Emir

ESMA clarifies its interest rate swaps clearing standards

The European Securities and Markets Authority (ESMA) has today published a revised opinion on its draft Regulatory Technical Standard (RTS) on the clearing obligation for Interest Rate Swaps (IRS). ESMA’s draft IRS RTS had originally been sent for endorsement to the European Commission by 1 October 2014. On 29 January 2015, the Commission responded with a corrigendum notification, which informed ESMA of its intention to endorse the draft RTS with amendments. Today’s opinion revises ESMA’s earlier opinion published on 29 January 2015. However, besides incorporating practical issues raised by the Commission corrigendum notification, the revised opinion does not introduce material changes compared to the original opinion nor were the actual draft IRS RTS modified.

The document 2015/511 is available here.

ESMA and MAS conclude MoU on CCPs

The European Securities and Markets Authority (ESMA) and the Monetary Authority of Singapore have concluded a Memorandum of Understanding (MoU). The MoU establishes cooperation arrangements between the signatory authorities regarding Central Counterparties (CCPs) established in Singapore, are authorised by the Monetary Authority of Singapore and have applied for recognition under EMIR.

The MoU is effective as of 10 February 2015. This MoU is established under the European Markets Infrastructure Regulation (EMIR). EMIR provides for cooperation arrangements to be established between ESMA and non-EU authorities whose legal and supervisory framework for CCPs have been deemed equivalent to EMIR by the European Commission.

The Memorandum of Understanding between ESMA and MAS is available here.

ESMA and RBA conclude MoU on access to data held in TRs

The European Securities and Markets Authority (ESMA) and the Reserve Bank of Australia (RBA) have concluded a Memorandum of Understanding (MoU) that will allow RBA to have access to data held in European Trade repositories according to its mandate.

The MoU is effective as of 18 February 2015.

The ESMA-RBA MoU is the second cooperation arrangement established under Article 76 of the European Market Infrastructure Regulation (EMIR). This provision aims at ensuring that third-country authorities that do not have any trade repository in their jurisdiction may access the information on derivatives contracts held in European trade repositories which is relevant for their mandates.

The MoU ensures that guarantees of professional secrecy exist. The first MoU of this kind was concluded in November 2014 between ESMA and the Australian Securities & Investments Commission (ASIC).

ESMA updates list of authorised CCP and Public Register

The European Securities and Markets Authority (ESMA) has published today an update of its list of central clearinghouses (CCPs) which are authorised under the European Markets Infrastructure Regulation (EMIR) and its Public Register for the Clearing Obligation.

Today’s update concerns Nasdaq OMX Clearing AB which has extended its activities and services, a fact which under EMIR requires a new authorisation by the competent authority.

Nasdaq OMX Clearing AB was first authorised on 18 March 2014. It has been re-authorised today for exchange-traded and OTC FX derivatives.

ESMA and JFSA conclude a MoC regarding CCPs

The European Securities and Markets Authority (ESMA) and the Financial Services Agency of Japan (JFSA) have concluded a Memorandum of Cooperation (MoC). The MoC establishes cooperation arrangements between the signatory authorities regarding Central Counterparties (CCPs) that are established in Japan, are licensed or approved by the JFSA, and have applied for recognition under EMIR.

The MoC is effective as of 18 February 2015. This MoC is established under the European Markets Infrastructure Regulation (EMIR). EMIR provides for cooperation arrangements to be established between ESMA and non-EU authorities whose legal and supervisory framework for CCPs have been deemed equivalent to EMIR by the European Commission. ESMA is working closely with other third-country authorities on similar cooperation arrangements.

The Memorandum of Cooperation between ESMA and JFSA is available here.

Impact from the Swiss franc surge to Cypriot regulated entities

On 16ht of Jan CySEC has announced that it requires the Cypriot regulated entities that provide investment services (CIF) to submit a detailed report about the impact from the sharp move of the Swiss franc. The aim was to determine the potential impact on the capital adequacy and their business.

Today CySEC publishes a summary of the reports that are received from the CIFs. After evaluating the collected data CySEC has found out that 158 of the 182 licensed CIFs had no negative effect on capital adequacy and / or in their business. The remaining 24 CIFs have reported to have experienced some losses, however those losses either have no effect on their capital adequacy, or their effect is insignificant. The affected CIFs still have equity and capital adequacy ratio above the minimum allowable limits as per the legislation.

The total loss suffered by the 24 affected CIFs is about € 42,5 million. The losses are a result mainly from the negative balances on the customer accounts due to leverage (margin) and the balances differences with those of liquidity providers to which the trades were forwarded. The CIF endeavor to recover the aforesaid amounts.

CySEC mentions that they have noticed a slight increase in the volumes of Cyprios CIFs. CySEC concludes that his might be a result from the problems that the similar entities are facing in another countries.

CySEC ensures that it is closely monitoring the capital adequacy and is exercising close supervision of CIFs. Regarding the specific situation, CySEC closely monitors and is in constant contact with the CIFs where required.

ESMA adds Athens Exchange Clearing House to its list of authorised CCPs

ESMA has today added Athens Exchange Clearing House to its list of authorised CCPs under the European Market Infrastructure Regulation (EMIR).

EMIR requires EU-based CCPs to be authorised and non-EU CCPs to be recognised in the European Union (EU).

The updated list of authorised CCPs is available on ESMA’s website.

List non-EEA CCPs applicants

ESMA has published a List of central counterparties (CCPs) established in non-EEA countries which have applied for recognition under Article 25 of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, CCPs and trade repositories (TRs) (EMIR).

The list below includes only those entities that have expressly agreed to have their name mentioned publicly. ESMA underlines that this list is not necessarily exhaustive and it remains subject to further updates. The list below is provided for information purposes only and it is without prejudice to any future ESMA decision of the recognition of the applicant CCPs.

ESMA announcement is available here.

Possible regulatory effects after the Swiss franc surge

During the past few weeks there have been several indications by the different regulatory authorities regarding future tightening up of the requirements and supervisory activities at European level as well as local authority’s level. For example ESMA has published on 22^nd Dec, last year Guidelines on consistency of supervisory practices for financial conglomerates, aiming to clarify and enhance cooperation between national competent authorities on cross-border groups that have been identified as financial conglomerates.

Another clear indication came from FCA on 17^th Dec with the publication on their web site focused on the supervisory priorities arising from EMIR. ESMA has already indicated in previous documents related to EMIR that additional requirements are implemented to ensure a higher pairing rate of the reported trades and higher quality of the gathered data.

With such regulatory activities at the background, yesterday, 15^th Jan the Swiss National Bank has decided to discontinue the minimum exchange rate of CHF 1.20 per euro and to cease the foreign currency purchases associated with enforcing it. The Swiss National Bank has also decreased the interest rate to negative -0.75%. All this came into force with immediate effect at the time of announcing it by the SNB and without any prior notice or indication of it.

None of the market participants were prepared for this situation and the EURCHF rate declined with about 24% then bounced back to about 15% less than the former cap. The IT infrastructure of some of the banks was not prepared for this rapid surge of the Swiss franc. There have been algos that were not able to quickly adjust to the price move. At least one electronic currency trading system of a bank has temporarily halted transactions, another one has temporarily ceased to provide quotes. All this added up to one of the sharpest price moves in the FX market.

The consequences for the industry participants are disastrous.

The first casualty is the New Zealand based Global Brokers NZ Ltd. According to the official statement published in the web site on 15^th Jan: “Global Brokers NZ Ltd. STP’s 100% of order flow and has sustained a total loss of operating capital. GBL can no longer meet regulatory minimum capitalization requirements of N$1,000,000 and will not be able to resume business.” Another part of the statement says: “All open positions must be closed by 5 pm New York time or they will be automatically closed at that time. New positions cannot be opened as of this time.”

This ends the myth that 100% STP brokers (i.e. that operate 100% agency model) are risk free.

The third biggest broker (by retail volumes) is not spared either. Alpari (UK) announced today at 12:00 on their web site “This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us.  This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency.” The full text of the news is available here. It is reported that the clients cannot log into their live accounts now.

The biggest player FXCM (NYSE:FXCM) is also heavily affect as their stocks collapsed and are halted on New York Stock Exchange. FXCM has announced that the total clients’ loss is approximately $225 million negative equity balance. Тhe official announcement is: “We are actively discussing alternatives to return our capital to levels prior to today’s events and discussing the matter with our regulators.” Later it was announced that FXCM is receiving $300M bailout from Leucadia National.

The banks are also affected. According to Bloomberg Deutsche Bank has lost approx. $150M. Business Insider reports that Citigroup has lost $150M too, while Barclays has lost tens of millions.

What will happen next from a regulatory point of view?

The current situation would speed up the processes that have already been started at a regulatory level. We expect that ESMA and the local regulatory authorities will impose requirements for tighter supervision and more frequent and detailed reporting.

CySEC (the Cyprus Securities and Exchange Commission) is the first one that is immediately reacting to the situation. CySEC requires the investment firms to report by Tuesday, 20th January, 2015 the full details about the effects from the Swiss franc surge.

Another short-term effect that we expect is the transitional periods for EMIR reporting (that have given some comfort to the companies) to be shortened sooner than expected. The companies in the financial industry will need to ensure that they have established EMIR reporting that is fully compliant. This also applies to the MiFID reporting and capitalization requirements. We expect fines to be imposed to the companies that fail to accurately report their trades. And this process might start very soon.

A long-term outcome might be establishing higher capital requirements for agency brokers as well as higher licensing fees. This can also be extended to all brokers that are currently operating.

The Swiss franc surge opens up the door for quicker and tighter measures by the regulators.

CME Clearing Europe Ltd is re-authorized by ESMA

The European Securities and Markets Authority (ESMA) has published today an update of its list of central clearinghouses (CCPs) which are authorised under the European Markets Infrastructure Regulation (EMIR). Today’s update concerns CME Clearing Europe Ltd. which has extended its activities and services, a fact which under EMIR requires a new authorisation by the competent authority.

CME Clearing Europe Ltd. was first authorised on 4 August 2014. It has now been re-authorised for extended activities and services.