Consultation on ESMA’s draft technical advice on possible delegated acts concerning the Regulation on short selling and certain aspects of CDS
In November 2011 the Council of the European Union and the European Parliament voted on a Regulation on short selling and certain aspects of credit default swaps (the Regulation). The Regulation will soon be published in the Offical Journal and should be applicable from 1 November 2012.
The Regulation requires the European Securities and Markets Authority (ESMA) to submit technical standards to the European Commission by 31 March 2012. In addition, ESMA received a letter from the Commission on 24 November 2011 requesting technical advice on all delegated acts contained in the Regulation by the same deadline.
ESMA has now published a consultation paper concerning the technical advice that it proposes to give on possible delegated acts contained in the Regulation (the Consultation Paper). The Consultation Paper is set out as follows:
- Section I specifies the definition of when a natural or legal person is considered to own a financial instrument for the purposes of the definition of short sale.
- Section II relates to the net position in shares or sovereign debt covering the concept of holding a position, the case when a person has a net short position and the method of calculation of such a position including when different entities in a group have long or short positions or for fund management activities related to separate funds.
- Section III sets out the advice on the cases in which a credit default swap (CDS) transaction is considered to be hedging against a default risk or the risk of a decline of the value of the sovereign debt and the method of calculation of an uncovered position in a CDS.
- Section IV defines the initial and incremental levels of the notification thresholds to apply for the reporting of net short positions in sovereign debt.
- Section V specifies the parameters and methods for calculating the threshold of liquidity on sovereign debt for suspending restrictions on short sales of sovereign debt.
- Section VI sets out ESMA’s proposal of advice on what constitutes a significant fall in value for various financial instruments and also specifies, in the form of a draft regulatory technical standard, the method of calculation of such falls.
- Section VII specifies the criteria and factors to be taken into account by competent authorities and ESMA in determining when adverse events or developments arise.
The deadline for comments on the Consultation Paper is 9 March 2012. ESMA will be holding an opening hearing on 29 February 2012.
View Consultation on ESMA’s draft technical advice on possible delegated acts concerning the Regulation on short selling and certain aspects of credit default swaps, 15 February 2012
Call for evidence for fundamental review - Financial Conglomerates
The European Commission has published issue 8 of its financial conglomerates newsletter. In this newsletter, the Commission has published a call for evidence in relation to its fundamental review of the Financial Conglomerates Directive.
The Commission invites any stakeholder interested in the supervision of large complex financial groups in Europe to respond to this call for evidence before 19 April 2012.
View Call for evidence for fundamental review - Financial Conglomerates, 9 February 2012
Council of the EU publishes delegated Regulation regarding fees charged by ESMA to CRAs
Under Article 19 of the Regulation on credit rating agencies, the European Commission is required to adopt a Regulation by delegated act regarding the fees to be charged by the European Securities and Markets Authority to credit rating agencies.
On 8 February 2012, the Council of the European Union published the text of the delegated Regulation, which was agreed on 7 February 2012. The delegated Regulation will enter into force on the third day following its publication in the Official Journal.
View Council of the EU publishes delegated Regulation regarding fees charged by ESMA to credit rating agencies, 8 February 2012
Credit default swap spreads and systemic financial risk
The FSA has published a consumer research paper entitled Credit default swap spreads and systemic financial risk (the Research Paper). In this Research Paper Stefano Giglio of Harvard University discusses a method to measure the joint default risk of large financial institutions (systemic default risk) using information in bond and credit default swap prices.
View Credit default swap spreads and systemic financial risk, 13 February 2012
High frequency trading and its impact on market quality
The FSA has published a consumer research paper entitled High frequency trading and its impact on market quality (the Research Paper). In this Research Paper Jonathan Brogaard of the University of Washington examines the impact of high frequency trading on the US equities market.
View High frequency trading and its impact on market quality, 13 February 2012
Systemic sovereign credit risk: Lessons from the US and Europe
The FSA has published a consumer research paper entitled Systemic sovereign credit risk: Lessons from the US and Europe (the Research Paper). In this Research Paper Andrew Ang and Francis Longstaff of the University of California study the nature of systemic sovereign credit risk using credit default swap spreads for the US Treasury, individual US States and major Eurozone countries.
View Systemic sovereign credit risk: Lessons from the US and Europe, 13 February 2012
Update on changes to FSA's approved persons regime
The FSA has provided an update on its website regarding the approved persons regime.
The FSA states that it is committed to extending the approved persons regime to those selling mortgages. However, at present it is focusing on delivering the UK's two new regulatory bodies: the Prudential Regulation Authority and the Financial Conduct Authority (FCA). Therefore, it will not be able to deliver the changes to the approved persons regime until the new FCA is established.
The FSA confirms that it will be implementing the changes as soon as practically possible and that it will ensure that firms have enough time to make the necessary arrangements.
View Update on changes to our approved persons regime, 13 February 2012
Regulating certain bidders in auctions of EU emissions allowances
HM Treasury has published a consultation paper entitled Regulating certain bidders in auctions of EU emissions allowances (the Consultation Paper).
The Consultation Paper sets out proposed implementing Orders and amendments to existing financial services legislation to implement elements of the EU regulatory framework applicable to certain bidders in Government auctions of aviation and phase III EU emissions allowances under the EU Emissions Trading System (EU ETS).
Implementing the changes will result in the creation of a new regulated activity under the Financial Services and Markets Act 2000 (FSMA). In most cases this will lead to the FSA having to authorise relevant persons who wish to bid in auctions of emissions allowances irrespective of the permissions or exemptions that they current hold. This will involve amending secondary legislation made under FSMA and some minor additions to the Act itself.
The deadline for responding to the Consultation Paper is 10 April 2012.
View Regulating certain bidders in auctions of EU emissions allowances, 14 February 2012
FRC publishes paper on its comply or explain approach to Corporate Governance
The Financial Reporting Council (FRC) has published a paper entitled What constitutes an explanation under comply-or-explain?
The paper is based on discussions between senior company and investor representatives facilitated for the FRC by the London Business School. The purpose of the discussions was to encourage a greater understanding that would reduce the incidence of insubstantial explanations and bolster the operation of the comply-or-explain approach.
The paper states that a large majority of companies who do not comply with one or more provisions of the UK Governance Code (the Code) do provide a full explanation of their reasons. However, a minority do not and the purpose of the paper is to help address this by setting out what practitioners expect.
The paper notes that the starting point should be an improvement in the general quality of disclosure around corporate governance and a clear explanation by each company of how its governance arrangements support its business model.
Key elements of an explanation should include:
- The background.
- A clear rationale for the deviation which is specific to the company.
- An indication as to whether the deviation from the Code’s provisions is limited in time.
- A statement of what alternative measures the company is taking to deliver on the principles set out in the Code and mitigate any additional risk.
View FRC publishes paper on its comply or explain approach to Corporate Governance, 15 February 2012
Topps Rogers Financial Management (Topps Rogers) has had its Part IV permission cancelled and has been fined £97,600 for failures to comply with Principles 3 (Management and control) and 9 (Customers: relationships of trust) of the FSA’s Principles for Businesses in connection with its investment business in the period from May 2004 to June 2010. Topps Rogers failed to take reasonable care to ensure that its recommendations relating to UCIS were suitable for its customers. Topps Rogers also failed to establish and implement adequate compliance arrangements over its business. The FSA considers the impact of these failures to be serious. Topps Rogers promoted to and advised 94 customers to invest over £12 million in UCIS, either directly with UCIS providers or indirectly through a self invested personal pension or a wrap platform. It did so without proper regard to the section 238 restriction. Consequently, customers might have received unsuitable advice or made unsuitable investments in UCIS
View Final Notice - Topps Rogers Financial Management, 13 February 2012