In our latest regulatory round-up, we see multiple global efforts from a number of regulators and agencies as they look to shore up regulation around AI, introduce new global standards to support orderly resolution of a CCP, and progress further on margin transparency. More locally, we see Australia’s stock exchange publish a white paper on the mooted move to T+1 settlement, ESMA consult on technical standards for joint examination teams under DORA, and Abu Dhabi move to enhance blockchain security standards.
- CFTC approves final rules on swap confirmation requirements for SEFs
- CFTC updates rules on large trader reporting for futures and options
- ASX publishes industry whitepaper on T+1 settlement
- HKEX hosts Asia’s first spot virtual asset ETFs
- ESMA proposes changes to ELTIF Technical Standards
- ESAs consult on technical standards for joint examination teams under DORA
- Abu Dhabi Global Market partners Hacken Forge to boost blockchain security
- FIA cautions CFTC on regulation of AI
- FIA calls on international regulators to continue progress on margin transparency
- AFME and UK Finance respond to HM Treasury’s PISCES consultation
- FSB introduces new global standards to support orderly resolution of a CCP
Americas
CFTC approves final rules on swap confirmation requirements for SEFs
The Commodity Futures Trading Commission (CFTC) has approved final rules to amend its swap execution facility (SEF) regulations related to uncleared swap confirmations.
The amendments enable SEFs to incorporate terms of underlying, previously negotiated agreements between the counterparties by reference in an uncleared swap confirmation without being required to obtain such underlying, previously negotiated agreements.
The rules also require such confirmation to take place “as soon as technologically practicable” after the execution of the swap transaction on the SEF for both cleared and uncleared swap transactions.
CFTC updates rules on large trader reporting for futures and options
The Commodity Futures Trading Commission (CFTC) has approved final rules to amend its large trading reporting regulations for futures and options.
The regulations require futures commission merchants, clearing members, foreign brokers, and reporting firms to report to the CFTC position information for the largest futures and options traders.
The new rules replace the data elements currently in the CFTC’s regulations with an appendix specifying applicable data elements. The final rules also specify the form and manner for reporting. In addition, the final rules remove the outdated 80-character data submission standard in the CFTC’s regulations. That standard will be replaced by a FIXML standard.
Vince McGonagle, director of the division of market oversight, said “These amendments will modernize the CFTC’s large trader position reporting and align it with other reporting structures set out in the CFTC’s regulations.”
APAC
ASX releases white paper on T+1 settlement
The Australian Stock Exchange (ASX) has released a white paper designed to spark discussion on the potential move from T+2 to T+1 settlement in Australia.
The white paper outlines how Australia’s unique market structure, size, time zone, investment flows, and trading activity necessitates careful industry consideration of the risks, benefits, and costs of transitioning to T+1.
ASX group executive, securities and payments, Clive Triance, said: “ASX has a critical role to play in facilitating the discussion on whether shortening the settlement cycle promotes the interest of the Australian market as a whole.
“In putting together this whitepaper, we recognise there are various factors that will impact a decision to transition to T+1. This includes the type of service an entity provides, its own project pipeline, the cost and resourcing involved, along with potential implementation risks. Of course, this is weighed up against the potential benefit of a prompt implementation through harmonisation of settlement and funding cycles with other leading global markets.”
The publication of the whitepaper follows the establishment of the T+1 Working Group that was formed by the ASX Business Committee in December 2023.
HKEX hosts Asia’s first spot virtual asset ETFs
Hong Kong Exchanges and Clearing (HKEX) has begun listing Asia’s first Spot Virtual Asset (VA) ETFs.
HKEX head of equities product development, Brian Roberts, said: “The introduction of Spot VA ETFs in Hong Kong is the latest exciting addition to HKEX’s diverse and vibrant ETP ecosystem, providing investors with access to a new asset class. Following the success of VA Futures ETFs, the listing of Asia’s first spot VA ETFs will further enhance the product diversity and liquidity of the Hong Kong ETP market. We look forward to continuing working closely with our stakeholders with a view to launching more products to our international marketplace.”
EMEA
FCA seeks secondary markets committee members
The UK’s Financial Conduct Authority (FCA) is seeking market participants to join its secondary markets advisory committee.
Established in 2022, the committee supports the regulator’s work in wholesale secondary markets for equities, derivatives, fixed income and commodity derivatives. The regulator is looking to expand the numbers of members to 25, in order to represent the different types of firms active in wholesale markets.
ESMA proposes changes to ELTIF Technical Standards
The European Securities and Markets Authority (ESMA) has responded to the European Commission request for amendments to the European long-term investment fund (ELTIF) Technical Standards (RTS).
ESMA has suggested there should be a limited number of changes to find the right balance between protecting retail investors and contributing to the capital market union objectives.
On the RTS on redemption policy, and specifically on the calibration of the requirements relating to redemptions and liquidity management tools, ESMA acknowledged there should be an appropriate balance between protection of retail investors and financial stability related objectives and the fact that ELTIFs should make an important contribution to the capital market union objectives. However, in view of the Commission’s comments, ESMA proposes striking that balance slightly differently from the European Commission.
ESAs consult on technical standards for joint examination teams under DORA
The European Supervisory Authorities (EBA, EIOPA and ESMA) have launched a public consultation on the draft Regulatory Technical Standards (RTS) on the conduct of oversight activities in relation to the joint examination teams under the Digital Operational Resilience Act (DORA).
The primary goal of the draft RTS is to lay out criteria for determining the composition of the joint examination teams – ensuring a balanced participation of staff members from the ESAs and from the relevant competent authorities – as well as the designation of the members, their tasks, and working arrangements.
These draft RTS aim at ensuring maximum efficiency and effectiveness regarding the functioning of the joint examination teams, given their central role in the daily oversight of critical ICT third-party service providers (CTPPs). The proposed technical standards take into account the high technical complexity of the oversight activities and the scarce availability of the expertise needed to perform them. The DORA and the related RTS will apply from 17 January 2025.
Abu Dhabi Global Market partners Hacken Forge to boost blockchain security
Abu Dhabi Global Market (ADGM) and Hacken, a blockchain security auditing firm, have signed a Memorandum of Understanding (MoU) to collaborate on new benchmarks for blockchain security and compliance.
ADGM’s Registration Authority (RA) will collaborate with Hacken on developing security standards and on-chain monitoring solutions in relation to ADGM’s DLT Foundations framework.
Dyma Budorin, CEO of Hacken, said: “Our experience in working with public sectors, such as our audits for the European Blockchain Services Infrastructure and our cooperation with government entities, provides a solid foundation for this partnership. Together, we are setting a new global standard for blockchain security and compliance.”
Global
FIA cautions CFTC on regulation of AI
FIA has welcomed the CFTC’s decision to seek feedback on the uses of artificial intelligence in derivatives markets from the public before determining whether additional regulation is needed.
FIA urged the CFTC to take a “technology-neutral” approach and focus on “outcomes and use cases” rather than the technology itself.
FIA also urged the CFTC to consider the applicability of its existing rules and regulations before presupposing that new, AI-specific regulations are needed.
“In many instances, existing CFTC rules and guidance provide the controls and oversight needed for the CFTC to promote and protect the integrity and resilience of our markets,” the letter said.
FIA calls on international regulators to continue progress on margin transparency
FIA has written to international standard-setting bodies urging further progress on efforts to increase the resilience of global derivatives markets in times of stress.
The letter was submitted in response to a consultation on initial margin requirements in centrally cleared derivatives markets that was issued in January by the Basel Committee on Banking Supervision (BCBS), the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).
The FIA response expressed strong support for the proposed requirements for increased transparency into the process used by central counterparties to set IM requirements, saying it will give clearing members and their clients more ability to prepare for margin calls and thereby reduce liquidity risk in financial markets.
“We strongly support the proposed requirements on CCPs to provide additional disclosures and margin simulation tools,” said Jacqueline Mesa, global head of policy, FIA.
AFME and UK Finance respond to HM Treasury’s PISCES consultation
The Association for Financial Markets in Europe (AFME) and UK Finance have responded to the consultation by HM Treasury on the Private Intermittent Securities and Capital Exchange System (“PISCES”), suggesting the overall positioning of PISCES to be “clearly expressed and agreed” before further granular rules are proposed.
Both associations state a “sandbox” environment is suitable for initially testing PISCES and; it will be critical to offer companies and their shareholders flexibility on PISCES in respect of auction structure, pricing parameters, settlement procedures, disclosure, confidentiality of disclosures and intermediation; and it would be helpful to establish parameters for the form and content of the platform’s disclosure requirements so that there is broad agreement at the outset.
Gary Simmons, managing director, high yield and equity capital markets, AFME, said: “We … welcome the proposal to establish a platform that is intended to provide liquidity for private capital markets. We have seen this market grow substantially in recent years and we welcome the recognition of its growing role in the capital markets ecosystem and desire to support the needs of private companies.”
FSB introduces new global standard to support orderly resolution of a CCP
The Financial Stability Board (FSB) has published a report on financial resources and tools for CCP resolution.
The FSB has developed a global standard for financial resources and tools to facilitate the orderly resolution of systemically important CCPs with two expectations: Resolution authorities of systemically important CCPs should have access to a set of resolution-specific resources and tools, in addition to recovery resources and tools where these are available to the resolution authority; and jurisdictions should make their approach to calibrating the resolution-specific resources and tools in the toolbox transparent.
The FSB said it will monitor implementation for CCPs that are systemically important in more than one jurisdiction through the FSB’s regular monitoring tools. The findings will be aggregated and published in the FSB’s annual Resolution Report.
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