The European Securities and Markets Authority (“ESMA“) published an updated version on November 14, 2017, of its Q&As on data reporting under the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MiFIR“).
The updated version includes new answers (in section 15: transaction reporting) relating to:
Following the European Securities and Markets Authority‘s (“ESMA“) observation in rapid-growth initial coin offerings (“ICOs“)s, on November 13, 2017, ESMA issued two statements on ICOs.
ESMA notes in a statement for firms that where ICOs qualify as financial instruments, it is likely that the firms involved in ICOs will be conducting regulated investment activities, whereby they need to comply with the relevant legislation, including:
ESMA stresses that any failure by firms to comply with the applicable rules will constitute a breach. Firms involved in ICOs must give due consideration as to whether their activities constitute regulated activities.
A statement for investors by ESMA also alerts them of the high risk of losing all of their invested capital as ICOs are highly speculative investments. ICOs are vulnerable to the risk of fraud or money laundering.
Depending on how they are structured, ICOs may fall outside of the scope of EU law and regulations, in which case investors cannot benefit from the protection that these laws and regulations provide. Also, the price of the coin or token is typically extremely volatile, and investors may not be able to redeem them for a prolonged period.
The European Securities and Markets Authority (“ESMA“) published a press release on November 13, 2017 clarifying the application of the trading obligation for shares to trade certain instruments on-venue under the MiFID II Directive (2014/65/EU).
The press release contains a Q&A about the scope of the trading obligation where there is a chain of transmission of orders. ESMA explains that Article 23(1) of the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MiFIR“) determines the scope of the trading obligation for shares admitted to trading on a regulated market or traded on a trading venue by requiring investment firms to ensure that trades they undertake in shares take place on a regulated market systematic internalizer, multilateral trading facility (MTF), or equivalent third-country venue.
Where there is a chain of transmission of orders concerning those shares, all EU investment firms that are part of the chain should ensure that the ultimate execution of the orders complies with the requirements under Article 23(1) of MiFIR.
The European Commission is preparing equivalence decisions for non-EU jurisdictions whose shares are traded systematically and frequently in the EU. However, the absence of an equivalence decision relating to a particular venue indicates that the Commission currently has no evidence that the EU trading in shares admitted to trading in that third country’s regulated markets can be considered as systematic, regular and frequent.
On September 29, 2017, ESMA published a consultation paper on draft guidelines for non-significant benchmarks under the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (Regulation (EU) 2016/1011) (Benchmarks Regulation or BMR).
The BMR envisages that ESMA may issue guidelines setting out the obligations that will apply to non-significant benchmarks in four areas. A separate chapter is dedicated to each area in the consultation paper, summarizing the proposed content of the guidelines for each, as well as outlining the objectives and policy issues:
The first three areas listed above apply to administrators of non-significant benchmarks, and the fourth to supervised contributors to non-significant benchmarks.
The proposals in the consultation paper impose lighter requirements for non-significant benchmarks (and their administrators and supervised contributors) in relation to the relevant areas than those for significant benchmarks. ESMA submitted its draft regulatory and implementing technical standards applicable to critical and significant benchmarks to the European Commission in March 2017.
The deadline for comments on the draft guidelines is November 30, 2017.
On September 29, 2017, Reuters.com reported on comments by Stephen Maijoor, ESMA Chair, on the implementation of MiFID II and Brexit.
Mr. Maijoor believes that while implementation of the new rules under the MiFID II Directive (2014/65/EU) and Markets in Financial Instruments Regulation (Regulation 600/2014) may trigger some glitches, broader disruption is not anticipated.
Reuters.com also reports that the FCA has said that it would not punish firms for “not meeting all requirements straight away where there is evidence they have taken sufficient steps to meet the new obligations by the start date”. Mr. Maijoor further commented that it is likely that regulators would look differently on a violation on January 4, 2018, from one at a later date.
Regarding Brexit, Mr. Maijoor observed that MiFID II had been designed on the basis that the most liquid European market would indeed be within the EU. Depending on how Brexit negotiations progress, he believes that the exit of the UK from the single market would affect some elements of MiFID.
According to Mr. Maijoor, ESMA has begun assessing the impact of a possible “hard” Brexit on the stability of the EU’s securities market. This includes considering the position of credit rating agencies (CRAs) and trade repositories (both of which ESMA directly regulates), and protection for EU investors in UK-based mutual funds.
On September 29, 2017, the European Parliament’s Economic and Monetary Affairs Committee (“ECON“) published two draft reports relating to the European Commission’s proposed revisions to the Bank Recovery and Resolution Directive (2014/59/EU) (BRRD) and to the implementation in the EU of the Financial Stability Board’s total loss absorbing capacity (TLAC) standard (BRRD II):
Each of the draft reports contains a Parliament legislative resolution on the proposed Regulation and Directive (as applicable), which suggests amendments to the European Commission’s original legislative proposal. They also each contain an explanatory statement by the rapporteur Gunnar Hökmark.
Next, ECON will vote to finalize the draft reports before they are considered by the Parliament.
Alterations related to insolvency rankings are necessary to integrate the TLAC standard requirements into the BRRD. In June 2017, ECON published a draft report on the Commission’s proposed Directive amending the BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy (the proposed Insolvency Hierarchy Directive).
As part of a package of banking reforms, the Commission published the proposed Directive in November 2016. The EU institutions have agreed to fast-track this proposal. The Council of the EU agreed to its general approach on the proposed Directive in June 2017 and, at that time, stated that it hoped the Parliament would be able to start negotiating by the end of 2017.
On September 26, 2017, the European Commission published Delegated Regulation (C(2017) 6337 final), which it has adopted to amend Delegated Regulation (EU) 2017/571, which supplements MiFID II Directive (2014/65/EU) with regulatory technical standards (RTS) on authorization, organizational requirements and the publication of transactions for data reporting services providers.
The amending Delegated Regulation sets out RTS specifying the scope of the consolidated tape for non-equity financial instruments under MiFID II.
The RTS reflect a mandate given to ESMA under Article 65(8)(c) of the MiFID II Directive. ESMA submitted its draft RTS to the Commission in March 2017.
Next, the Council of the EU and the European Parliament will consider the Delegated Regulation. If neither of them objects, the amending Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU (OJ). It is stated as applying from January 3, 2018, except for:
Articles 14(2), 15(1), (2) and (3), and 20(b) (that is, the provisions on the non-equity tape of Article 65(2)), which will apply from September 3, 2019.
An amendment to EMIR entitled Commission Delegated Regulation (EU) 2017/610 was published in the Official Journal of the EU (“OJ“). The Delegated Regulation concerns the extension of transitional periods relating to Pension Scheme Arrangements (“PSAs“) and was adopted by the European Commission on December 20, 2016. The Delegated Regulation came into force the day after it was published in the OJ, being April 1, 2017.
On March 31, 2017, the European Commission published a draft version of an Implementing Regulation on the extension of the transitional periods related to own funds requirements for exposures to Central Counterparties (“CCPs“), set out in the Capital Requirements Regulation (Regulation 575/2013) (“CRR“) and EMIR.
The Commission adopted an initial Implementing Regulation (Regulation 591/2014) in June 2014, extending the 15-month periods referred to in Article 497(1) and (2) of the CRR and in the first and second subparagraphs of Article 89(5)(a) of EMIR by six months, to December 15, 2014. The most recent Implementing Regulation, adopted by the European Commission on December 9, 2016, extended the transitional periods to December 15, 2016.
To avoid market disruption and to prevent penalizing institutions by subjecting them to higher own funds requirements during the process of authorization and recognition of existing CCPs, the latest Implementing Regulation extends the transitional periods by an additional six months, to June 15, 2017.
On March 31, 2017, 28 Delegated Regulations supplementing the Markets In Financial Instruments Directive (“MiFID II“) (2014/65/Eu) and the Markets in Financial Instruments Regulation (Regulation 600/2014) (“MiFIR“) were published in the OJ, together with a Delegated Directive supplementing the MiFID. The Delegated Regulations will enter into force 20 days after their publication in the OJ (that is, April 20, 2017). They will apply from January 3, 2018, with the exception of certain provisions in Delegated Regulations 2017/567, 2017/571, 2017/581, 2017/583, 2017/587, 2017/588 and 2017/590.
The Delegated Regulations are:
Commission Delegated Regulation (EU) 2017/592 of December 1, 2016, supplementing MiFID II with regard to RTS for the criteria to establish when an activity is considered to be ancillary to the main business.
