Financial Services Regulation and Compliance – Investment Firms July 2020


CBI Markets Update

The Central Bank of Ireland (CBI) has published issue 7 2020 of its markets update. It contains updates from the CBI, ESMA and IOSCO. CBI updates include its notice of intention to apply ESMA Guidelines on liquidity stress testing in UCITS and AIFs and the publication of the twenty ninth edition of the UCITs Q&A, and the 34th edition of the AIFMD Q&A to reflect this.


MiFID II: ESMA issues latest Double Volume Cap data

ESMA published this data on 7 July 2020, which updates the public register with latest double volume cap (DVC) data under MiFID II. The data relates to the period from 1 June 2019 to 31 May 2020. There were 45 new breaches in total, of which 36 were equities for the 8% cap and nine were equities for the 4% cap. The cap applies to individual trading venues. ESMA imposed suspensions on all new instruments in breach of the DVC thresholds, which will last from 10 July 2020 to 9 January 2021.

ESMA publishes updated annual transparency calculations

On 7 July 2020, ESMA published its updated transparency calculations including: 

  • the liquidity assessment in accordance with Arts. 1-5 CDR 2017/567
  • the determination of the most relevant market in terms of liquidity (MRM) as per Article 4 of CDR 2017/587 (RTS 1)
  • the determination of the average daily turnover (ADT) relevant for the determination of the pre-trade and post-trade large in scale (LIS) thresholds
  • the determination of the average value of the transactions (AVT) and the related the standard market size (SMS)
  • the determination of the average daily number of transactions on the most relevant market in terms of liquidity relevant for the determination of the tick-size regime

The new calculations apply from 13 July 2020.

ESMA updates the CSDR Q&As

ESMA updated its Q&As relating to the Central Securities Depositories Regulation on 8 July 2020. Updated elements relate to the implementation of the settlement discipline regime and defines “business days” in accordance with the definition given in the rules of the securities settlement systems where the settlement fail occurred.

ESMA updates EMIR Q&As

This Q&A relates to data reporting-related issues under EMIR and was updated on 8 July 2020. Trade Repository Q&A 11 (b) was updated to make clear that counterparties should follow their local time and the relevant calendar of their Member State to specify the “working day” in the context of determining the deadline for reporting under EMIR. If there is more than one time zone involved, counterparties should still follow their own local calendars and use the local time to determine the deadline for reporting.

ESMA updates its Q&As on MiFID II and MiFIR transparency

This Q&A document, published 8 July 2020, provides technical clarifications for the performance of the mandatory systematic internaliser test. It specifies how the number of transactions and the nominal amount traded of a derivative shall be allocated when a derivative contract changes over the observation period from one sub-class to another.

ESMA publishes draft guidelines on calculation of positions in SFTs by Trade Repositories

On 9 July 2020, ESMA opened consultations on its draft guidelines on the calculation of positions in SFTs by trade repositories. The final guidelines will ensure consistency of position calculation across trade repositories. The consultation paper clarifies trade repositories’ compliance obligations in respect of Article 4(6) SFTR and sets out a general requirement that trade repositories calculate positions. The draft guidelines cover two kinds of aggregation: named positions between counterparties and sectoral positions for FSB reporting purposes.

The consultation runs until 15 September 2020

ESMA’s third EU-wide CCP stress test finds system resilient to shocks

This recent stress test, results of which were published on 13 July 2020, found that Central Counterparties (CCPs) are able to tolerate severe shocks under common shocks and simultaneous defaults, even during events as unprecedented as the COVID-19 pandemic. Whilst different CCPs have different levels of resilience, no systemic risk was uncovered. The test covers all 16 authorised CCPs, including three UK CCPs.

ESMA issues second report on sanctions under MiFID II

ESMA published its second report on sanctions and measures imposed under the MiFID II by National Competent Authorities (NCAs) on 13 July 2020. NCAs in 15 of the 30 EEA Member States imposed 371 sanctions and measures in 2019 of an aggregated value of about €1.8m.

ESMA promotes consistent application of prospectus disclosure requirements

ESMA published its final guidelines on disclosure requirements under the Prospectus Regulation on 15 July 2020. Financial market participants may use the guidelines to determine what financial and non-financial information to include when compiling a prospectus. The guidelines tie in with CDR (EU) 2019/908 such that there is a uniform understanding across the EU of disclosure requirements.

Topics covered in the guidelines include:

  • pro forma information
  • working capital statements
  • capitalisation and indebtedness
  • profit forecasts and estimates
  • historical financial information
  • operating and financial review
  • options agreements
  • collective investment undertakings

ESMA publishes results of the annual transparency calculations for non-equity instruments

ESMA published the results of the annual transparency calculations for non-equity instruments on 15 July 2020. The calculations include the liquidity assessment and the determination of the pre- and post-trade size specific to the instruments and large in scale thresholds. ESMA directed users to Q&A 20 of Section 4 Non-equity transparency of the Q&A on MiFID II and MiFIR transparency topics for application of the calculations.

The calculations apply from 15 September 2020. The transitional transparency calculations will cease to apply on 14 September 2020.

ESMA publishes its first Review Reports on the MiFIR transparency regime

ESMA published two reports on 16 July 2020 related to MiFIR/MiFID II. The first report on the transparency regime for equity and equity-like instruments, the double volume cap mechanism and the trading obligations for shares reviews same and proposes amendments related to the transparency requirements for trading venues, specifically the double volume cap mechanism along with some other recommendations that key transparency provisions be amended.

The second report focuses on systematic internalisers in non-equity instruments and among others things proposes maintaining the publication of the quotes in liquid instruments while removing the need to provide quotes to other clients and to enter into transactions with multiple clients.

ESMA tells market participants to continue preparations for the end of the UK transition period

ESMA advised market participants on 17 July 2020 to finalise preparations and ensure they have contingency plans in place to be ready for the end of the UK’s transition period on 31 December 2020. ESMA further advised that entities should inform clients of any consequences stemming from the end of the transition period. The previous guidance issued by ESMA remains valid and the Memoranda of Understandings with the FC will remain valid. These will come into effect once the transition period ends.

ESMA provides guidance on waivers from pre-trade transparency

ESMA published an opinion on 17 July 2020 offering guidance on transparency waivers for equity and non-equity investments. The opinion replaces ESMA and the ESR’s previous opinions, which applied under MiFID I. The opinion offers an insight into ESMA’s assessment of features encountered when issuing opinions on over 900 applications for pre-trade transparency waivers over a three-year period, and seeks to promote consistency when applying them.

SCoRE adaptation plans status report – Single Collateral Management Rulebook for Europe – status as at June 2020

The ECB published an update on the status of the Single Collateral Management Rulebook for Europe (SCoRE) on 21 July 2020. SCoRE seeks to harmonise and make more efficient the collateral management system in Europe. Following the endorsement of three of ten key activities for harmonisation across Europe, central securities depositories and triparty agents prepared adaptation plans. This update looks at the 100 such plans prepared by national stakeholder groups, how close they are to being adopted and what action items remain outstanding.

ESMA recommends supervisory coordination on accounting for COVID-19-related rent concessions

On 21 July 2020, ESMA issued a public statement aimed at encouraging NCA coordination in relation to issuers’ reporting obligations when accounting for rent concessions offered as a result of COVID-19. ESMA voices its support for the recent changes to IFRS 16 and recommends NCAs follow the terms of the amended IFRS 16 when considering lease modifications related to COVID-19.

ESMA updates transparency opinions for third country venues

This update was published on 28 July 2020 and includes an updated list of third country venues published in relation to ESMA’s opinion on post-trade transparency under MiFIR. Further venues have been assessed against the criteria established in the opinion of June 2020 and are included. ESMA also issued updated guidance on the list of third country venues.

ESMA announces new RTS to further postpone CSDR settlement scheme

ESMA announced on 28 July 2020 that it is planning a proposal to postpone the entry into force of the CDSR settlement discipline regime until 1 February 2022 as a result of COVID-19.

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