The temporary period allowing for a smooth introduction of the use of Legal Identity Identifiers (LEIs), originally brought-in in December 2017, will not be further extended and cease in July 2018, the European Securities and Markets Authority (ESMA) confirmed today. 

Reporting firms have to use LEIs to report trades under the Markets in Financial Instruments Regulation (MiFIR). The six months period was introduced due to the fact that not all firms succeeded in obtaining LEIs in time for the MiFID II start.  

ESMA and National Competent Authorities (NCAs) have since observed a significant increase in the LEI coverage for both issuers and clients. Based on these observations, ESMA and NCAs have concluded that there is no need to extend the initial six month period granted to support the smooth introduction of the LEI requirements under MiFIR. The temporary period will last until the 2nd July 2018, including.

Next steps

The end of the six month period means that NCAs’ activities with respect to the LEI requirements are now shifting from monitoring to ongoing supervisory actions. To ensure a high degree of supervisory convergence and the full application of MIFIR, ESMA and NCAs are coordinating the development of an appropriate and proportionate common supervisory action plan focused on compliance with the LEI reporting requirements under the respective MiFIR provisions.

ESMA LEI statement

 

The European Securities and Markets Authority (ESMA) has issued today its first annual report regarding supervisory measures carried out and penalties imposed by national competent authorities (NCAs) under the European Market Infrastructure Regulation (EMIR). 

The report focuses in particular on the supervisory actions undertaken by NCAs, their supervisory powers and the interaction between NCAs and market participants when monitoring the compliance of the following EMIR requirements:

  • the clearing obligation for certain OTC derivatives (Art. 4 EMIR);
  • the reporting obligation of derivative transactions to TRs (Art. 9 EMIR);
  • requirements for non-financial counterparties (Art. 10 EMIR); and
  • Risk mitigation techniques for non-cleared OTC derivatives (Art. 11 EMIR).

ESMA has sent its report to the European Parliament, the Council and the Commission today, informing them about the findings, which will also help to gradually identifying best practices and potential areas that could benefit from a higher level of harmonisation.

The European Securities and Markets Authority (ESMA) has updated today its public register with the latest set of double volume cap (DVC) data under the Markets in Financial Instruments Directive (MiFID II).  

Today’s updates include DVC data and calculations for the period of 1 May 2017 to 30 April 2018 as well as updates to already published DVC periods. 

The number of new breaches is 52 equities for the 8% cap, applicable to all trading venues, and 7 equities for the 4% cap, that applies to individual trading venues. Trading under the waivers for all new instruments in breach of the DVC thresholds should be suspended from 12 June 2018 to 12 December 2018. The instruments for which caps already existed from previous periods will continue to be suspended.

In addition, ESMA highlights that some trading venues in the meantime have submitted corrected data that affects past DVC publications. For a limited number of two instruments, this means that previously identified breaches of the 8% and 4% caps prove to be incorrect. For these instruments, the suspensions of trading under the waivers should be lifted.

As of 7 June, there is a total of 932 instruments suspended.

Background

MiFID II introduced the DVC to limit the amount of dark trading in equities allowed under the reference price waiver and the negotiated transaction waiver. The DVC is calculated per instrument (ISIN) based on the rolling average of trading in that instrument over the last 12 months.

The European Securities and Markets Authority (ESMA) has issued today the latest iteration of its Risk Dashboard, covering risks in the EU’s securities markets for 1Q2018. ESMA’s overall risk assessment remains unchanged from 4Q17 at high levels.

Consumer risks posed by complex products key concern

ESMA remains concerned about risks posed to investors, which have been mounting across a range of products. Therefore, ESMA has, following its earlier risk alert on Initial Coin Offerings (ICOs), issued a pan-EU warning to consumers regarding the risks of buying Virtual Currencies. To protect investors from undue risk-taking, ESMA also brought in a temporary prohibition of Binary Options and leverage restrictions on Contracts for Difference (CFDs) using its new product intervention powers under the Market in Financial Instruments Regulation (MiFIR).  

Overall high levels of risk persist

In 1Q18, equity markets in the EU and elsewhere saw significant price corrections, with a 6% drop in EU stock prices in the week of 5 February alone, and the return of market volatility. ESMA’s Risk Dashboard also raises concerns about persisting very high market risks. These risks result from asset over-valuations in equities as well as market uncertainty as the period of ultra-low interest rates draws to a close.

ESMA’s outlook for liquidity, contagion and credit risk remains unchanged at high. Operational risk continues to be elevated, with a deteriorating outlook, as Brexit-related risks to business operations and vulnerabilities to cyber-attacks rise. 

The European Securities and Markets Authority (ESMA) has today published its Questions and Answers on ESMA’s temporary product intervention measures on the marketing, distribution or sale of CFDs and binary options to retail clients based on Article 40 of Regulation (EU) No 600/2014 (the Markets in Financial Instruments Regulation, MiFIR)

The overall Q&As on ESMA’s temporary product intervention measures on the marketing, distribution or sale of CFDs and Binary options to retail clients provides answers to practical questions in relation to: 

·         Existing contracts;

·         Payments;

·         Margin close-out protection;

·         Aggregate liability;

·         Monetary benefits;

·         Binary options;

·         CFDs referencing futures

·         Guaranteed stop loss orders

The purpose of this Q&A is to promote common supervisory approaches and practices in the application of ESMA’s temporary product intervention measures in relation to the marketing, distribution or sale of CFDs and Binary options to retail clients. It aims at market participants.

ESMA will continue to monitor this Q&A on ESMA’s temporary product intervention measures on the marketing, distribution or sale of CFDs and Binary options to retail clients in the coming months and will review and update them where required.

The European Securities and Markets Authority (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) today. 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.

Steven Maijoor, Chair, said:

“The measures ESMA has taken today are a significant step towards greater investor protection in the EU.  The new measures on CFDs will, for the first time, ensure that investors cannot lose more money than they put in, restrict the use of leverage and incentives, and provide understandable risk warnings for investors. 

“ESMA’s prohibition on the marketing, distribution or sale of binary options to retail investors addresses the significant investor protection concerns caused by the characteristics of this product.

“This pan-EU approach is the most appropriate way to address this major investor protection issue. NCAs will monitor the impact of these measures during their application and will assess, with ESMA, what next steps are required.” 

CFDs – measures from 1 August 2018  

The product intervention measures ESMA has adopted under Article 40 of the Markets in Financial Instruments Regulation include:

1.    Leverage limits on the opening of a position 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;

2.    A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs;

3.    Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;

4.    A restriction on the incentives offered to trade CFDs; and

5.    A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

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.

The Chair of the European Securities and Markets Authority (ESMA), Steven Maijoor, has delivered a keynote speech on benchmarks – Towards benchmark stability and integrity – at the 50th ICMA AGM and Conference 2018 in Madrid today.

The speech focused on the development and future of benchmarks regulation in the European Union. 

The European Securities and Markets Authority (ESMA) has today updated its Questions and Answers (Q&As) regarding the implementation of the Central Securities Depository Regulation (CSDR).

The CSDR Q&As provide common answers to question regarding practical issues on the implementation of the new CSDR regime. The newest of CSDR Q&A concerns the CSDs’ investment policy and clarifies the requirement to have “access to assets” on the same business day when a decision to liquidate those assets has been made.  

Q&As are an important tool to promote common supervisory approaches and practices in the application of CSDR 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 CSDR requirements.

The aim of CSDR is to harmonise certain aspects of the settlement cycle and settlement discipline and to provide a set of common requirements for CSDs operating securities settlement systems across the EU.ESMA will continue to develop this Q&A on CSDR in the coming months and will review and update them where required. 

The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have today published a joint statement encouraging institutions, market and resolution authorities to properly consider retail holders of debt financial instruments subject to the Bank Recovery and Resolution Directive (BRRD) when carrying out their respective tasks. The distribution of debt instruments issued by financial institutions to retail clients may raise significant consumer protection issues and affect the practical application of the resolution framework under the BRRD.

The issue of retail holders of debt financial instruments remains significant considering that, on the basis of the data analysis conducted by EBA and ESMA, retail investors still hold a significant portion of EU debt securities issued by institutions. 

The statement points out that the BRRD does not provide for different treatment of eligible liabilities based on the nature of the holder. Therefore, where there is a material presence of retail debt investors, resolution authorities are encouraged to factor this element into their resolution planning and assessment of possible impediments to resolution.

The EBA and ESMA also call for a cooperative dialogue between resolution and market authorities and the sharing of information when this issue is relevant.

The statement reminds institutions that in relation to:

-          the outstanding legacy stock of issuances of retail debt liabilities, they provide existing clients with complete and updated information on the potential treatment of such investments in resolution or insolvency; and

 

-          new debt financial instruments being issued under the framework of MiFID II, they properly implement the new requirements, which include a number of provisions aiming at strengthening investor protection.

Background

The treatment of retail debt holders in resolution is closely interlinked to consumer protection issues. On this basis, the EBA and ESMA have developed this Statement in order to benefit from the EBA’s prudential role and expertise in resolution and, on from the consumer perspective, from ESMA’s role and expertise on the distribution of financial instruments to investors.

The statement is supported by data analysis assessing the relevance of retail investors as direct holders of debt issued by EU financial institutions, which is largely based on data derived from the ECB securities database.

The European Securities and Markets Authority (ESMA) has today updated its Questions and Answers (Q&As) regarding the implementation of the European Market Infrastructure Regulation (EMIR). 

The Q&A provides clarification reporting to trade repositories.

The purpose of these Q&As is to promote common supervisory approaches and practices in the application of EMIR. They provide responses to questions posed by the general public and market participants in relation to the practical application of level 1 and level 2 provisions relating to transparency and market structures issues.

ESMA will continue to develop these Q&As in the coming months and will review and update them where required.

Pages