ICMA Issues Updated Legal Opinions On GMRA

On April 9, 2015, the International Capital Market Association (ICMA) published the 2015 legal opinions on the Global Master Repurchase Agreement (GMRA), the principal standard agreement used to document repo transactions.

The updated legal opinions cover both the enforceability of the netting provisions of the GMRA and the validity of the GMRA as a whole. The opinions are available to ICMA members from the ICMA website.

Delegated Regulation on RTS for Specification of Margin Periods of Risk Published in Official Journal

On April 16, 2015, the Commission Delegated Regulation (Regulation 2015/585) on regulatory technical standards (RTS) on the margin periods of risk (being the time period from the last exchange of collateral covering a netting set of transactions with a defaulting counterparty until that counterparty is closed out and the resulting market risk is re-hedged) used for the treatment of clearing members’ exposures to clients under the Capital Requirements Regulation (Regulation 575/2013) (CRR) (dated April 15, 2015), was published in the Official Journal of the EU (OJ).

European Commission Publishes Report on the Exercise of the Power to Adopt Delegated Acts Conferred on the Commission by Prospectus Directive

On April 13, 2015, the European Commission published a Report to the Council and the European Parliament on the exercise of the power to adopt delegated acts conferred on the Commission pursuant to Directive 2003/71/EC of the European Parliament and of the Council of November 4, 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC (Prospectus Directive).

The Commission Report concludes that while the Commission believes that the delegation of powers to it has been crucial to further develop the single rulebook and therefore establish more harmonized, high quality rules, the Commission has not used some of those powers yet. The Commission Report in this context notes that the provisions concerned will also form part of the PD review required by Article 4 of the PD II, by January 1, 2016. The Commission therefore considers that the EP and the Council should not revoke those delegations of powers in accordance with Article 24b of the PD, as it may need to use those powers to adopt certain delegated acts in the future, in light of the developments on the financial markets.

Steps Towards a Capital Markets Union

The European Commission is consulting on a blueprint for creating a harmonized capital market across the EU, to facilitate capital raising in the EU while maintaining consumer and investor protection by simplifying the prospectus regime. The Commission is also consulting on an EU framework for securitization, hoping to improve credit information for SMEs, and is supporting the EU Private Placement Initiative. The consultation asks whether an EU private placement market should be created, with some of the same features as the successful US model for fixed rate debt instruments.

The review and capital markets union consultation will close on May 13, 2015, with a report expected by July 2015.  Overview.

EBA’s Recommendations to Non-EU and Review of EU Supervisory Authorities

The European Banking Authority has published a recommendation setting out its opinion on the confidentiality regime of several non-EU supervisory authorities to facilitate their participation in supervisory colleges overseeing international banks, led by EU supervisors.

The EBA expects all competent authorities to which the recommendation is addressed to comply with it and incorporate it into their supervisory practices as appropriate. The competent authorities must notify the EBA as to whether they have complied or intend to comply by June 2, 2015.

In a separate report, the EBA has identified that supervisory authorities across the EU have made significant progress towards improving the convergence of their supervisory practices since 2011 though some differences remain. The report covers the findings of an assessment carried out over the past 3 years, and focuses on Supervisory Review and Evaluation Process and assessment of risks, supervisory stress testing, ongoing review of internal models, and supervisory measures and powers.

ESMA to Centralize Instrument Reference and Trade Repositories Data

The European Securities and Markets Authority (“ESMA”) has launched two major projects at the request of a number of National Competent Authorities (“NCAs”): the Instrument Reference Data Project and the Trade Repositories Project. The former envisages ESMA providing a central facility in relation to instrument and trading data and the calculation of transparency and liquidity thresholds required in relation to the Markets in Financial Instruments Regulation (“MiFIR”), while under the latter ESMA is to provide a single access point to trade repositories data under EMIR.

The request involves a delegation of some of the NCAs’ tasks related to data collection requirements under MiFIR and the Market Abuse Directive to ESMA, as well as the creation of a central access point for regulators to data of the EU’s six trade repositories. ESMA will collect data directly from market infrastructures, and make it available to NCAs and the public through a centralized system. Centralization of these functions is expected to save on costs compared with building similar systems in each country, lowering the burden on the financial system and EU taxpayers, while also working towards harmonization and support of the single market. The Instrument Reference Data Project is expected to go live in early 2017, and the Trade Repositories Project in 2016.

Benchmarks: Agreement Reached on ECON Committee

On March 31, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) adopted its report on benchmarks. Key issues include: The Economic and Monetary Affairs Committee backed a draft EU law to make the benchmarks more trustworthy. The text aims to clean up the benchmark-setting process by curbing conflicts of interest like those that led to the London Interbank Offered Rate (LIBOR) rigging scandals of recent years. The setting of critical benchmarks that affect more than one country would be overseen by a “college” of supervisors, including the European Securities and Markets Authority (ESMA) and other competent authorities.

Curbing critical conflicts of interest

The draft law aims to curb conflicts of interest in setting “critical” benchmarks, such as LIBOR and EURIBOR, which, by influencing financial instruments and contracts with an average value of at least €500 billion, could affect the stability of financial markets across Europe.

The final decision on whether a benchmark is “critical” would be up to ESMA and national authorities, but a national authority could also deem a benchmark administered within its territory to be critical if it has a “significant” impact on the national market.

Critical benchmark administrators would have to have a clear organizational structure to prevent conflicts of interest, and be subject to effective control procedures.

Critical benchmark-setting data would have to be verifiable and come from reliable contributors who are bound by a code of conduct for each benchmark. Contributors, such as banks contributing data needed to determine a critical benchmark, would have to notify the benchmark administrator and the relevant authority if they wished to cease doing so, but would nonetheless have to continue doing so until a replacement were found.

Transparency requirements

All benchmark administrators would have to be registered with the ESMA and would have to publish a “benchmark statement” defining precisely what their benchmark measures and to what extent it is reliable. They would also have to publish or disclose existing and potential conflicts of interest and meet accountability, record keeping, audit and review requirements.

The text will be put to a vote by Parliament as a whole to consolidate Parliament’s position before its three-way negotiations with EU member states and the European Commission.

European Parliament’s Committee on Economic and Monetary Affairs (ECON) Adopted its Report on Securities Financing Transactions

March 24, 2015 – the European Parliament’s Committee on Economic and Monetary Affairs (ECON) adopted its report on securities financing transactions (SFTs). This document reflects ECON’s final position on measures to monitor the build-up of risk related to SFTs, disclosure of information on such transactions to investors, and contractual transparency requirements for re-hypothecation activities. Special attention is given to the exemption of title transfer collateral arrangements (such as the ISDA credit support documentation) from the transparency requirements in Art. 15.1a. This exemption is helpful as different political groups (eg, Socialists and Greens) and the European Commission (EC) previously supported wording that failed to adequately reflect the difference between title transfer and security interest arrangements. The Council of the European Union, European Parliament and EC will now attempt to reach an agreement before September.

Markets in Financial Instruments Directive II and Markets in Financial Instruments Regulation

March 10, 2015 – the FCA published an updated timetable relating to the implementation of the Markets in Financial Instruments Directive II (MiFID II”) and Markets in Financial Instruments Regulation (“MiFIR”). The timetable sets out the key dates for the implementation and transposition of the Directive and Regulation into domestic law. The deadline for transposing MiFID II into domestic law is July 3, 2016. MiFID II and MiFIR enter into force on January 3, 2017. The FCA aims to publish its main consultation paper on the implementation of MiFID II and MiFIR in December 2015. The final rules are to be published in June 2016. The FCA’s timetable is available on its dedicated webpage here.