In this instalment of our Regulatory Round-up, we see associations in the US band together to challenge the SEC, Japan conduct a successful trading analysis data proof of concept, and the Australian Securities Exchange outline its clearing and settlement system replacement. Elsewhere, Europe is consulting on green bonds and crypto assets, and the FIA responds to a paper on critical third parties in the UK financial sector.
- Florida FX trader to pay $3.4m for futures, FX, options scheme
- NAPFM, MFA, and AIMA sue SEC to vacate dealer rule
- ASX kickstarts consultation on CHESS replacement
- JPX conducts successful trading analysis data proof of concept
- ICMA co-signs response to ESMA consultation on SECR Article 7 templates
- EU prop trading firms spend x3 time on regulation than US counterparts
- FIA responds to consultation on critical third parties in the UK financial sector
- ESMA launches third consultation under MiCA
- ESMA consults on rules for external reviewers of EU Green Bonds
- JSE partners AWS to modernise broker dealer accounting system
Americas
Florida FX trader to pay $3.4m for futures, FX, options scheme
Florida man Joseph Carvajales has been ordered to pay $2.4 million to customers he defrauded, and a $1 million fine, after making false statements to The W Group (WTG) customers in relation to futures, retail foreign currency contracts (forex), and options.
The US District Court for the Southern District of Florida order also imposes permanent trading and registration bans and a permanent injunction prohibiting the defendant from further violations of the Commodity Exchange Act (CEA) and Commodity Futures Trading Commission (CFTC) regulations.
Between June 2013 and June 2020, Carvajales made false claims to prospective WTG customers about where WTG traded; that WTG would use a commodity trading algorithm to trade futures, forex, and/or options on behalf of customers; that individual trading accounts were opened, that customer funds were deposited into trading accounts, and that trading was conducted; and the profit potential that could be made and the risks of trading. In reality, individual trading accounts were never opened, customer funds were not deposited into trading accounts, and no trading was conducted.
NAPFM, MFA, and AIMA sue SEC to vacate dealer rule
The National Association of Private Fund Managers (NAPFM), MFA, and the Alternative Investment Management Association (AIMA) have filed a lawsuit asking the US District Court for the Northern District of Texas in Fort Worth to vacate a rule recently adopted by the Securities and Exchange Commission (SEC) that dramatically expands the definitions of “dealer” and “government securities dealer” (the “Dealer Rule”).
The complaint asserts that the rule upends the well-understood meaning of what constitutes dealer activity under the Securities Exchange Act of 1934 and nearly a century of market practice. The Dealer Rule is indeterminate and overbroad and can be read to capture a wide variety of non-dealing activity, thereby subjecting private funds to dealer registration in what can only be described as an end-run around legislative intent. Moreover, the Dealer Rule is expressly non-exclusive, with no presumption of compliance even if a market participant falls outside the new definition, affording market participants no meaningful way to understand with certainty who counts as a dealer.
APAC
ASX kickstarts consultation on CHESS replacement
The Australian Securities Exchange (ASX) has begun consulting industry on its proposed approach to deliver the CHESS replacement. CHESS is the clearing and settlement system for Australia’s securities market, and this consultation paper follows an extensive reassessment by the ASX of the solution design for a replacement of CHESS that would serve the whole market.
ASX released a public consultation paper calling for feedback on the two-stage approach it has proposed for the delivery of CHESS replacement, as well as the proposed implementation plan for the clearing service, which is to be delivered in the first release.
In November 2023 ASX announced it would proceed with a product based solution design for CHESS replacement that would be delivered by global technology provider TATA Consultancy Services (TCS).
ASX group executive, securities and payments, Clive Triance, said: “Our decision to proceed with the product based solution for CHESS replacement was deeply informed by extensive stakeholder engagement, and we know that this next phase will also rely on ASX gathering feedback to drive toward an industry consensus on detailed design and implementation planning.
“This consultation paper covers the high-level project plan that has been proposed, and it will also focus on the scope and approach for Release 1 including messaging specifications, testing requirements and readiness activities.”
JPX conducts successful trading analysis data proof of concept
JPX market innovation and research (JPXI) has conducted a Proof of Concept (PoC) on trading analysis data with the goal of aiding trading participants in analyzing their own transactions.
After receiving feedback from the PoC participants and confirming that the use of the provided data was indeed effective, JPXI has decided to launch a new service for providing trading analysis data on 1 April 2024.
The service will provide the following four types of data on a daily basis, aggregated by trading participants, based on the trading participant’s order and execution information: cross trade data; order volume increase; buy and sell with price movement; rapid tick-by-tick change.
World
ICMA co-signs response to ESMA consultation on SECR Article 7 templates
The International Capital Market Association (ICMA) has, along with other associations, responded to the ESMA consultation of December 2023 on the review of SECR Article 7 templates.
The response seeks to address in the interim period (prior to the wider review of the SECR) certain urgent matters that could help to revive the securitisation markets by reducing unnecessary complexities and cost of regulatory compliance.
Broadly, the response called for reforms are needed now to remove burdensome regulatory reporting on private securitisations and to introduce a single dedicated template addressing the supervisors’ needs, thus also removing compliance challenges faced by the EU investors when seeking to invest in third country securitisations; and if any changes are to be made to the “public” reporting templates, to introduce only a very limited number of targeted amendments to such templates.
EU prop trading firms spend x3 time on regulation than US counterparts
Acuiti’s ‘Proprietary Trading Management Insight Report’ notes a dip in profitability for proprietary trading firms between 2022 and 2023, with the majority of respondents describing their profitability as “slightly worse” or “significantly worse” when compared with the previous year or their 2023 budget.
The Q1 2024 report is based on a survey of the Acuiti Proprietary Trading Expert Network, which consists of more than 100 global senior executives.
Despite these figures, the majority rated their profitability as “about the same” when compared to an average year. This trend was seen across geographies, with both the US and Asia seeing YoY declines but the majority of respondents stating that 2023 trading was about the same as an average year.
EMEA
FIA responds to consultation on critical third parties in the UK financial sector
FIA has outlined its support for UK regulators and the Bank of England’s intention to strengthen operational resilience frameworks for firms and financial market infrastructures (FMIs).
The organisation submitted its response to a Bank of England, Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) consultation paper which considers the operational resilience of critical third parties in the UK financial sector.
FIA also supports the proposal for oversight of Critical Third Parties to be as interoperable as reasonably practicable with similar existing and future regimes.
In the response, FIA welcomes the approach taken whereby it is the CTP’s responsibility to identify and manage risks to its supply chain that could affect its ability to deliver a material service including dependencies on key nth party service providers.
FIA also made recommendations on the timing and content of reporting requirements to allow financial entities and FMIs to direct critical resources to address major ICT-related incidents and reflect the availability of information at key stages of incident response processes.
ESMA launches third consultation under MiCA
The European Securities and Markets Authority (ESMA) has published its third consultation package under the Markets in Crypto-Assets Regulation (MiCA).
In the consultation package, ESMA is seeking input on four sets of proposed rules and guidelines, covering: Detection and reporting of suspected market abuse in crypto-assets (RTS); policies and procedures, including the rights of clients, for crypto-asset transfer services; suitability requirements for certain crypto-asset services and format of the periodic statement for portfolio management; and ICT operational resilience for certain entities under MiCA.
Stakeholders are encouraged to provide their feedback to the consultation by 25 June 2024. ESMA will publish a final report based on the feedback received and will submit the draft technical standards to the European Commission for endorsement by 30 December 2024 at the latest.
ESMA consults on rules for external reviewers of EU Green Bonds
ESMA has launched a consultation on Draft Regulatory Technical Standards (RTS) related to the registration and supervision of external reviewers under the EU Green Bond Regulation (EuGB).
ESMA’s proposals relate to the registration and supervision of entities interested in becoming external reviewers of EU Green Bonds and aim to clarify the criteria used for assessing an application for registration by an external reviewer. In its proposals, ESMA aims to standardise registration requirements and contribute to developing a level playing field through lower entry costs for applicants.
The proposals relate to: senior management and analytical resources; sound and prudent management, including avoidance of conflicts of interest; knowledge and experience of analysts; and the outsourcing of assessment activities, forms, templates, and procedures for the provision of registration information.
JSE partners AWS to modernise broker dealer accounting system
The Johannesburg Stock Exchange (JSE) is working with Amazon Web Services (AWS) to modernise the exchange’s technology capabilities.
Africa’s largest stock exchange hopes to leverage “edge computing” infrastructure and explore blockchain and AI to deliver market solutions and drive operational efficiencies, as well as enhance the delivery of real-time market data in the cloud.
The JSE will start by upgrading its Broker Dealer Accounting (BDA) system. The BDA system is a critical application used by the JSE to manage risk and ensure the seamless functioning of equity markets. The BDA modernisation is designed to enhance operational efficiency, reduce running costs, technical debt and increase the agility of the JSE in responding to the demands of its capital market broker community.
Leila Fourie, group CEO,JSE said: “The JSE’s collaboration with AWS marks a new era in financial services, where technology and innovation drive progress. Together, we are not just modernising infrastructure; we are setting new standards for the industry, ensuring that our markets are more inclusive, efficient, and prepared for the future.”
Tanuja Randery, managing director, AWS EMEA, said: “The JSE’s commitment to drive efficiencies and an inclusive cloud-based marketplace has the potential to transform the way capital markets operate in South Africa.”
©Markets Media Europe 2024
