In November’s first regulatory round-up we see a US Treasury market inter-agency watch group make recommendations on shoring up Treasury market resilience, while in Canada, a new trading platform is launched. In Europe, we see market data vendors raise prices ‘aggressively’ despite a looming FCA probe, and the European Securities and Markets Authority (ESMA) launches a consultation on T+1. Further afield, in Asia Pacific, Hong Kong Exchanges and Clearing Limited (HKEX), working with national government, is developing an integrated fund platform for the distribution of retail funds.
- SEC enacts security-based swap execution facilities registration rule
- Inter-agency working group produces report on Treasury market resilience efforts
- MiFID II unbundling rules dented research and liquidity in London’s main stock market, study finds
- Market data vendors raise prices ‘aggressively’ in 2023 amid FCA probe
- ESMA launches consultation on shortening settlement cycle
- ESMA publishes data for quarterly bond liquidity assessment and systematic internaliser calculations
- HKEX to develop integrated fund platform for retail fund distribution
Americas
SEC enacts security-based swap execution facilities registration rule
The US Securities and Exchange Commission (SEC) has created a regime for the registration and regulation of security-based swap execution facilities (SBSEFs).
The new regulatory framework – Regulation SE – was mandated under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the over-the-counter derivatives market. In adopting Regulation SE, the Commission has sought to harmonise with parallel rules of the CFTC that govern swap execution facilities (SEFs) and swap execution generally.
SEC chair, Gary Gensler, said, “Adopting Regulation SE fulfils Congress’s mandate and increases the transparency and integrity of the security-based swap market.”
Inter-agency working group produces report on Treasury market resilience efforts
The Inter-Agency Working Group on Treasury Market Surveillance (IAWG) — which is composed of staff from the US Department of the Treasury, the board of governors of the Federal Reserve System, the Federal Reserve Bank of New York, the US Securities and Exchange Commission, and the US Commodity Futures Trading Commission — has issued a report to provide an additional update on a wide range of steps its members have taken to enhance the resilience of the US Treasury market.
The IAWG members have, among other steps: announced plans to implement a Treasury buyback program in 2024; adopted amendments requiring certain firms that are significantly involved in the proprietary trading of Treasury securities to become members of the Financial Industry Regulatory Authority (FINRA) and report their Treasury transactions to FINRA’s Trade Reporting and Compliance Engine (TRACE); approved further enhancements to the public release of data on secondary market transactions in on-the-run Treasury securities; adopted changes to SEC Form N-MFP that will provide, among other items, more granular information about activity of money market funds in the Treasury repurchase agreement (repo) market; adopted changes to SEC Form PF that will enable better monitoring of the activity of liquidity funds and will draw clearer distinctions between cash and derivatives activity in the Treasury markets; adopted rules requiring reporting of the terms of securities lending transactions in a timely manner; and approved changes that will expand cross-margining between central counterparties that clear cash and derivatives transactions related to Treasury securities and improve the management of member defaults.
Europe
MiFID II unbundling rules dented research and liquidity in London’s main stock market, study finds
A study from the University of Bath shows the European Union’s MiFID II financial market reforms inadvertently reduced research activity and adversely affected liquidity in London’s main stock market.
Despite the drop in research activity, the Research unbundling and market liquidity: Evidence from MiFID II study found that the impact on London’s relatively less regulated Alternative Investment Market was mitigated by its special adviser rules. London’s more lightly regulated Alternative Investment Market saw research coverage increase over the same period by 6.3%, albeit from a much smaller level of around 1.5 analysts per company, and liquidity improved. However, Xie said an estimated 12% drop in analyst coverage led to a significant deterioration in market liquidity in the highly regulated London Stock Exchange’s ‘Main Market’, where most equity, debt and securities are traded.
Ru Xie of the University of Bath’s School of Management, co-author of the study, said the research supports a growing understanding in the UK and EU of the unintended consequences of MiFID II and its negative impact on stock market liquidity.
Market data vendors raise prices ‘aggressively’ in 2023 amid FCA probe
Market data renewal charges for ratings agencies and index providers have seen “significant” inflation-busting increases, by as much as 12 to 13%, with an increase in inconsistency of charges for identical products and use cases.
That’s according to the latest Substantive Research’s latest analysis of 2023 market data pricing, which also reveals opacity in pricing despite an impending Financial Conduct Authority (FCA) review of practices in the sector.
The analysis shows that for anyone renewing market data contract agreements in 2023, the repricing has been “comprehensive and aggressive”. The study also shows that these aggressive percentage price increases are being applied to those paying much higher multiples, meaning their price inflation carries a much higher cost.
In August 2023 the FCA released its update on the Wholesale Market Data Study, stating that it will publish its findings in March 2024, with a focus on competition and the risks of bundling core services with other data services that make it harder for users to switch, and stifle innovation in the market.
ESMA launches consultation on shortening settlement cycle
The European Securities and Markets Authority (ESMA) has launched a Call for Evidence (CfE) on the shortening of the settlement cycle. Stakeholders are invited to provide their input by 15 December 2023.
The consultation will help ESMA determine the costs and benefits of a possible reduction of the settlement cycle in the European Union (EU); identify whether any regulatory action is needed to soften the impact for EU market participants of the planned shortening of the settlement cycle to T+1 in other jurisdictions, such as the US; how and when a shorter settlement cycle could be achieved; and the impacts on the EU’s capital markets resulting from international developments related to securities settlement.
ESMA publishes data for quarterly bond liquidity assessment and systematic internaliser calculations
The European Securities and Markets Authority (ESMA), has published its new quarterly liquidity assessment of bonds, the data for the quarterly systematic internaliser calculations for equity, equity-like instruments, bonds and for other non-equity instruments under MiFID II and MiFIR.
Over the quarter period, there were currently 1155 liquid bonds subject to MiFID II transparency requirements. ESMA’s liquidity assessment for bonds is based on a quarterly assessment of quantitative liquidity criteria, which includes the daily average trading activity (trades and notional amount) and the percentage of days traded per quarter.
ESMA also publishes two completeness indicators related to bond liquidity data.
The transparency requirements for bonds deemed liquid today will apply from 20 November 2023 to 18 February 2024. The application dates reflect the entry into force of the RTS 2 amendments.
Data for the systematic internaliser quarterly calculations covers the total number of trades and total volume over the period 1 April 2023 to 30 September 2023 and includes: 23,877 equity and equity-like instruments; 127,129 bonds; and 6,045 sub-classes of derivatives (including equity derivatives, interest rate derivatives, commodity derivatives, emission allowance).
The results for equity and equity-like instruments are published only for instruments for which trading venues submitted data for at least 95% of all trading days over the 6-month observation period. The data publications also incorporate OTC trading to the extent it has been reported to ESMA. The publication includes data for instruments traded or available for trading during the reference period considered.
APAC
HKEX to develop integrated fund platform for retail fund distribution
Hong Kong Exchanges and Clearing Limited (HKEX) is developing an integrated fund platform for the distribution of retail funds.
The platform, currently in development, will cover the full distribution cycle and value chain for retail funds in Hong Kong, designed to lower the barriers of entry to the industry and allowing market participants to better distribute fund products to their clients. The platform will cover funds authorised by the Securities and Futures Commission.
Glenda So, HKEX group head of emerging business and FIC, said: “At HKEX, we are committed to further building the attractiveness and competitiveness of Hong Kong as an international financial centre (IFC), bringing more diversity to the market and more choice for investors. Our commitment to connecting capital with opportunities underpins this development project, to build an integrated platform for retail funds in Hong Kong. We look forward to helping enhance and support retail fund distribution in Hong Kong, providing investors with cost-effective access to a broader choice of fund products, from a more diversified group of distributors.”
Initially, the fund platform will be a business-to-business service model, and will consist of three main components: a Communication Hub – a centralised network that connects different parties in the fund distribution ecosystem, such as fund managers and distributors, to facilitate transactions; a Business Platform – covering functionalities such as fund order routing, subscriptions and redemptions, payments and settlements, and various optional nominee services; and, an Information Portal – helping the investing public with access to more information and greater transparency on fund investment options.
HKEX is currently evaluating the operating model and structure of the fund platform. Working with the Hong Kong Government, the Securities and Futures Commission and other stakeholders, HKEX intends to finalise the platform design and development framework over the coming months.
© Markets Media Europe 2023
