Securities and markets regulatory news, November 2020 # 2 | Hogan Lovells

Recent regulatory developments of interest to financial institutions and markets. Includes a number of updates from Europe on Brexit, MiFID, MiFIR, EMIR, the BMR and CRAs. Also check our Related Materials links.

Contents

  • EMIR: ESMA report on post-trade risk reduction services
  • MiFID: ESMA updates Q&As on investor protection and intermediaries
  • MiFIR: updated guidance on Annex to ESMA opinion determining third-country trading venues for purpose of transparency
  • MiFIR assessments of third country trading venues: ESMA decision
  • MiFID and MiFIR: ESMA consults on draft guidelines on market data obligations
  • Brexit: ESMA updates statements on reporting and operation of ESMA databases and IT systems
  • BMR: ESMA updates Q&As
  • CRAs: ESMA speech on key challenges

EMIR: ESMA report on post-trade risk reduction services

The European Securities and Markets Authority (ESMA) has published a report on post-trade risk reduction (PTRR) services under the European Market Infrastructure Regulation (EMIR).

In the report, ESMA considers the different types of PTRR services being offered, their purpose and whether there is a need for the new trades that these may generate to be exempted from the clearing obligation, and if an exemption could lead to the risk of some counterparties circumventing the clearing obligation.

ESMA concludes that the benefits of allowing certain PTRR transactions to be exempted from the clearing obligation would reduce risk in the market, allow for legacy trades to be compressed, increase participation in PTRR services and overall reduce complexity in the market. Its view is that those positive effects outweigh the increased operational burden on market participants and regulators and the increase in gross risk in the non-cleared netting sets (in case of portfolio rebalancing). However, any such exemption should be limited and subject to certain requirements, to reduce any risk of circumvention of the clearing obligation.

ESMA has submitted this final report to the European Commission. The European Commission is mandated under EMIR to prepare a report assessing whether any trades that directly result from post-trade risk reduction services should be exempted from the clearing obligation.

MiFID: ESMA updates Q&As on investor protection and intermediaries

ESMA has updated its Q&As on investor protection and intermediaries under the Markets in Financial Instruments Directive (MiFID) and the Markets in Financial Instruments Regulation (MiFIR). The Q&As have been updated to include three new Q&As relating to product governance.

MiFIR: updated guidance on Annex to ESMA opinion determining third-country trading venues for purpose of transparency

ESMA has updated its guidance on the Annex to its opinion determining third-country trading venues for the purpose of transparency under MiFIR. It has been updated to refer to cases where market identifier codes are not populated.

MiFIR assessments of third country trading venues: ESMA decision

ESMA has published a decision of its board of supervisors on the delegation to the ESMA chair of the assessment of third country trading venues (TCTVs) for the purposes of Articles 20 and 21 of MiFIR. This decision repeals and replaces ESMA’s October 2018 decision on the assessment. The replacement decision reflects ESMA’s updated opinion determining TCTVs for the purpose of transparency under MiFIR that was published in June 2020.

In the decision, the board of supervisors delegates responsibility for non-controversial assessments of TCTVs for these purposes to the ESMA chair. The decisions specify the criteria that the chair will use when assessing whether to consider a third-country entity as a trading venue for the purposes of Articles 20 and 21 of MiFIR. The board of supervisors retains its powers to perform controversial assessments of TCVCs.

MiFID and MiFIR: ESMA consults on draft guidelines on market data obligations

ESMA has published a consultation paper on draft guidelines on obligations relating to market data under MiFID and MiFIR. The guidelines are intended to ensure the common and consistent application of the provisions in Articles 13, 15(1) and 18(8) of MiFIR and Articles 64(1) and 65(1) and (2) of MiFID.

The guidelines aim to provide financial market participants with a uniform understanding of the requirements to provide market data on a reasonable commercial basis (RCB), including the disclosure requirements, as well as the requirement to provide the market data 15 minutes after publication (delayed data) free of charge. They also aim to ensure that national competent authorities have a common understanding and develop consistent supervisory practices when assessing the completeness, comprehensibility and consistency of the RCB and delayed data provisions.

The draft guidelines cover:

  • provision of market data on the basis of cost;
  • obligation to provide market data on a non-discriminatory basis;
  • per user fees;
  • obligation to keep data unbundled;
  • transparency obligations; and
  • obligation to make market data available free of charge 15 minutes after publication.

The consultation closes on 11 January 2021. ESMA will consider the feedback received and expects to publish the final report and guidelines by Q2 2021.

Brexit: ESMA updates statements on reporting and operation of ESMA databases and IT systems

ESMA has updated the following public statements which address the impact on reporting under EMIR and the Regulation on reporting and transparency of securities financing transactions (SFTR), and on the operation of ESMA databases and IT systems under MiFID and MiFIR after 31 December 2020:

  • statement on issues affecting reporting under EMIR and the SFTR. This covers issues affecting reporting, record-keeping, reconciliation, data access, portability and aggregation of derivatives under Article 9 of EMIR and of securities financing transactions reported under Article 4 of the SFTR;
  • statement on the use of UK data in ESMA databases and performance of MiFID II calculations. This covers publications made under MiFID and MiFIR, which are performed by the various ESMA databases, as well as the annual ancillary activity calculations; and
  • statement on ESMA’s data operational plan. This covers actions related to the Financial Instruments Reference Data System (FIRDS), the Financial Instrument Transparency System (FITRS), the Double Volume Cap System (DVCAP), transaction reporting systems, and ESMA’s registers and data.

BMR: ESMA updates Q&As

ESMA has updated its Q&As on the Benchmarks Regulation (BMR). The Q&As have been updated to provide clarification on transitional provisions of the BMR relating to critical benchmarks.

CRAs: ESMA speech on key challenges

ESMA has published a speech by Verena Ross, ESMA Executive Director, in which she considers the key challenges in the credit ratings industry and explains what ESMA is doing to try and meet these challenges.

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