ESMA Publishes Principles on Stakeholder Engagement in Peer Reviews

On April 15, the European Securities and Markets Authority (“ESMA”) published a paper on stakeholder engagement in peer reviews.

The paper sets out six high-level principles guiding the interaction with stakeholders with the objective of obtaining background information relevant for the peer review:

  • What entities are considered as stakeholders in the context of a peer review?
  • Who decides if interaction with stakeholders is needed?
  • When does this decision need to be taken? Must national competent authorities (“NCAs“) accept the fact of stakeholder engagement?
  • If an NCA may decline such a possibility, does an NCA need to explain why it would not want to have stakeholder engagement for a particular peer review?
  • How is the interaction organized and how are the stakeholders chosen?
  • What use is made of the outcome of the stakeholder interaction?

The principles contribute to ESMA’s commitment to focus on supervisory convergence in 2016. ESMA may in the future, in light of its experience, prepare a set of procedures for stakeholder engagement in peer reviews, which could be annexed to the Methodology for peer reviews (ESMA/20131709). Paper.

ESMA Publishes New Q&A on CFDs and Other Speculative Products

The European Securities and Markets Authority (ESMA) has published a new question and answer document (ESMA/2016/590) on the application of MiFID to the marketing and sale of financial contracts for difference (CFDs) and other speculative products to retail clients.

ESMA explains that, although CFDs and other speculative products (such as binary options and rolling spot forex) are complex products, they are widely advertised to the retail mass market by a number of firms, often through online platforms. The Q&A document is designed to promote common supervisory approaches and practices in the application of MiFID and its implementing measures to key aspects that are relevant when CFDs and other speculative products are sold to retail clients. Although they are targeted at competent authorities, the answers are also intended to help firms by providing clarity on MiFID requirements.

ESMA has also added that, while the Q&A refer to MiFID, the principles and requirements underpinning the content of the document will remain unchanged once MiFID II enters into application.

European Commission Adopts Delegated Directive Supplementing MiFID II

On April 7, 2016, the European Commission adopted a Delegated Directive supplementing MiFID II regarding the safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision of reception of fees, commissions or any monetary or non-monetary benefits (i.e. inducements).

The aim of the draft Delegated Directive is to specify further the following MiFID II rules and details for their implementation:

  • The safeguarding of clients’ financial instruments and funds;
  • Product governance obligations for investment firms manufacturing or distributing financial instruments (or both);
  • The provision or reception of inducements.

The draft Delegated Directive is based on the final technical advice on MiFID II and MiFIR provided to the Commission by ESMA in December 2014. The Council of the EU and the European Parliament will now consider the Delegated Directive. If neither of them object, it will enter into force twenty days after publication in the Official Journal.

ESMA Consults on Guidelines on Disclosure of Information on Commodity Derivatives Markets or Related Spot Markets under MAR

On March 30, the European Securities and Markets Authority (“ESMA”) opened a public consultation on draft guidelines under the Market Abuse Regulation (“MAR”).

ESMA is consulting on its proposed non-exhaustive indicative list of information expected or required to be published on commodity derivatives markets or spot markets for the purposes of determining inside information regarding commodity derivatives and of triggering the prohibitions for insider dealing.

Under MAR, inside information in relation to commodity derivatives must relate to either the commodity derivatives themselves or to the related spot commodity contract. However there is a wide variety of commodities markets and commodity derivatives markets which may require distinguishing between types of information specific to these markets. ESMA is giving further consideration to the scope of the instruments or products concerned.

ESMA will consider all comments received by May 20. Consultation Paper.

Commission Sends MiFID II Draft RTS Back to ESMA for Revision

On March 17, Markus Ferber, MEP, the European Parliament’s Rapporteur for MiFID II, published a press release announcing that the European Commission had sent back to European Securities and Markets Authority (“ESMA”) the draft regulatory technical standards (RTS) on non-equity transparency, the ancillary activity exemption, and position limits for commodity derivatives for further revision to take the Parliament’s position more thoroughly into account.

Mr. Ferber explains that the latest draft RTS were not acceptable to the Parliament, especially the position limits regime, which he believes urgently needs a comprehensive redrafting to effectively curb food speculation. He believes that the latest drafts were not up to standard and would not have solved the problem at all.

Mr. Ferber expects ESMA to revisit the technical standards swiftly, thoroughly and to adapt them in line with the Parliament’s remarks. However, the redrafting must not further delay the overall MiFID II timeline. He adds that, since the Parliament’s concerns were known and available for quite some time, the Commission and ESMA could easily have acted earlier.

ESMA Practical Guidance on its Recognition of Third Country CCPS

European Securities and Markets Authority (“ESMA”) has published practical guidance on the recognition by it of third country central counterparties (CCPs) under EMIR (ESMA/2016/365). The guidance is dated March 17, 2016.

The guidance covers the following phases in the application process:

  • Communications with ESMA before submitting an application for recognition.
  • Timeframe for submission of an application.
  • Submission of an application, including format, number of copies and language.
  • ESMA’s acknowledgement of the receipt of an application.
  • Information on the calculation of deadlines set by ESMA.
  • Assessment of completeness, requests for additional information and notification of completeness.
  • ESMA’s examination of the application.
  • ESMA’s decision on the recognition application.
  • Publication on ESMA’s website.

ESAs Publish Final Draft Technical Standards on Margin Requirements for Non-Centrally Cleared Derivatives

The Joint Committee of the European Supervisory Authorities (EBA, EIOPA, ESMA) (“ESAs“) has published final draft Regulatory Technical Standards (“RTS“) outlining the framework of the European Market Infrastructure Regulation (EMIR). The RTS cover the risk mitigation techniques related to the exchange of collateral to cover exposures arising from non-centrally cleared OTC derivatives. They also specify the criteria concerning intragroup exemptions and the definitions of practical and legal impediments to the prompt transfer of funds between counterparties.

The draft RTS prescribe that, for OTC derivatives not cleared by a Central Counterparty, counterparties have to exchange both initial and variation margins. This will reduce counterparty credit risk, mitigate any potential systemic risk and ensure alignment with international standards. The draft RTS outline the list of eligible collateral for the exchange of margins, the criteria to ensure the collateral is sufficiently diversified and not subject to wrong-way risk, as well as the methods to determine appropriate collateral haircuts. The draft RTS also lay down the operational procedures relating to documentation, legal assessments of the enforceability of the agreements and the timing of the collateral exchange, as well as the procedures for counterparties and competent authorities related to the treatment of intragroup derivative contracts.

European Commission Adopts Delegated Regulation Relating to EMIR Clearing Obligations for Certain Credit Derivative Contracts

On March 1, the European Commission adopted a Delegated Regulation supplementing the European Union regulation on derivatives, central counterparties and trade repositories (“EMIR”).

EMIR requires mandatory clearing of certain over-the-counter (“OTC”) derivatives. The European Securities and Market Authority (ESMA) is required under EMIR to propose the classes of OTC derivatives that should be subject to clearing, as well as the different dates from which the clearing obligation will take effect for the different types of counterparties identified.

OTC derivative contracts concluded between the first authorisation of a central counterparty under EMIR and the later date on which the clearing obligation actually takes effect are also subject to clearing, unless they have a remaining maturity lower than the minimum remaining maturities which are to be laid down in the regulatory technical standards (Frontloading Requirement).

The Delegated Regulation determines the classes of the credit default swaps OTC derivative contracts that are subject to the clearing obligation and four different categories of counterparties for which different phase-in periods apply.

The Delegated Regulation also lays down the minimum remaining maturities for the purposes of the Frontloading Requirement as well as the dates on which the frontloading should start.  Delegated Regulation.

Delegated Regulation Adopted Under Market Abuse Regulation

On February 26, the European Commission adopted a Delegated Regulation supplementing the Market Abuse Regulation (No. 596/2014) (“MAR“) laying down regulatory technical standards on accepted market practice.

MAR defines “accepted market practice” as a specific market practice that is accepted by a competent authority of a member state (Article 3(1) MAR). ESMA is required to develop draft regulatory technical standards specifying the criteria, procedure and requirements for establishing an accepted market practice and the requirements for maintaining or terminating it or modifying the conditions for its acceptance. The Delegated Regulation provides for a list of “supervised persons” for the purposes of the Delegated Regulation, and lays down requirements for establishing an accepted market practice.

The Council of the EU and European Parliament are expected to review and consider the Delegated Regulation. Provided there are no objections the Delegated Regulation will apply from July 2, 2016.

Commission Extends by One Year the Application Date for the MiFID II Package

On February 10, the European Commission published a press release announcing it is proposing a one year extension to the application date of the MiFID II legislative package (that is, the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR).

To implement its proposal, the Commission has published:

  • A legislative proposal for a Directive amending the MiFID II Directive as regards certain dates.
  • A legislative proposal for a Regulation amending MiFIR, the Market Abuse Regulation (Regulation 596/2014) (MAR) and the Regulation on improving securities settlement and regulating central securities depositories (CSDs) (Regulation 909/2014) (CSDR) as regards certain dates.

Member states must transpose the MiFID II Directive by July 3, 2016. Both the MiFID II Directive and MiFIR are scheduled to apply from January 3, 2017. Under the Commission’s proposal, national competent authorities (NCAs) and market participants will have an additional year to comply with MiFID II. The proposed new application date is January 3, 2018.

The Commission is proposing the application date extension as a result of the complex technical data infrastructure that needs to be established so that MiFID II can operate effectively. As a result of significant challenges in collecting the data that is needed, ESMA informed the Commission in October 2015 that neither NCAs nor market participants will have the necessary systems ready by January 3, 2017. As a result, ESMA has concluded that a delay is unavoidable.

In the light of these exceptional circumstances, and to avoid legal uncertainty and potential market disruption, the Commission considers an extension of the MiFID II application date is necessary.