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:
- prohibit the marketing, distribution or sale to retail clients of binary options; and
- 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.
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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.
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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:
- 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.more
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.more
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.
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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.
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On 2 Oct 2017 ESMA has published an updated version of EMIR Q&As.
The update is covering the following:
- If an AIF that is subject to the clearing obligation of Article 4(1) of EMIR in most of the casts it cannot make use of the exemption of intragroup transactions under Article 4(2) of EMIR;
- Ongoing monitoring of collateral requirements for CCPs (under article 46 of EMIR and Article 37 of the RTS on CCP requirements).
On 10 July 2017 ESMA has published an updated version of EMIR Q&As. The update provides further information about the treatment of AIF subject to the clearing obligation of Article 4(1) of EMIR and whether it can make use of the exemption for intragroup transactions under Article 4(2) of EMIR.
The questions about the buy/sell indicators for swaps are modified by adding also FX futures in the examples.
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On 14 Nov 2016 ESMA has published its final report regarding the amended application of the clearing obligation that financial counterparties in the category 3 need to comply with under EMIR (the European Market Infrastructure Regulation).
ESMA has proposed to postpone the phase-in period for central clearing of OTC derivatives applicable to financial counterparties with a limited volume of derivatives activity. ESMA’s report proposes to amend EMIR’s Delegated Regulations 2015/2205, 2016/592 and 2016/1178 on the clearing obligation in order to prolong, by two years, the phase-in for financial counterparties with a limited volume of derivatives activity – classified in Category 3 under EMIR Delegated Regulations. ESMA is also proposing to align the three compliance dates for Category 3 firms in the Delegated Regulations regarding Interest Rate Swaps and Credit Default Swaps. The newly proposed compliance date would be 21 June 2019.
The EC has approved the final report. On 24 April 2017 Commission Delegated Regulation (EU) 2017/751 was published in the Official Journal. The approved date is 21 June 2019. The Regulation enters into force on 19 May 2017. The first date for the clearing obligation for interest rate swaps denominated in the G4 currencies is postponed by 2 years from 21 June 2017 to 21 June 2019.more
On 3 April 2017 ESMA has published updated EMIR Q&As document. In order to facilitate smooth and well-informed preparation for the implementation of the revised standards (revised EMIR RTS and ITS), ESMA has included the updated versions of those questions in the Q&A, indicating that they will become applicable from 1 November 2017, together with the revised technical standards.
The Q&As also include an updated question regarding the obligation to report outstanding trades following the entry into force of EMIR, i.e. the backloading.
Furthermore, ESMA has published the updated validation rules for the reports submitted under the revised technical standards (revised RTS). The updated validation rules will equally become applicable from 1 November 2017.more