In this regulatory round-up we look at the US Securities and Exchange Commission amendments on rules for dealer roles, as well as new reporting rules for some investment advisers to private funds. There is change at the top for Hong Kong Exchange and Clearing, with a new CEO, while Europe’s ESMA has dropped certain best execution reporting requirements following lukewarm feedback from market participants.
- SEC classifies HFT liquidity providers as “dealers”
- SEC Adopts Amendments to Enhance Private Fund Reporting
- CFTC names Brian Young as director of whistleblower office
- Change at the top for HKEX
- ICMA publishes paper on transition finance in debt capital market
- CPMI-IOSCO publish paper on streamlining variation margin in centrally cleared markets
- RTS 28 reports dropped as ESMA deprioritises enforcement
- ESMA withdraws Euronext authorisation as a data reporting service provider
- ESMA seeking new members for its Securities Markets Stakeholder group
Americas
SEC classifies HFT liquidity providers as “dealers”
US markets regulator, the Securities and Exchange Commission (SEC), has adopted two rules that require market participants who engage in certain dealer roles, in particular those who take on significant liquidity-providing roles in the markets, to register with the SEC, become members of a self-regulatory organisation (SRO) such as an exchange or trading venue, and to comply with federal securities laws and regulatory obligations.
SEC adopts amendments to enhance private fund reporting
The SEC has amended Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds, including those that also are registered with the Commodity Futures Trading Commission (CFTC) as commodity pool operators or commodity trading advisors. The amendments, which the CFTC also adopted, are designed to enhance the ability of the Financial Stability Oversight Council (FSOC) to monitor and assess systemic risk and to bolster the SEC’s oversight of private fund advisers and the agency’s investor protection efforts.
CFTC names Brian Young as director of whistleblower office
Commodity Futures Trading Commission (CFTC) chair Rostin Behnam has named Brian Young as the director of the CFTC’s Whistleblower Office.
“Whistleblowers play a critical role assisting the CFTC be a strong cop on the beat. Much of our Division of Enforcement’s success is tied to the strength of our Whistleblower Office,” said Behnam. “Brian’s extensive experience covering the issues directly impacting our markets will ensure the continued success of the CFTC’s Whistleblower program, and the urgent need to provide individuals who have information the assurances needed to come forward.”
“Leads generated from insiders are critically important to any financial enforcement program,” said Director Young. “The tremendous accomplishments of the CFTC’s Whistleblower Program confirm this view. I look forward to working with and learning from the talented CFTC staff to combat wrongdoing.”
Young comes to the CFTC from the Department of Justice (DOJ), where he was the acting director of litigation for the Antitrust Division.
APAC
Change at the top for HKEX
Hong Kong Exchanges and Clearing (HKEX) CEO Alejandro Aguzin is not seeking reappointment at the end of his contract in May 2024. Aguzin will remain an ex-officio member of the board until 29 February 2024.
Bonnie Chan will replace Aguzin as chief executive, effective 1 March 2024, for a term of three years until February 2027.
HKEX also allied with the Hong Kong Government’s appointment of Chan Kin-por and Peter Yan, and its re-appointment of Susan Chow, to its board of directors.
The terms of the three directors will begin at the conclusion of HKEX’s 2024 Annual General Meeting (AGM) and will end at the conclusion of the AGM in 2026.
International
ICMA publishes paper on transition finance in debt capital market
The International Capital Market Association (ICMA) has published a new paper on transition finance in the debt capital market.
The paper reviews the latest guidance and recommendations on transition finance from both the market and the official sector. It also underlines the progress of international taxonomies to integrate transition, as well as the latest developments on sectoral pathways and industry roadmaps.
“Analysing the data, we confirm that the green and sustainability bond market has been largely dedicated to climate finance but is not a major resource for the transition of companies from the fossil fuel sector and the hard-to-abate industries notably because of “greenwashing” fears,” the group said.
ICMA sees new sustainability corporate reporting standards of the International Sustainability Standards Board (ISSB) and the European Sustainability Reporting Standards (ESRS) as an opportunity for the mainstreaming of transition plans which we argue have the potential to unlock transition finance in the sustainable bond market.
“Climate transition finance is at the top of the agenda among both policy makers and market participants. With this paper we define transition finance with greater clarity while acknowledging the progress of both official and market guidance. We also propose a model structure for integrated transition plans to help unlock further the potential of the sustainable bond market to finance transition especially in the fossil fuel and hard-to-abate sectors.” said Nicholas Pfaff, deputy CEO and head of sustainable finance at ICMA.
CPMI-IOSCO publish paper on streamlining variation margin in centrally cleared markets
The BIS Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have published a report, “Streamlining variation margin in centrally cleared markets – examples of effective practices”, which sets out for consultation eight effective practices addressing variation margin (VM) processes and transparency between CCPs, clearing members and their clients.
The eight effective practices aim to provide examples of how standards set out in the PFMI and CCP resilience guidance can be met. They are intended to inform CCPs in designing their VM call and collection processes. Among the examples covered are: scheduling, frequency and timing of intraday VM calls; offsetting VM call requirements against other obligations where possible; pass-through of VM by CCPs; use of excess collateral to meet VM obligations; CCP and clearing member transparency in VM requirements and processes.
Europe
RTS 28 reports dropped as ESMA deprioritises enforcement
Investment firms in the European Union (EU) will no longer be obliged to publish some best execution reports following amendments to MiFID II, with the European Securities and Markets Authority (ESMA) directing national regulators to “deprioritise” action against these firms for failing to do so.
Article 27(6) MiFID II required investment firms to make public the top five execution venues where they executed client orders in the preceding year and information on the quality of execution obtained.
These ‘RTS 28’ reports were designed to provide investors with information on the execution quality achieved by investment firms. However, feedback suggests that these reports were rarely used and did not provide useful comparative information for investors.
ESMA withdraws Euronext authorisation as a data reporting service provider
ESMA has withdrawn Euronext’s ability to act as a Data Reporting Service Provider (DRSP). Euronext was authorised as both an Approved Reporting Mechanism and an Approved Publication Arrangement under MiFIR since 3 January 2018.
ESMA’s withdrawal decision follows the notification by Euronext of its intention to renounce its authorisation under the conditions set out in Article 27e(a) of MIFIR.
Under Article 27e(a), ESMA, or the relevant national competent authority, may withdraw the authorisation of a data reporting services provider where the latter: does not make use of the authorisation within 12 months, expressly renounces the authorisation or has provided no services for the preceding six months; obtained the authorisation by making false statements or by any other irregular means; no longer meets the conditions under which it was authorised; has seriously and systematically infringed this regulation.
ESMA seeking new members for its Securities Markets Stakeholder group
ESMA is seeking candidates representing the interests of all types of financial markets stakeholders for its Securities and Markets Stakeholder Group (SMSG).
ESMA said SMSG facilitates consultation with stakeholders by providing technical advice on ESMA’s policies and activities and brings information on recent market developments to our attention.
ESMA chair Verena Ross said: “The outgoing SMSG has provided invaluable support to ESMA through high-quality advice, and I would like to thank all the members for their work.
It is important that the stakeholder views in the SMSG are well balanced. As we prepare to renew the group I am therefore particularly inviting stakeholders who can give a strong voice to consumers, users of financial services, employees in the financial sector and small and medium-sized enterprises (SMEs) to put yourselves forward. Through your participation and advice you can contribute to shaping the future of the European capital markets.”
Interested candidates are invited to submit their applications no later than 23.59 CET on 18 March 2024.
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