Euro shorts 15.11.13 including trade repositories, short selling and the FTT


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Euro shorts 15.11.13 including trade repositories, short selling and the FTT

  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 EMIR ESMA has announced that it has approved the registrations of the first four trade repositories, namely: DTCC Derivatives Repository Limited and UnaVista Limited, each based in the UK, Krajowy Depozyt Papierów Wartosciowych S.A. based in Poland and Regis-TR S.A., based in Luxembourg. Registration means that the TRs can be used by counterparties to derivatives transactions to fulfil their trade reporting obligations under EMIR. The registrations will take effect on 14 November 2013, triggering the start of the EMIR reporting obligation on 12 February 2014 (i.e. 90 days after the official registration date). EMIR Q&As ESMA has also updated its Q&As on the implementation of EMIR, which are aimed at competent authorities to promote common supervisory approaches and practices to the application of EMIR across the EU. The updated or modified Q&As relate to the calculation of the clearing threshold, risk mitigation techniques for contracts not cleared by a CCP, segregation and portability, reporting of collateral and valuation and portfolio reconciliation. The Q&As were originally published in March 2013 and were last updated in October 2013.
  2. 2. Financial Transaction Tax considered unlikely A German deputy party leader has said this week that he does not believe the FTT will be enacted in Germany, even though coalition negotiators have agreed to push for the tax. He considers that such a move would have devastating consequences for Germany’s financial centres and that it is unlikely that there will be an international resolution on the tax. In another report, a former advisor to Nicolas Sarkozy has said that he sees a contradiction in the French finance minister’s call for support from French banks for the Paris stock exchange (as ICE prepares to buy NYSE Euronext) and the FTT, as he is unable to see a reason for backing the new Euronext with a potential tax undermining it. Major banks in the EU have apparently been lobbying against the FTT amid reports that the proposed standard rate tax of 0.1% on transactions may be lowered and the tax itself introduced more gradually. Short Selling Regulation The Advocate General has concluded in United Kingdom v Council and Parliament that Article 28 of the Short Selling Regulation should be annulled. Under Article 28, ESMA is granted powers to intervene in the financial market of a Member State in the event of a threat to the orderly functioning and integrity of financial markets or to the stability of the whole or part of the financial system in the EU. During the legislative process for the Regulation, the UK had expressed concerns that Article 28 would be unlawful, abstaining during the EU Council vote on adoption of the Regulation, and had brought an action against the Council. In the case, the Advocate General concluded that Article 114 of the Treaty on the Functioning of the European Union (TFEU) should not have been relied upon as a basis for conferring decision making powers on ESMA under Article 28, but that Article 352 TFEU would, instead, have been an appropriate legal basis for Article 28 and Article 28 should therefore be annulled. The annulment is unlikely to be of great significance to market participants, given that ESMA's powers under the Article could only have been exercised in the limited circumstances above. Early introduction of ‘bail-in’ of creditors rules Following demands from Germany, the EU appears likely to push ahead for the early introduction of rules which would allow it to impose losses on bank creditors, including both bondholders and savers with more than €100,000. The so-called ‘bail-in’ of creditors rules are the most marketsensitive part of banking union and Germany has demanded their early introduction in return for giving its full backing for the project to police and support banks in the Eurozone. The rules were originally planned to be
  3. 3. introduced in 2018, but they are now to be finalised in the coming weeks so as to be available for next year’s ECB health checks, discussed in previous Euro Shorts. The ECB is in favour of early introduction, stating that moving forward the date would provide certainty to investors. Basel III The Financial Stability Board has said that JP Morgan and HSBC topped the list of the world's top 29 banks that must hold extra capital from 2016 because of their size and reach. The two banks are in the top ‘bucket’ and will have to hold an extra 2.5% of risk-weighted core capital on top of the 7% minimum which all banks must hold by 2019 under the Basel III accord. Barclays, BNP Paribas, Citigroup and Deutsche Bank have been placed into the 2% surcharge bucket and BoA, Credit Suisse, Goldman Sachs, Credit Agricole, Mitsubishi UFJ, Morgan Stanley and Royal Bank of Scotland and UBS face a 1.5% surcharge. Next year's list from the FSB in November will determine which banks will actually have to comply with the new surcharge rule from 2016. UCITS V The Presidency of the EU Council has published a compromise proposal relating to the Commission’s legislative proposal on UCITS V, published on 3 July 2012. UCITS V consists of proposed reforms to the UCITS regime intended to address issues relating to the depositary function, manager remuneration and administrative sanctions. The cover note for the compromise proposal states that only the changes introduced following the working party meeting of 21 October 2013 have been marked up. This follows an earlier compromise proposal published on 11 December 2012. CRD IV The European Banking Authority has published its final draft ITS for supervisory reporting on asset encumbrance as required under the CRR. The ITS follow specific recommendations by the European Systemic Risk Board for harmonised templates and definitions to facilitate the monitoring of asset encumbrance across EU institutions. The confirmed implementation dates are 30 June 2014 for institutions with assets above €30 billion (so first reporting will be due in August 2014) and 31 December 2014 for all the others. The asset encumbrance reporting requirements add additional complexity to the level of reporting in relation to COREP, FINREP, large exposures, leverage ratio and liquidity.
  4. 4. European Financial Supervision ESMA has published a letter regarding its views on the operation of the European System of Financial Supervision (ESFS) and sets out its proposals for improvement. It asks the Commission to take its views into account in the review of the ESFS that the Commission is currently undertaking. ESMA's proposals include: (i) as timing for level 2 work deserves more consideration when level 1 initiatives are being developed, a timetable should be prepared, together with advice on which level 2 measures are most critical to the operation of the level 1 initiative; (ii) the introduction of new tools for providing temporary relief, as recent legislative acts have introduced several provisions, such as clearing obligations, publication of post-trade information, and reporting to trade repositories, which need to be applied simultaneously across markets. Neither ESMA nor the national competent authorities have the power to modify or suspend these obligations to reflect, for example, a swift change in market circumstances; (iii) ESAs should be provided with a stronger mandate and adequate resources to allow for the collection of information and the development of a comprehensive IT function to ensure that there is further harmonisation of available information across regulatory authorities; and (iv) the Commission should consider increasing the funding ESMA receives from entities that require ESMA's intervention. CFTC swap execution facility rules The recent swap execution facility rules brought in by the CFTC have seemingly slowed down the movement of the FX trading market towards multi-dealer platforms. The rules call for certain FX exchange trading instruments, such as non-deliverable forwards, to be executed under SEF rules, but uncertainty as regards complying with the rules and how the new environment will affect the market has caused the movement to multi-dealer platforms to stall. The platforms, as regulated by the CFTC, launched at the beginning of October, but users will not be mandated to trade on-SEF until mid-February at the earliest. Market participants have apparently asked the CFTC to issue further guidance regarding the functionality of the swaps market post SEF-implementation, but the last formal guidance was published prior to the October deadline.
  5. 5. Cummings Tel: + 44 20 7585 1406 Mob: + 44 7734 057 327 15 November 2013