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Penalties under EMIR

On 13th June 2018 ESMA has published a Report on supervisory measures and penalties under EMIR (Articles 4, 9, 10 and 11).

This is the first Annual Report on supervisory measures and penalties that is focused on the provisions related to:

  • The clearing obligation under Article 4 of EMIR;
  • The reporting obligation under Article 9 of EMIR;
  • Non-financial counterparties under Article 10 of EMIR;
  • The risk-mitigation techniques under Article 11 of EMIR.

The table below lists the number of investigations undertaken by the national competent authorities (NCAs) during 2017.

 Art. 4
Clearing Obligation
Art. 9
Reporting Obligation
Art. 10
Non-financial counterparties
Art. 11
Risk-mitigation Techniques
None16: BU; CZ; DK ; FI; FR;
IE; EL ; IT ; LU; LV; PT ; MT; NL; SE; SI; UK
10: BU ; CZ; FI; HR; IE; LV; MT; NL; NO; SI20: AT; BU; CY; CZ; DK;
EL; FI; FR; HR; IE; IT; LU;
LV; MT; NL; NO; PT; SE; SI; UK
13: BU; CZ; EL; FI; HR;
IE; LV; MT; NL; PT; SE; SI; UK
From 1 to 56: AT; DE; ES; HR; NO;
SK
4: FR; EL; SK; UK3: DE; ES; SK5: AT; FR; LU; SK; NO
From 6 to 1004: AT; DK; PL; SE03: DK; IT; PL
From 11 to 202: CY; DE3: CY; ES; PT1: PL2: CY; ES
More than 201: BE4: BE; DE; LU; IT1: BE;2: BE; DE

Detailed information about penalties and fines by country is available here.

For more information please feel free to contact us at office@emirreporting.eu

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ESMA’s product intervention measures relating to CFDs and binary options

On 1st June 2018 ESMA has formally adopted new measures on the provision of contracts for differences (CFDs) and binary options to retail investors.

The measures have been published in the Official Journal of the European Union (OJ) on 1st June 2018. They will start to apply from 2 July 2018 for binary options and from 1 August 2018 for CFDs and will apply as follows:

1. Binary Options (from 2 July 2018) – a prohibition on the marketing, distribution or sale of binary options to retail investors; and

2. Contracts for Differences (from 1 August 2018) – a restriction on the marketing, distribution or sale of CFDs to retail investors. This restriction consists of: leverage limits on opening positions; a margin close out rule on a per account basis; a negative balance protection on a per account basis; preventing the use of incentives by a CFD provider; and a firm specific risk warning delivered in a standardised way.

ESMA has adopted these measures in the official languages of the EU and they will remain in force for a period of three months from the date of application.

On 1st June 2018 ESMA has published Q&As on the temporary product intervention measures on the marketing, distribution or sale of CFDs and Binary options to retail clients.

Background

On 27th March 2018 ESMA has published additional information on the agreed product intervention measures relating to contracts for differences and binary options.

Measure related to CFDs from 1 August 2018

The product intervention measure ESMA has agreed under Article 40 of MiFIR for CFDs include:

  • Leverage limits on the opening of a CFD by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:

30:1 for major currency pairs;

20:1 for non-major currency pairs, gold and major indices;

10:1 for commodities other than gold and non-major equity indices;

5:1 for individual equities and other reference values;

2:1 for cryptocurrencies;

  • A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum initial required margin) at which providers are required to close out one or more of a retail client’s open CFDs.
  • Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;
  • A restriction on the incentives offered to trade CFDs; and
  • A firm-specific risk warning, including the percentage of losses on a CFD provider’s retail investor accounts, delivered in a standardised way.
 Measures related to binary options from 2 July 2018

The product intervention measure ESMA has agreed under Article 40 of MiFIR is a prohibition on the marketing, distribution or sale of binary options to retail investors.

Next steps

MiFIR gives ESMA the power to introduce temporary intervention measures on a three monthly basis. Before the end of the three months, ESMA will review the product intervention measures and consider the need to extend them for a further three months.

 

For more information please feel free to contact us at office@emirreporting.eu.

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Updated EMIR validation rules

On 1st March 2018 ESMA has updated EMIR validation rules for the reports submitted under revised technical standards:

  • Clarify how the identification of the product should be validated in the reports submitted on or after 3 January 2018. For the reports where the date in the field 1.1 ‘Reporting timestamp’ is 03-01-2018 or later and if the field 2.15 ‘Venue of execution’ is populated with: (i) a MIC that pertains to a trading venue in EEA country or with (ii) a code “XOFF”, the field 2.5 ‘Product identification type’ shall be populated with “I”, unless: the date populated in the field 2.27 ‘Maturity date’ is earlier than 03-01-2018, or the date in the field 2.25 ‘Execution timestamp’ is 02-01-2018 and the date in the field 1.1 Reporting timestamp is 03-01-2018, in which cases the field 2.5 ‘Product identification type’ can be populated with “I” or “A”. Otherwise, (i.e. if the field 2.15 is not populated with (i) a MIC that pertains to a trading venue in EEA country or with (ii) a code “XOFF”) the field 2.5 ‘Product identification type’ can be left blank.
  • Allow for the reporting of exchange-traded derivatives in products for which the effective date may be earlier than the date of execution. The validation rule that the field 2.26 ‘Effective date’ should be greater than or equal to the value of the date part of the field 2.25 ‘Execution timestamp’ has been removed. There is currently only a requirement for a common input format: YYYY-MM-DD.

For more information please feel free to contact us at office@emirreporting.eu

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ESMA report on fees charged by trade repositories

On 11 Jan 2018 the European Securities and Markets Authority (ESMA) has published a Thematic Report on fees charged by Credit Rating Agencies (CRAs) and Trade Repositories (TRs).

The Thematic Report provides ESMA’s views on the application of the requirements that fees charged by CRAs should be non-discriminatory and cost-based, and TRs provide non-discriminatory access and charge publicly disclosed and cost-related fees. It equally identifies the areas for improvement regarding transparency and disclosure, the fee-setting process and the interaction with entities related to CRAs and TRs. Going forward, these areas will form the core of ESMA’s supervisory focus.

ESMA has raised the following concerns regarding fees charged by trade repositories (TRs):

  • Transparency and disclosure – TRs can achieve more transparency through reducing complexity and increasing comparability of fee schedules, as well as disclosing sufficient information to enable clients to estimate any additional reporting costs. For example, clarity can be achieved by adding illustrative examples for the most popular reporting scenarios. ESMA identifies as good practice the use of on-line calculators to enhance comparability between TRs for clients. Transparency around potential connectivity costs would help clients in evaluating the total cost of using a particular TR;
  • Fee-setting process – TRs need to ensure that cost is a key pricing factor and sufficient controls are in place to demonstrate that the regulatory objectives regarding pricing are met. For example, if a TR decides to charge differently ETD and OTC derivative reporting, Commodity or Credit derivative swap, ESMA would expect that the reason of the difference is primarily based on costs. The different fee cap and/or volume tier in place raises concerns on whether the revenues, which could have been received from the clients who reached the fee cap, may in fact have been charged to other clients. The fee caps in certain cases are applied to clients that belong to the same group as the TR itself. Only 43 clients in total across all TRs were subject to a fee cap in 2016. Those clients are reporting on behalf of other counterparties.

ESMA also provides a factsheet on Trade Repository Fees.

Next Steps

ESMA will continue to engage with both supervised entities and their clients to ensure effective application of the fee provisions, e.g. on costs, price deviations and controls in place.

ESMA may also decide to provide further supervisory guidance to ensure compliance with the relevant requirements.

Our Opinion 

Our view is that ESMA’s Thematic Report will influence the fee schedule of the trade repositories in the following way:

  • The TRs will provide more details about all possible costs/fees charged as well as examples of the most common reporting scenarios, maybe on-line calculators of the fees;
  • The TRs will review and most probably significantly increase or remove the fee caps.

For more information please feel free to contact us at info@emirreporting.eu.

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ESMA statement in relation to CFDs, binary options and other speculative products offered to retail clients

On 15 Dec 2017 ESMA has issued an updated statement on its work in relation to the sale of contracts for difference (CFDs), including rolling spot forex, and binary options retail clients.

ESMA states that it has been concerned about the provision of speculative products such as CFDs, including rolling spot forex, and binary options to retail clients for a considerable period of time and has conducted ongoing monitoring and supervisory convergence work in this area. Some competent authorities have also adopted national measures to limit the provision of these products to retail clients.

Notwithstanding these actions, ESMA states that it remains concerned that the risks to investor protection are not sufficiently controlled or reduced. Further to the ESMA statement published in June 2017 , ESMA is considering the possible use of its product intervention powers under Article 40 of MiFIR to address these investor protection risks.

In particular, ESMA is considering measures to:

  1. prohibit the marketing, distribution or sale to retail clients of binary options; and
  2. restrict the marketing, distribution or sale to retail clients of CFDs, including rolling spot forex.

The restrictions on CFDs currently under review are:

  • leverage limits on the opening of a position between 30:1 and 5:1, whose limit will vary according to the volatility of the underlying asset;
  • a margin close-out rule;
  • negative balance protection to provide a guaranteed limit on client losses;
  • a restriction on benefits incentivising trading; and
  • a standardised risk warning.

ESMA will conduct a brief public consultation in January 2018 on this matter.

Any product intervention measure adopted by ESMA under Article 40 of MiFIR can have an initial duration of up to three months and is renewable. Measures adopted by ESMA apply across Member States in the same manner. This means that all market participants providing services in Europe must comply with the measures. The product intervention powers can be used against all firms authorised under Directive 2014/65/EU and credit institutions (banks) authorised under Directive 2013/36/EU.

For more information please feel free to contact us at info@emirreporting.eu.

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Updated EMIR Q&As

On 14 Dec 2017 ESMA has issued another update on the EMIR Q&As.

The updated document includes new answers in relation to:

  • Segregation level for indirect clearing accounts (that shall apply from 3 January);
  • Variation margin that is returned by counterparty 2;
  • Variation margin that is not transferred because it is below the agreed minimum transfer amount;
  • Swap reporting.

If you have any questions please feel free to contact us at info@emirreporting.eu.

 

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ESMA registered NEX Abide Trade Repository as trade repository

The European Securities and Markets Authority (ESMA) has registered NEX Abide Trade Repository AB as a trade repository under the European Market Infrastructure Regulation (EMIR), with effect from 24 November 2017.

NEX Abide Trade Repository AB is based in Sweden and covers the following derivative asset classes:

  • commodities;
  • credit;
  • foreign exchange;
  • equities and
  • interest rates.

EMIR introduced provisions to improve transparency, establish common rules for central counterparties (CCPs) and for trade repositories and to reduce the risks associated with the OTC derivatives market. It also provides for the direct supervision and the registration of trade repositories (TRs) by ESMA as well as the recognition of non-EU TRs.

Trade repositories are commercial firms that centrally collect and maintain the records of derivatives contracts reported to them. The registration of this TR means that it can be used by the counterparties to a derivative transaction to fulfil their trade reporting obligations under EMIR.

In order to be registered as a TR a company must be able to demonstrate to ESMA that it can comply with the requirements of EMIR, including, most importantly, on:

  • operational reliability;
  • safeguarding and recording; and
  • transparency and data availability.

The NEX Abide Trade Repository AB registration brings the total number of TRs registered in the EU to eight TRs, which can be used for trade reporting.

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ESMA updates EMIR Q&As

The updated EMIR Q&A includes new or updated answers regarding the reporting to trade repositories. The purpose of this document is to promote common supervisory approaches and practices in the application of EMIR. It provides responses to questions posed by the general public, market participants and competent authorities in relation to the practical application of EMIR.

The content of this document is aimed at competent authorities under the Regulation to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by ESMA. It should also help investors and other market participants by providing clarity on the requirements under EMIR.

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Updated list of recognised third-country CCPs

On 9 Oct 2017, ESMA has issued an updated list of recognised third-country CCPs. i.e. list of recognised central counterparties (CCPs) based in third countries.

The update concerns CCPs established in India:

  • Indian Clearing Corporation Limited;
  • National Securities Clearing Corporation Limited; and
  • MCX-SX Clearing Corporation.

The European Markets Infrastructure Regulation (EMIR) requires third-country CCPs to be recognised by ESMA in order to operate in the European Union.

For more information please feel free to contact us at office@emirreporting.eu.

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Updated validation rules under revised EMIR standards

On 3 October 2017, ESMA published a further update to the Validation Rules under revised EMIR standards. The validation rules are additional instructions that accompany the delegated regulation and implementing regulation amending the regulatory technical standards (RTS) and implementing technical standards (ITS) on the minimum details of the data to be reported to trade repositories under EMIR. Both standards and the updated Validation Rules will apply from 1 November 2017.

For further information please contact us at office@emirreporting.eu.

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