otc

SEC Announces Three New Rulemakings

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On September 26, the Securities and Exchange Commission (SEC) announced three significant rulemakings. Summarized in a Public Statement by Chairman Jay Clayton, they are designed to achieve the following objectives.

  • The Modernization of the Approval Framework for ETFs. This new rule: “(1) sets forth a clear and consistent framework that will allow exchange-traded funds (ETFs) meeting certain standardized conditions to come to market without obtaining an individualized exemptive order, and (2) amends certain forms to enhance disclosures for investors.”
  • The Expansion of “Testing-the-Waters” Communications to All Issuers. This new rule: “will extend to all issuers the flexibility provided by the JOBS Act to communicate with institutional investors about potential IPOs and other registered offerings to better gauge market interest.”
  • The Enhancement of the Regulation of the OTC Markets. These proposed amendments to the rules governing the publication of quotations for over-the-counter (OTC) securities are “designed to better protect investors from fraud and manipulation, while at the same time facilitating more efficient OTC trading in certain well-capitalized issuers.”

Chairman Clayton emphasized that these rulemakings “share common themes.” Foremost, they “modernize decades-old regulations . . . taking account of our experience, advances in communications technology and changes in the operation of our markets.” Significantly, these “common sense actions better align our regulations with the preferences and investor protection interests of our long-term Main Street investors, while also facilitating capital formation.”

European Commission Adopts Delegated Regulation on RTS on Minimum Details of Data to Report to Trade Repositories

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On October 19, 2016, the European Commission adopted a Delegated Regulation amending Delegated Regulation 148/2013 supplementing EMIR (Regulation 648/2012) as regards regulatory technical standards (RTS) on the minimum details of the data to be reported to trade repositories (C(2016) 6624 final).

EMIR requires all counterparties and central counterparties (CCPs) to report the details of any OTC derivative contract they have concluded and of any modification or termination of the contract to a trade repository.

The Delegated Act updates existing standards that were published in the Official Journal of the EU (OJ) in February 2013 (see Legal update, Delegated regulations on EMIR regulatory technical standards published in Official Journal). It reflects recent developments and experience gained in the area of trade reporting. The revised RTS aim to:

  • Introduce new fields and values to reflect market practice or other necessary regulatory requirements.
  • Clarify data fields, their description or both.
  • Adapt existing fields to the reporting logic prescribed in existing Q&As or reflect specific ways of populating them.

The Commission has also published an Annex, which sets out the counterparty data and common data details to report to trade repositories.

The next step is for the Council of the EU and the European Parliament to consider the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will enter into force 20 days after its publication in the OJ.

European Commission Adopts Delegated Regulation on RTS on Risk Mitigation Techniques for Uncleared OTC Derivative Contracts under EMIR

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On October 4, 2016, the European Commission adopted a Delegated Regulation supplementing EMIR (the Regulation on OTC derivatives, CCPs and trade repositories) (Regulation 648/2012) with regulatory technical standards (“RTS”) on risk mitigation techniques for uncleared OTC derivative contracts, together with related Annexes (C(2016) 6329 final).

The Delegate Regulation sets out the levels and types of collateral that OTC derivatives counterparties must exchange bilaterally if the transaction is not cleared through a central counterparty (“CCP”). In the event that one counterparty to the transaction defaults, the margin collected will protect the non-defaulting counterparty against resulting losses.

The Joint Committee of the European Supervisory Authorities (ESAs) submitted the final draft RTS to the Commission in March 2016. In July 2016, the Commission informed the European Banking Authority that it intended to endorse the draft RTS with some amendments, including in relation to the concentration limits for pension scheme arrangements and the timeline for.

The Council of the EU and the European Parliament will now consider the Delegated Regulation. If neither of them objects to it, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU.

Communiqué of the Ministers of Finance and Central Bank Governors of the G20

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On November 6, the Ministers of Finance and Central Bank Governors of the G20 published a communiqué following their meeting on November 4 – 5 in Mexico City. The communiqué stated that the G20 Ministers of Finance remain committed to the full, timely and consistent implementation of the financial regulation agenda, and in particular:

  • welcome the recent decision by European leaders to agree on a legislative framework for a single supervisory mechanism by January 1, 2013;
  • agree to put in place legislation and regulation for OTC derivatives reforms promptly, and to act by the end of 2012 to identify and address issues with the cross border application of existing rules;
  • commit to make the necessary changes to resolution regimes to allow for the resolution of systemically important financial institutions;
  • call for the publication of finalised policy measures for the oversight and regulation of shadow banking in time for the G20 St Petersburg summit on June 8, 2013;
  • are concerned about the slow progress towards a single set of high quality accounting standards; and
  • welcome action taken to address weaknesses and restore confidence in LIBOR and in other benchmark and index setting practices.

OTC Derivative Market Reforms – Financial Stability Board Progress Report

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On November 1, the Financial Stability Board (FSB) published the fourth in a series of progress reports on implementing OTC derivative market reforms. The report looks particularly at OTC market infrastructure across the FSB’s member countries, reviewing the ability to provide clearing services, collect and disseminate data and provide organised trading platforms.

The key messages contained in the report are:

  • market structure is already in place and can be scaled up without impeding progress in meeting G20 commitments for OTC derivatives trading, central clearing and reporting;
  • international  policy work on the four safeguards for global clearing is completed and implementation is proceeding at a national level; and
  • regulatory uncertainty remains the most significant impediment to further progress and to comprehensive use of market infrastructure.

The deadline for submitting feedback on the report is November 30.

FSA Update on Derivatives Reform

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On June 26, the FSA published a speech by David Lawton, FSA Acting Director of Markets, on recent progress made on derivatives reform. Speech.

Mr. Lawton reports that much has been achieved over the past year as regards meeting the G20 commitments to improve counterparty risk management and transparency in the over-the-counter (OTC) derivatives markets. In particular, the international standard setting bodies continue to facilitate the advancement of reforms across jurisdictions and industry has made good progress to increase standardisation of contracts and use of central clearing.

However, four outstanding areas remain:

  • rules for bilateral collateralisation of uncleared trades.
  • ensuring Regulators have a full range of tools to deal with recovery and resolution of central counterparty clearing houses (CCPs). EU legislation in this area is expected sometime this year.
  • getting agreement on how requirements will apply cross-border. The FSA believes that it is desirable to achieve a global system of regulation of OTC derivatives based upon mutual recognition and substituted compliance where possible.
  • ensuring the readiness of firms, both financial and non-financial, not currently clearing OTC derivative trades. Firms will need to be ready to comply with EMIR from January 2013.