In our latest Regulatory Round-up, European regulators have been busy in a wide range of areas including securities financing, credit ratings, and distributed ledger technologies. Meanwhile, global body the International Organization of Securities Commissions (IOSCO) has sought feedback on market structure evolution, and the International Capital Market Association (ICMA) published legal opinion updates pertaining to repos.
- SEC hammers five investment advisers for marketing rule violations
- CFTC appoints Christopher Skinner as inspector general
- Lilian Cheng joins HKEX as CCO
- New way of paying for investment research proposed by FCA
- ESMA: EMIR data quality ‘evolving positively’
- ESMA consults on possible amendments to the Credit Rating Agencies Regulatory Framework
- ESMA publishes outcome of first year of the DLT pilot regime
- ESMA publishes first overview of EU securities financing transactions markets
- European firms ‘ready’ to meet incoming UPI reporting obligations
- ESMA: Social media chatter influences stock prices (briefly)
- European T+1 Industry Task Force comments on UK T+1 report
- FSB European arm discusses crypto-asset regulation
- ICMA publishes 2024 legal opinion updates for the Global Master Repurchase Agreement
- IOSCO seeks feedback on the evolution of market structures and proposed good practices
Americas
SEC hammers five investment advisers for marketing rule violations
The US Securities and Exchange Commission (SEC) has charged five registered investment advisers over marketing rule violations, paying out a combined $200,000 in penalties.
The five advisory firms: GeaSphere; Bradesco Global Advisors; Credicorp Capital Advisors; InSight Securities; and Monex Asset Management, allegedly advertised hypothetical performance to the general public on their websites without adopting and implementing policies designed to ensure that the hypothetical performance was relevant to the likely financial situation and investment objectives of each advertisement’s intended audience.
Bradesco, Credicorp, InSight, and Monex received reduced penalties because of the corrective steps they undertook in advance of being contacted by the SEC, the regulator said.
“The Marketing Rule’s provisions are crucial to protecting investors from misleading advertising claims,” said Corey Schuster, co-chief of the SEC enforcement division’s asset management unit. “Today’s actions show that we will continue to employ targeted initiatives to ensure that investment advisers fully comply with their obligations under the rule. They also serve as a reminder of the benefits to firms that take corrective steps before being contacted by Commission staff.”
GeaSphere agreed to pay a civil penalty of $100,000. Bradesco, Credicorp, InSight, and Monex agreed to pay civil penalties ranging from $20,000 to $30,000.
CFTC appoints Christopher Skinner as inspector general
The Commodity Futures Trading Commission has appointed Christopher Skinner as the CFTC’s Inspector General (IG). Skinner brings 15 years of IG experience, including leading and managing Offices of Inspectors General (OIG), and conducting investigations, inspections, and audits.
Skinner comes to the CFTC from the Federal Election Commission (FEC) where he served as IG since 2019. He managed a $2.2 million budget and oversaw the day-to-day operations of its OIG. During his tenure, he developed internal policies and procedures in support of the OIG Strategic Plan.
Prior to the FEC, Skinner spent six years as deputy inspector general for the Office of Naval Research (ONR), including a year as acting inspector general. Prior to that appointment, he served as the assistant chief of inspections for the Naval Facilities Engineering Command.
APAC
Lilian Cheng joins HKEX as CCO
HKEX has appointed Lilian Cheng as group chief compliance officer, effective 1 May. She replaces Adam Singer, who joined the company in 2021, and reports to Bonnie Chan, HKEX CEO.
Cheng has more than a decade of industry experience and joins HKEX from HSBC, where she has been global head of capital and behaviour and managing director for the past two years.
Prior to this, she was chief control officer for the APAC region, global head of anti-bribery and corruption, and head of APAC financial crime compliance at the firm.
Commenting on the appointment, Chan said: “[Cheng] brings a wealth of experience in creating and implementing global compliance, control and conduct frameworks both in Hong Kong and internationally. She is an active advocate for diversity and inclusion and will help us to continue to build the business in an open, fair and sustainable manner.”
Europe
New way of paying for investment research proposed by FCA
The FCA has put forward plans for a new way to pay for investment research.
While FCA analysis shows asset managers are largely getting the research they need under the current rules, the current options available to UK asset managers can be “operationally complex” and may favour larger asset managers. The current rules can also restrict UK asset managers’ ability to buy investment research produced outside the UK.
FCA proposals would allow the ‘bundling’ of payments for third-party research and trade execution, and would exist alongside those already available, such as payment from an asset manager’s own resources or from a dedicated account.
The new plans are also compatible with rules governing research payments in certain other major jurisdictions, making it easier for asset managers to buy research in the same way, across borders.
Sarah Pritchard, executive director, markets and international, FCA, said: “High quality, easily accessible investment research is a vital part of a healthy, dynamic capital market. It supports the decisions investors make. We are proposing to provide more options on how to pay for such research, helping boost competition and making it easier to buy research across borders.”
ESMA: EMIR data quality ‘evolving positively’
EMIR data quality has improved over the last five years according to the European Securities and Markets Authority (ESMA).
ESMA’s follow-up report to 2019’s review into European Market Infrastructure Regulation (EMIR) data quality has outlined how national regulators in Cyprus, Germany, France, Ireland and the Netherlands have made “structural, long-lasting” improvements, under a data provision framework established by ESMA.
ESMA points to a fall in discrepancies in the number of reported outstanding derivatives at the trade level between two counterparties since 2021, as well as a decline in the percentage of late valuations, as evidence that that data quality “has been evolving positively thanks to the increased continuous focus and initiatives taken.”
READ MORE: ESMA: EMIR data quality ‘evolving positively’
ESMA consults on possible amendments to the Credit Rating Agencies Regulatory Framework
ESMA has launched a consultation on proposed amendments to the Credit Rating Agencies Regulation (CRAR).
The objective of the proposals is to ensure better incorporation of ESG factors in the credit rating methodologies and subsequent disclosure to the public, as well as to enhance transparency and credibility in the credit rating process.
The amendments aim to: ensure that the relevance of ESG factors within credit rating methodologies is subject to systematic documentation; enhance disclosures on the relevance of ESG factors in credit ratings and rating outlooks; deliver a more robust and transparent credit rating process through the consistent application of credit rating methodologies.
ESMA publishes outcome of first year of the DLT pilot regime
ESMA has written to the European Commission, the European Parliament, and the Council (ECOFIN) providing an interim update on the DLT pilot regime.
The letter provides an update on the status of applications received by national competent authorities (NCAs) to date, as well as a list of challenges and opportunities identified in the first year of application.
ESMA has opted for this format instead of the report mandated under the DLT pilot regime because no DLT market infrastructures have been authorised under the regime to date.
ESMA will continue to work with the NCAs, including by issuing opinions on the DLT market infrastructure applications, and will publish annual updates on the implementation of the DLT pilot regime.
ESMA publishes first overview of EU securities financing transactions markets
ESMA has published a market report on EU securities financing transactions (SFT), providing the first comprehensive market-level overview of the EU repo market.
It contributes to ESMA’s financial stability objective, by monitoring repo market developments and providing key risk metrics for its monitoring framework on securities financing transactions.
The total outstanding exposure of SFTs was €9.8 trillion in September 2023. Repos accounted for €6.7 trillion or 68% of the total, securities lending for €2.3 trillion (23%), buy-sell back for €743 billion (8%), and margin lending for €124 billion (1%).
Banks are the major participants in repo markets with 52% of repo amounts, and are predominantly concentrated in a few EEA jurisdictions, with France as the primary domicile holding 55% of EEA repo borrowing and 53% of EEA repo lending in September 2023.
The Securities Financing Transactions Regulation (SFTR) created a Union-wide framework under which details of SFTs can be efficiently reported, responding to the need to enhance the transparency of securities financing markets. ESMA said it will continue to monitor and analyse risks in SFT markets.
European firms ‘ready’ to meet incoming UPI reporting obligations
European firms are broadly ready to meet their UPI (Unique Product Identifier) regulatory requirements, having seen a steady increase in EU headquartered firms joining the service.
Currently, 246 firms have subscribed to the UPI Service across various fee-paying user types, including 122 programmatic users, with more than 100 organisations subscribing to the UPI Service since the US compliance date of 29 January 2024.
Among these organisations, banks constitute the largest group at 44%, with other participants such as trade execution platforms, clearing houses, brokerages, trade repositories, and data management providers also onboarded. Around 33% of the onboarded organisations have their headquarters based in the EU.
The data was collected by the Derivatives Service Bureau (DSB), which queried industry readiness for European UPI regulatory reporting requirements, which are part of the EU EMIR Refit Regulations.
READ MORE: European firms ‘ready’ to meet incoming UPI reporting obligations
ESMA: Social media chatter influences stock prices (briefly)
New research from the European Securities and Markets Authority (ESMA) has identified a transitory, yet potentially significant, effect on European equity markets.
Social media sentiment: Influence on EU equity prices examined the influence of social media on stock prices. The main takeaway is that social media has an influence on stock excess returns, with positive social media sentiment seemingly correlated with higher returns in the very short-term. But the research did not find any evidence of a link between social media activity and excess returns in the longer-term.
The research, spanning the period from January 2019 to June 2023, analysed the STOXX 600 index, encapsulating a substantial portion of the European stock market.
While information spreading on social media platforms may affect investor trading choices and amplify daily market movements, price overreaction typically does not last more than one day and is only transitory, the study found.
But the findings highlight the risks associated with using social media, and the information, opinions, news and views found on the gaggle of various platforms, to inform trading strategies and decision-making.
READ MORE: Social media chatter influences stock prices (briefly)
European T+1 Industry Task Force comments on UK T+1 report
The European T+1 Industry Task Force, composed of industry associations including FIA and FIA EPTA, has welcomed the recent publication of a report by the UK Accelerated Settlement Task Force.
In a statement, the European T+1 Industry Task Force said: “The European T+1 Industry Task Force welcomes the recent publication of a report by the Chair of the UK Accelerated Settlement Task Force, and in particular the statement that the ‘UK and other European jurisdictions should continue to explore opportunities for close collaboration…to see if they can align their moves to T+1.’ The members of the European T+1 Industry Task Force emphasise the need for a coordinated approach between the EU/EEA, Switzerland and the UK.”
FSB European arm discusses crypto-asset regulation
The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Europe met in Dublin to discuss global and regional macroeconomic developments and their implications for financial stability.
The effective implementation of its global regulatory and supervisory framework for crypto-asset activities and markets is a key focus for the FSB. Members shared their experiences in addressing regulatory challenges stemming from the cross-border and cross-sectoral nature of crypto-asset activities. They also exchanged views on preparations for new crypto-asset regulations entering into force, such as the Regulation on Markets in Crypto-assets (MiCA) in the European Union and the proposed regulatory regime for crypto-assets in the United Kingdom.
Global
ICMA publishes 2024 legal opinion updates for the Global Master Repurchase Agreement
The International Capital Market Association (ICMA) has published its 2024 Global Master Repurchase Agreement (GMRA) legal opinion updates. The opinions provide ICMA members with access to a substantive body of legal know-how regarding the enforceability of the GMRA and, in particular, the GMRA netting provisions in almost 70 jurisdictions.
Regulators require repo transactions to be subject to agreements like the GMRA, supported by regularly updated legal opinions, in order to reduce regulatory capital requirements through close-out netting. ICMA legal opinions enable members to realise these significant regulatory capital benefits.
IOSCO seeks feedback on the evolution of market structures and proposed good practices
The International Organization for Securities Commissions (IOSCO) has published a consultation report, Evolution in the Operation, Governance and Business Models of Exchanges: Regulatory Implications and Good Practices.
The report analyses the structural and organisational changes within exchanges, focusing on business models and ownership structures. It highlights a shift towards more competitive, cross-border, and diversified operations as exchanges integrate into larger corporate groups.
The report also discusses regulatory considerations, particularly in the organisation of individual exchanges and exchange groups, and the supervision of multinational exchange groups. It addresses potential conflicts of interest arising from matrix structures and the challenges of overseeing individual exchanges within these groups.
Additionally, it outlines a set of six good practices for regulators to consider in the supervision of exchanges, particularly when they provide multiple services and/or are part of an exchange group.
©Markets Media Europe 2024
