEO of ISDA has said that moving away from LIBOR as a
  3. 3. benchmark in OTC derivatives transactions would be difficult because of pervasiveness of the rate and a lack of better alternatives. IOSCO second hedge fund survey IOSCO has published the findings of its second hedge fund survey, which provides an overview of the hedge fund industry as of September 2012. The report covers: (i) qualifying funds, noting that hedge fund managers and advisers are predominately located in the US and the UK; (ii) investment strategy, and the report indicates that the single most represented strategy among active funds is equity-oriented, with macrooriented and multi-strategy funds also being significant; (iii) use of leverage and market exposure; and (iv) liquidity risk, where the survey suggests that under current market conditions, few funds actually need to restrict investor liquidity. IOSCO will continue to promote the collection of comparable hedge fund data among regulators with the aim of creating an internationally consistent approach. Data collection for the next survey will begin in September 2014. CFTC revised position on limits rule The CFTC is apparently considering dropping its legal defense of a rule limiting the positions that financial firms can take in commodities speculation. The rule is one of the most controversial parts of the DoddFrank law and would compound the regulatory troubles facing Wall Street's role in physical commodity markets. Banks had complained they were facing high costs as a result of the rule because they needed to keep track of commodity positions held by affiliate businesses as soon as they owned more than just 10 percent of the shares. The CFTC's new rule will contain a better legal justification to conform with the court's ruling that the agency had failed to prove that the limits were needed and will better weigh the costs and benefits of the rule. The rule will allow an exemption from the limits for companies in which banks own up to 50 percent, as long as the bank can prove it does not control those units. European Commission 2014 work programme The European Commission has outlined its 2014 work programme, which sets out the legislative and non-legislative initiatives in detail. The following legislative proposals in respect of financial services are included in Annex 1 as priority items: MiFID II, the single resolution mechanism (SRM), European long-term investment funds (ELTIFs) and the fourth money laundering directive (MDL4). The forthcoming initiatives listed in Annex 2 include, in relation to financial services, a legislative or non-
  4. 4. legislative initiative following the Commission's Green Paper on the longterm financing of the EU economy. The main policy objective is to increase the supply of capital to long-term investment. This may require adapting or changing framework conditions, and in particular financial markets regulation, to ensure that financial markets are better able to provide long-term finance. The Commission has also published a list of roadmaps for its 2014 initiatives. European Parliament proposals The European Parliament has published a provisional edition of the text of the adopted resolution on organised crime, corruption and money laundering. The resolution sets out an EU action plan for 2014-19 on organised crime, corruption and money laundering for the Parliament, the European Commission and the EU Council. The European Parliament has also updated its procedure files on the legislative proposals for MiFID II and the CSD Regulation for central securities depositaries. The procedure file for the proposed MiFID II Directive (including MiFIR) indicates that the Parliament will now consider these legislative proposals in its plenary session to be held from 9 to 12 December 2013, rather than 24 to 27 February 2014 as previously indicated. The procedure file for the CSD Regulation now indicates that the Parliament will consider the legislative proposal in its plenary session to be held from 13 to 16 January 2014, rather than 3 to 6 February 2014. FATF summary FATF has published a summary of its plenary meeting held in Paris from 16 to 18 October 2013. At the meeting, among other things, FATF published the following documents as part of the FATF's ongoing work to identify jurisdictions that may pose a risk to the international financial system: (i) a public statement on jurisdictions with strategic anti-money laundering (AML) and combating the financing of terrorism (CFT) deficiencies; and (ii) a document listing those jurisdictions with strategic AML/CFT deficiencies for which an action plan has been developed with FATF. It also approved and published a best practices paper on the use of the FATF recommendations to combat corruption, which aims to provide policy makers and practitioners with guidance and best practices on how AML/CFT measures can be used to combat corruption.
  5. 5. Single Supervisory Mechanism (SSM) The ECB has published a transcript of Q&As concerning the comprehensive assessment of large banks that the ECB is to carry out in advance of assuming full responsibility for supervision as part of the SSM. The transcript comments on: (i) the importance of how the exercise is perceived and received by all stakeholders, not only the banks involved; (ii) the definitions of capital to be used for the individual parts of the exercise (i.e. the asset quality review and the stress test); (iii) the inclusion of sovereign bonds as part of the exercise; and (iv) the timetable for the exercise. The exercise will start in November 2013 and take 12 months to complete. We have taken great care to ensure the accuracy of this version of Euro Shorts. However, Euro Shorts is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from, action taken or refrained from on the basis of this publication. Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 www.cummingslaw.com 25 October 2013

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