ESMA Publishes Opinion on MiFIR II RTS on Ancillary Activities

ESMA has published an opinion proposing amendments to its draft technical standards (“RTS“) under the MiFID II Directive (2014/65/EU) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (MiFIR) relating to criteria to establish when a non-financial firm’s commodity derivatives trading activity is considered to be ancillary to its main business. The revised draft RTS are set out in an annex to the opinion.

In response to the draft text submitted by ESMA to the European Commission in September 2015, the Commission requested that ESMA include in its RTS a capital-based test for groups that have undertaken significant capital investments in creating infrastructure, transportation or production facilities or groups that undertake activities or investments that cannot be hedged in financial markets.

ESMA maintains that its business activity test was in line with the objectives set out in MiFID II, and a capital based test has significant drawbacks. However, it has identified some metrics for a numerator and denominator that the Commission could use to construct a capital test as an alternative to ESMA’s main business test. In cases where a capital test is introduced, ESMA proposes to allow entities choose between performing the original main business test based on trading activity or a capital test to avoid putting small and medium-sized entities at a disadvantage. Opinion.

ESMA Consults on Draft Implementing Measures under the Benchmark Regulation

ESMA published a consultation paper (ESMA/2016/723) on the technical implementation of the proposed Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (“Benchmark Regulation“).

The proposals in the paper are based on the provisional text of the Benchmark Regulation published by the European Parliament in April 2016. The paper covers the five areas on which the Commission has requested advice, setting out the relevant provisions and their objectives, an explanation of the related policy issues and references to the relevant responses received to the discussion paper: some elements of the definitions, measurement of the use of critical and significant benchmarks, criteria for the identification of critical benchmarks, endorsement of a benchmark or family of benchmarks provided in a third country and transitional provisions. Consultation paper.

ESMA Publishes Final Report on Amendment of Draft RTS on Reporting Obligations under Article 26 of MiFIR

On May 4, 2016, The European Securities and Markets Authority (ESMA) published its final report requesting an amendment of ESMA draft regulatory technical standards (RTS) on transaction reporting under the Markets in Financial Instruments Regulation (MiFIR).

The draft RTS were submitted to the European Commission in September 2015. However, ESMA has since identified a need to amend Article 2 of RTS 22 as a result of an unintentional omission in the final stage of drafting.

The amendment relates to the list of instances that are not considered to be reportable transactions for the purposes of Article 26 of MiFIR. It resolves an unintended omission by adding acquisitions or disposals that are solely a result of a transfer of collateral to the list of exclusions from transaction reporting specified in Article 2(5) of RTS 22. It thus ensures that investment firms are not required to submit transaction reports for transfers of collateral, which ESMA concluded would be costly and bring no supervisory benefit. ESMA anticipates that the amendment will be taken into account in the context of the Commission’s endorsement of RTS 22.

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.