In this instalment of our regulatory round-up, the CFTC in the US makes recommendations on Basel II and variation margin processes, while Europe is busy with collective action as the EU’s supervisory authorities work to enhance market practice on sustainability-related claims and strengthen information exchange. Meanwhile, the International Organisation of Securities Commissions publishes its final report on market outages.
- CFTC makes recommendations on Basel III endgame and variation margin processes
- MiFIR review: ESMA consults on three new technical standards
- ESMA publishes data on markets and securities in the EEA
- ESMA provides guidance to firms using artificial intelligence in investment services
- ESAs publish joint annual report for 2023
- ESAs and ENISA work to strengthen cooperation and information exchange
- ESAs call for improved market practice on sustainability-related claims
- ADGM and the Bermuda Monetary Authority sign digital assets memorandum of understanding
- DMIST publishes final standard for average pricing
- IOSCO publishes final report on market outages
Americas
CFTC makes recommendations on Basel III endgame and variation margin processes
The US Commodity Futures Trading Commission’s Global Markets Advisory Committee (GMAC), sponsored by CFTC commissioner Caroline Pham, has made recommendations to examine the impacts of proposed US bank capital requirements and to improve collateral and liquidity management for non-centrally cleared derivatives.
“The GMAC continues to make great progress developing thoughtful recommendations and insightful work to aid the CFTC, other policymakers, and participants in global markets,” commissioner Pham said. “In less than a year, the GMAC has now adopted 13 recommendations on a broad array of issues to promote and bolster market integrity and resiliency. These recommendations continue to have a tangible impact, not only on rulemakings here at the CFTC, but also among our counterparts and international standard setters. As the GMAC’s sponsor, I’m honored to help provide a public venue for some of the preeminent industry experts to discuss and develop potential solutions to addressing the biggest challenges in global markets.”
The report includes various recommendations to further examine the impact of US bank capital proposals on end users, central clearing, and derivatives markets.
The GMAC recommends that the CFTC support and facilitate industry implementation of the BCBS-IOSCO recommendations for streamlining of variation margin practices.
EMEA
MiFIR review: ESMA consults on three new technical standards
The European Securities and Markets Authority (ESMA), launched a public consultation on non-equity trade transparency, reasonable commercial basis (RCB) and reference data under the Markets in Financial Instruments Regulation (MiFIR) review.
In the consultation ESMA is seeking input on three topics: Pre- and post-trade transparency requirements for non-equity instruments, which aims at ensuring trade information is available to stakeholders by improving, simplifying, and harmonising transparency requirements; obligation to make pre-and post-trade data available on an RCB intended to guarantee that market data is available to data users in an accessible, fair, and non-discriminatory manner; and an obligation to provide instrument reference data that is fit for both transaction reporting and transparency purposes.
ESMA publishes data on markets and securities in the EEA
ESMA has published its Statistics on Securities and Markets (ESSM) Report, with the objective of increasing access to data of public interest.
The report provides details about how securities markets in the European Economic Area (EEA30) were organised in 2022, including structural indicators on securities, markets, market participants and infrastructures.
It covers the distribution of legal entities by member states, either based on their supervisory role or their location. It also contains information on third country entities when their activities are recognised or when their securities are traded in EEA30.
ESMA provides guidance to firms using artificial intelligence in investment services
ESMA has issued a statement providing initial guidance to firms using Artificial Intelligence technologies (AI) when they provide investment services to retail clients.
When using AI, ESMA expects firms to comply with relevant MiFID II requirements, particularly when it comes to organisational aspects, conduct of business, and their regulatory obligation to act in the best interest of the client.
Potential uses of AI by investment firms which would be covered by requirements under MiFID II include customer support, fraud detection, risk management, compliance, and support to firms in the provision of investment advice and portfolio management.
ESAs publish joint annual report for 2023
The Joint Committee of the European Supervisory Authorities published its 2023 Annual Report, providing an account of the joint work completed over the past year.
Through the Joint Committee the ESAs explore and monitor potential emerging risks for financial markets participants and the financial system as a whole.
The main areas of cross-sectoral focus were joint risk assessment, sustainable finance, digitalisation, consumer protection, securitisation, financial conglomerates, and central clearing. Among the Joint Committee’s main deliverables were policy products for the implementation of the Digital Operational Resilience Act (DORA) as well as ongoing work related to the Sustainable Finance Disclosure Regulation (SFDR).
ESAs and ENISA work to strengthen cooperation and information exchange
European Supervisory Authorities have signed a multilateral Memorandum of Understanding (MoU) to strengthen cooperation and information exchange with the European Union Agency for Cybersecurity (ENISA).
This MoU sets out the framework for cooperation and exchange of information on tasks of mutual interest, including policy implementation, incident reporting, and oversight of critical Information Communication Technologies (ICT) third-party providers. It will also promote regulatory convergence, facilitate cross-sectoral learning and capacity building on areas of mutual interest, and information exchange on emerging technologies.
Verena Ross, chair of the joint committee of the ESAs and ESMA chair, said: “This new cooperation agreement that we sign today will reinforce the collaboration between the ESAs and ENISA. By bringing together the ESAs working on cybersecurity risk in the financial sector and ENISA as the EU’s cybersecurity agency, we are further strengthening our commitment to safeguarding the financial system from information security risks.
“In an interconnected world, ICT risk does not limit itself to one geographical or sectoral area, making cooperation in this field crucial. Through facilitating collaboration and resource sharing, we continue to enhance our capability to detect and respond to cybersecurity threats.”
ESAs call for improved market practice on sustainability-related claims
The European Supervisory Authorities have published their final reports on greenwashing in the financial sector.
In their respective reports the ESAs reiterate the common high-level understanding of greenwashing as a practice whereby sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services.
NCAs and ESMA are taking steps to better monitor and detect greenwashing and to critically scrutinise sustainability-related claims in various sectors.
ESMA chair, Verena Ross, said: “Effective and consistent supervision of sustainability-related claims is critical to investor protection and a trustworthy environment for ESG markets. With a risk-based approach in mind, ESMA has promoted EU-level common supervisory actions across the sustainable investment value chain and will continue to foster convergent and effective supervision. We will also continue to support NCAs, to enhance supervisory capacities in this area and invest in the tools needed to address data challenges”.
ADGM and the Bermuda Monetary Authority sign digital assets memorandum of understanding
The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) and the Bermuda Monetary Authority (BMA) have signed a joint Digital Assets Memorandum of Understanding (MoU).
The MoU creates a framework enabling the collaboration between the BMA and the FSRA to support the establishment of digital assets entities across their jurisdictions and ensure their effective supervision.
BMA CEO, Craig Swan, said: “The agreement with the FSRA marks a significant step in strengthening links between regulators, supporting innovation and enhancing capabilities and resources through international collaboration. This MoU leverages the stability and expertise of our markets to address the evolving needs of the digital asset business sector. We look forward to greater knowledge exchange and deeper regulatory cooperation to encourage a secure and sustainable growth environment.”
World
DMIST publishes final standard for average pricing
FIA and DMIST, the Derivatives Market Institute for Standards, have published the Average Pricing Standard.
This second standard published by DMIST supports the final standard for Improving Timeliness of Trade Give-ups and Allocations, released in June 2023. The lack of standardised average price functionality across CCPs was cited as one of the issues that prevents processing trades on Trade Date.
This Average Pricing Standard calls for Central Counterparties (CCPs) globally to adopt certain minimum standard average pricing functionality. Standardised functionality will help drive consistency and improve the current allocation and timing issues associated with average price order workflows.
Samina Anwar, global derivatives operations director, Cargill: “The introduction of this new, industry-wide standard will benefit all market participants who use average pricing. The standard will help end users make the allocation process more efficient and reduce risk by minimising market-specific exceptions. End users can take advantage of on-CCP average pricing and be confident that their allocations are fair and equitable.”
Don Byron, head of global industry operations and execution, FIA, executive director, DMIST: “DMIST was founded on the principle that working together in the spirit of collaboration and trust could help make the industry more efficient and reduce risk for all market participants. That vision is being realised with the publication of the 30/30/30 Standard and now the Average Pricing Standard, which address two of the industry’s biggest pain points. Building on the success of the first two standards, collaboration on three additional standards is underway as well as implementation and adoption of the two final standards.”
This Average Pricing Standard applies to all CCPs globally. It calls for CCPs currently offering average pricing to review their functionality and adapt to the minimum functionality standards set out in the Functionality Table. For CCPs that currently do not provide on-CCP average pricing, the final standard provides a roadmap to develop a globally recognized average pricing service.
IOSCO publishes final report on market outages
IOSCO has published its final report on market outages, addresses the need for improved preparedness and management of market outages to ensure market resilience and investor
confidence.
The report identifies key findings from recent market outages and sets forth five good
practices to assist regulators, trading venues and market participants in preparing for, and managing, future market outages and thereby helping
improve market-wide resilience.
The good practices cover five key areas: Outage Plans; Communication Plans; Reopening of Trading; Closing Auctions / Closing Prices; Post-Outage Plans.
Isadora Tarola, chair of the IOSCO Committee on Regulation of Secondary Markets said: “Market Outages can be highly disruptive. Therefore, it is important for trading venues to consider adopting the proposed good practices. This can contribute to market resilience and help ensure orderly trading during outages. IOSCO remains committed to supporting initiatives that promote financial stability and investor protection.”
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