Contents
Following a seasonal break, the next update will be published on 19 April 2021.
LIBOR transition: FCA and BoE encourage switch to SONIA in sterling non-linear derivatives market
The Financial Conduct Authority (FCA) and the Bank of England (BoE) have published a joint statement announcing that they encourage liquidity providers in the sterling non-linear derivatives market to adopt new quoting conventions for inter-dealer trading based on SONIA instead of LIBOR from 11 May 2021. This is to facilitate a further shift in market liquidity toward SONIA, bringing benefits for a wide range of users as they move away from LIBOR.
In the period leading up to 11 May, the FCA and the BoE will engage with market participants to determine whether market conditions allow the switch to proceed smoothly.
MiFID: Delegated Regulation on thresholds for weekly position reporting of commodity derivatives
Commission Delegated Regulation (EU) 2021/527 amending Commission Delegated Regulation (EU) 2017/565 (the MiFID Delegated Regulation) as regards the thresholds for weekly position reporting under the Markets in Financial Instruments Directive (MiFID) has been published in the Official Journal of the European Union (OJ).
Article 83 of the MiFID Delegated Regulation establishes the minimum thresholds for the weekly reporting of positions held by specified persons in commodity derivatives, as required under Article 58(1) of MiFID. The Delegated Regulation amends certain aspects of those minimum thresholds.
The Delegated Regulation entered into force on 29 March 2021.
EU MiFIR: Delegated Regulation on liquidity thresholds and trade percentiles used to determine SSTI applicable to non-equity instruments
Commission Delegated Regulation (EU) 2021/529 has been published in the OJ. The Delegated Regulation establishes regulatory technical standards (RTS) amending Delegated Regulation (EU) 2017/583 (RTS 2) as regards adjustment of liquidity thresholds and trade percentiles used to determine the size specific to the instrument (SSTI) applicable to certain non-equity instruments.
RTS 2 imposes transparency requirements for trading venues and investment firms in respect of bonds, and other non-equity products. In particular, it provides the methodology to assess the liquidity and the SSTI of bonds. Both liquidity and SSTI are relevant for the application of transparency waivers and deferrals under the Markets in Financial Instruments Regulation (EU MiFIR).
RTS 2 introduced a phased approach to both the methodology to calculate the liquidity of bonds and, in respect of pre-trade transparency, the SSTI of non-equity instruments, including bonds. Under this approach, the European Securities and Markets Authority (ESMA) assesses annually, for four years, if a move to another, more strict, phase is warranted. At present, the first phase (stage S1) is active.
Based on an assessment undertaken by ESMA the Delegated Regulation provides for a move to stage S2 for determining bonds for which there is a liquid market and for the size specific to the instrument for bonds. The move to stage S2 should increase the level of transparency available in the bond market without causing a negative impact on liquidity. However, since for other non-equity instruments than bonds ESMA′s first annual transparency calculations have only been published this year, there was not enough evidence to move to stage S2 for other classes of financial instruments.
The Delegated Regulation enters into force on 15 April 2021.
COVID-19: ESMA statement on temporary suspension of MiFID RTS 27 reports
ESMA has published a public statement on the application of the temporary suspension of the obligation to publish RTS 27 reports under Delegated Regulation (EU) 2017/575, which supplements MiFID. The purpose of the statement is to promote coordinated action by national competent authorities (NCAs) regarding the amendments made in respect of RTS 27 reports by Directive (EU) 2021/338 (the Amending Directive).
Commission Delegated Regulation (EU) 2017/575, which supplements MiFID contains RTS (known as RTS 27) specifying the content, the format and the periodicity of the data to be published by execution venues relating to the quality of execution of transaction. The Amending Directive, which was published in the OJ in February 2021, made targeted amendments to MiFID intended to help the EU's economic recovery from the COVID-19 pandemic, including the temporary suspension of the obligation to make the reports required by RTS 27.
ESMA has observed that there is confusion among market participants on the application date of this suspension. In particular, although Article 1(6) of the Amending Directive provides that the requirement to publish RTS 27 reports will not apply until 28 February 2023, Article 4(1) requires member states to apply the measures necessary to comply with the Amending Directive by 28 February 2022.
ESMA states that the legislative aim of the Amending Directive was to suspend the best execution reports for two years as of the date of its entry into force. On that basis, ESMA expects NCAs not to prioritise supervisory actions towards execution venues relating to the obligation to publish the RTS 27 reports until the date on which the national transposition measures of the Amending Directive postpone that obligation in national law.
EU MiFIR: ESMA final report on reference data and transaction reporting obligations
ESMA has published its final report containing recommendations and possible legislative amendments to simplify the current transaction reporting and reference data regime under EU MiFIR. ESMA's recommendations include the following:
- replacing the trading on a trading venue concept with the systematic internaliser approach for OTC derivatives, taking into account the conclusions of ESMA's final report on the transparency regime for non-equity instruments and the trading obligation for derivatives;
- removing the short sale indicator;
- aligning the regime with the reporting regimes under other legislation such as the Market Abuse Regulation (EU MAR), the European Market Infrastructure Regulation (EU EMIR) and the Benchmarks Regulation (EU BMR); and
- including three additional data elements, with a view to harmonise the way they are reported and avoid inconsistent and duplicative reporting of the same information at the national level. In particular, these are indicators for buyback programs, information on MiFID client categories and transactions pertaining to aggregated orders.
ESMA has submitted the report to the European Commission. Based on ESMA's recommendations, the Commission is expected to adopt legislative proposals.
MiFID: ESMA updates Q&As on investor protection and intermediaries
ESMA has published an updated version of its Q&As on investor protection and intermediaries under MiFID and MiFIR. The updated version includes a new Q&A on the conditions to be met for inducements to be considered to enhance the quality of services to clients. ESMA analyses the meaning of "additional" or "higher-level" service, what it means to provide services to a relevant client, and the need for firms to demonstrate that quality enhancements are proportional to the level of inducements received.
MiFID: ESMA advice on the application of administrative and criminal sanctions
ESMA has published its final report containing its technical advice to the European Commission on the application of administrative and criminal sanctions under MiFID and MiFIR. The report follows the Commission's May 2019 request for advice on MiFID. ESMA's advice includes proposals to:
- amend MIFID requirements for NCAs to disclose and report information on sanctions and measures because of diverging requirements;
- amend the MIFID requirement for NCAs to liaise with judicial authorities to gather information on criminal sanctions, as well as clarifying the sanction reporting procedure;
- include settlement powers in the range of sanctions and measures available to NCAs to increase the efficiency of their enforcement proceedings, and enlarge the types of sanctions and measures in Article 70(6) of MiFID;
- amend the current requirements in Article 86(1) of MiFID on precautionary measures.
EU MiFIR: ESMA final reports on framework for DRSPs
ESMA has published the following final reports providing advice to the European Commission on the fees, fines and penalties applicable to data reporting service providers (DRSPs), as well as the criteria for determining whether certain DRSPs may be exempted from ESMA supervision (derogation criteria), under MiFIR:
EU EMIR: ESMA updates Q&As
ESMA has updated its Q&As on the implementation of EMIR. ESMA has amended the trade repository (TR) Q&A 51 to clarify issues concerning the exemption for intragroup transactions involving non-financial counterparties under Article 9(1) of EMIR. These issues relate to reporting the details of derivatives when the exemption ceases to be valid and the location of the parent undertaking for the purposes of the exemption.
EU BMR: ESMA updates Q&As
ESMA has updated its Q&As on the EU BMR. It has updated the answer to question 9.3 to further clarify the applicable transitional provisions for third-country benchmarks, as set out in the EU BMR.
EU BMR: ESMA technical advice on procedural rules for penalties imposed on benchmark administrators
ESMA has published a final report on technical advice submitted to the European Commission on procedural rules for penalties imposed on benchmark administrators under the EU BMR. The technical advice is intended to assist the Commission in its work on producing a delegated regulation under Article 48i(10) of EU BMR specifying the procedures that ESMA should follow when using its new powers to impose fines or periodic penalty payments on benchmark administrators.
CSDR: ESMA updates Q&As
ESMA has updated its Q&As on the implementation of the Central Securities Depositories Regulation (CSDR). The updated Q&As include answers to:
- question 9 on the provision of services in other member states in Part II (central securities depositories);
- question 6 on settlement instructions sent by central counterparties (CCPs), in Part III (settlement discipline); and
- question 6(f) on the exemption from the application of cash penalties and the buy-in requirements for settlement fails relating to transactions involving CCPs.
EU Securitisation Regulation: ESA Q&As
The Joint Committee of the European Supervisory Authorities (ESAs) has published a set of Q&As on the Securitisation Regulation, covering questions that fall outside the scope of any one of the three ESAs. In addition to helping market participants comply with their obligations, the Q&As aim to foster common supervisory practices in the application of the Securitisation Regulation and promote cross-sectoral consistency at an EU level.
Securitisation Regulation: ESA opinion on jurisdictional scope
The ESAs have published an opinion to the European Commission on the jurisdictional scope of the Securitisation Regulation.
Use of Term SONIA reference rates: FMSB consults on draft standard
The FICC Markets Standards Board (FMSB) has published a draft standard on the use of Term SONIA reference rates. Although UK authorities have previously made clear their expectations that markets should, in the main, use SONIA compounded in arrears, they have acknowledged that Term SONIA will be used in limited circumstances. The draft standard, which applies to Sterling fixed income and wholesale lending products, has been developed to help market participants decide when they should adopt Term SONIA.
The FMSB invites comments on the draft standard by 28 May 2021.
The FCA, the BoE and the Working Group on Sterling Risk-Free Rates have issued a joint statement welcoming the draft standard and encouraging market participants to respond to the FMSB's invitation to comment.
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Authored by Yvonne Clapham
