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ESMA Newsletter - Nº3

04 April 2019

Welcome to the third edition of ESMA’s newsletter. This month we publish our first newsletter op-ed from ESMA's Head of Risk Analysis and Economics Department, Steffen Kern. We also catch up on the full list of publications from March and take a closer look at our latest UCITS Q&As. 

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We also look forward to the month ahead with details of speaking appearances by ESMA staff, consultation deadlines and key dates for your agenda.

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Have you ever wondered what financial market regulators were doing with all the market data they started to collect in the wake of the crisis? The answer is, we do a lot, and here is a great example: First-time statistics on the EU’s Alternative Investment Fund market. 

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Collecting data on Alternative Investment Funds and making operational use of them has been one of the most important policy initiatives in response to the global financial crisis. In 2009 G20 leaders agreed that hedge funds or their managers should be registered and should be required to disclose appropriate information on an ongoing basis to supervisors or regulators. In the EU this commitment was translated into reporting requirements under the Alternative Investment Fund Managers Directive (AIFMD), so that since July 2014 Alternative Investment Fund Managers have reported detailed information on the Alternative Investment Funds they manage to national market regulators.
 
Five years later, we are now able to produce statistics from the highly sophisticated reporting system. What emerges is a picture of a very diverse market.

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1 - Wide investor choice

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 Average fund size, however, stands at a low EUR 200mn, highlighting that for the Alternative universe, as for investment funds in general, EU funds may not be realising the full scale and efficiency potential in the Single Market.  

2 - More than just hedge funds

While hedge funds were the focus of the crisis response, the EU Alternative Funds universe was subsequently designed by lawmakers to be broader, including private equity and real estate funds, but also a large residual of vehicles pursuing diverse strategies mainly in bonds and equity and taken up by insurance and pension funds as the main investors. In terms of assets, hedge funds, in fact, make up only 5% of the EUR 5trn EU Alternative Fund market, and 80% of EU hedge funds by assets are managed in the UK. Private equity accounts for 4%, real estate for 11% and funds-of-funds for 16%. 

3 - Retail investors are exposed

Primarily targeted at professional investors, Alternative Funds can also be accessed by retail investors. The latter make up around one-fifth of the investor universe. Retail exposure to the more risky fund types, however, is more limited, with only 3% and 8% of hedge fund and private equity fund shares held by non-professionals, respectively.

4 - Strong use of the EU passport 

More than three-quarters of the Alternative Funds are registered for the EU passport, i.e. can be marketed across EU Member States. Not surprisingly, hedge funds are the exception, of which more than 70% are designed for domestic investors only. The extent to which final investors in practice can and do make use of passported Alternative Funds can be an interesting issue for future analysis. 

 

5 - Leverage is key risk, but comparatively limited across the AIF landscape

Leverage remains one of the key concerns of regulators when it comes to financial entities, including investment funds. This is why we provide ample evidence of metrics around this risk. Across all Alternatives, leverage remains reassuringly limited, with a multiple of below 1.5 on average. Again, hedge funds stand out, as would be expected, with an average multiple of 45, which, however, goes down to 8 if adjusted for their use of interest-rate derivatives. In individual strategies, such as macro and relative value, the multiple can be distinctly higher, though. 

 

6 - Liquidity on average at acceptable levels, but uneven

Two-thirds of Alternatives in the EU are open-ended, so need to stand ready to redeem fund shares at short notice. That exposes them to liquidity risks, which is why cash cushions, fund liquidity – the ability of funds to liquidate assets in their portfolio – and investor liquidity – the ability of investors to ask for a redemption of fund share at short notice – have the full attention of supervisors. Across the Alternative universe, the liquidity profile is relatively balanced, with the exception of real estate funds given the low liquidity of their invested assets. Naturally, liquidity metrics vary widely by fund type and strategy, and outliers exist at entity level. 

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Does all of this mean that Alternative Funds in the EU are safe? Nothing ever is, even if our first industry view may look encouraging (full report here). And this is exactly why our analysis – and the massive data collection on which it is based – is vitally important. Our statistics inform fund supervisors and help them prioritise their work, e.g. by identifying pockets of risks and individual outliers. Our analysis can help supervisors to work even more effectively – and make the EU investment funds market safer. This is why we need financial market data.

 

Month ahead

 

A closer look at fund disclosure for UCITS

ESMA published Q&As that clarifies the UCITS KIID benchmark and past performance obligations. Check out our explainer below. 

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The updated Q&A also looks at Past Performance

1. If the fund names a target in their investment objectives, the performance should be disclosed against it. 

2. The performance disclosed in the KIID regarding a benchmark index should be consistent with performance disclosure in other investor communications.

ESMA consultations currently open

Consultations

ESMA closed days in April 

  • ESMA will be closed this month on the 18th, 19th and 22nd. 

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press office

Missed any ESMA publications? Check out the full list of news items from our press office. 

Publication period: 1 - 31 March 2019  

29 March 

ESMA UPDATES ITS MAR Q&A

ESMA has updated its Questions & Answers document regarding the implementation of the Market Abuse Regulation (MAR).

29 March

ESMA UPDATES AIFMD Q&AS

ESMA has updated its Questions and Answers on the application of the Alternative Investment Fund Managers Directive (AIFMD).

29 March

ESMA Q&AS CLARIFY BENCHMARK DISCLOSURE OBLIGATIONS FOR UCITS

ESMA has updated its Questions and Answers regarding the application of the Undertakings in Collective Investments in Transferable Securities (UCITS) Directive. 

29 March

ESMA ADVISES COMMISSION ON INFORMATION DOCUMENT FOR TAKEOVER, MERGER AND DIVISIONS

ESMA has published its technical advice on the minimum information content of documents describing a takeover, merger or division. 

29 March

ESMA CLARIFIES FORMAT FOR DISCLOSURE OF RISK FACTORS IN PROSPECTUSES

ESMA has published its final guidelines on how national competent authorities (NCAs) should review risk factors, as required by the new Prospectus Regulation (PR). 

28 March 

ESMA UPDATES ITS Q&AS ON MIFID II AND MIFIR INVESTOR PROTECTION AND INTERMEDIARIES

ESMA has added new Questions and Answers and updates on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR).

28 March

ESMA PUBLISHES OFFICIAL TRANSLATIONS OF GUIDELINES ON POSITION CALCULATION BY TRS UNDER EMIR

ESMA has issued the official translations of its Guidelines on position calculation by Trade Repositories under EMIR.

28 March

ESMA CONSULTS ON DRAFT ELTIF TECHNICHAL STANDARDS 

ESMA has opened a public consultation regarding draft supervisory technical standards (RTS) under the European Long-Term Investment Fund (ELTIF) Regulation.

28 March

ESMA PROVIDES GUIDANCE ON THE NEW EMIR REFIT REGIME FOR THE CLEARING OBLIGATION

ESMA has published a statement on the Implementation of the new EMIR Refit regime for the clearing obligation for financial and non-financial counterparties.

28 March

ESMA UPDATES ON ITS PREPARATIONS FOR A POSSIBLE NO-DEAL BREXIT SCENARIO ON 12 APRIL

ESMA has published a statement updating on its preparations for a no-deal Brexit scenario in view of recent developments on timing.

28 March

ESMA UPDATES ITS Q&AS ON MIFID II AND MIFIR INVESTOR PROTECTION AND INTERMEDIARIES

ESMA has added new Questions and Answers and updates on the implementation of investor protection topics under the Market in Financial Instruments Directive and Regulation (MiFID II/ MiFIR).

27 March

ESMA WRITES TO EUROPEAN COMMISSION ON MIFID II/MIFIR REVIEW REPORTS

ESMA has written to the European Commission (EC) regarding its contribution to a range of MiFID II/MiFIR Review reports, setting out ESMA’s proposed timetable for their delivery.

27 March

NOTICE OF ESMA’S PRODUCT INTERVENTION RENEWAL DECISION IN RELATION TO BINARY OPTIONS

On 22 March 2019, ESMA adopted a Decision under Article 40 of Regulation (EU) No 600/2014 to renew the prohibition on the marketing, distribution or sale of binary options to retail clients. The Decision renews ESMA Decision (EU) 2018/795 on the same terms as the previous renewal decision, ESMA Decision (EU) 2018/2064.

27 March

ESMA UPDATES ITS Q&AS ON MIFID II AND MIFIR COMMODITY DERIVATIVES TOPICS

ESMA has updated its Questions and Answers on MiFID II and MiFIR commodity derivatives topics. These Q&As provide clarification on issues related to the MiFID II/MiFIR regime for commodity derivatives, including on position limits, position reporting and ancillary activity.

27 March

ESMA PUBLISHES THE FIRST Q&AS RELATING TO THE PROSPECTUS REGULATION

ESMA has published a new document containing nine Q&As relating to Regulation (EU) 2017/1129 (Prospectus Regulation).

27 March 

EU ENFORCERS FOCUS ON NEW IFRS STANDARDS AND NON-FINANCIAL INFORMATION

ESMA has published its Annual Report on the enforcement and regulatory activities of accounting enforcers within the EU. 

27 March 

ESMA TO RENEW RESTRICTIONS ON CFDS FOR A FURTHER THREE MONTHS FROM 1 MAY 2019

 

ESMA has agreed to renew the restrictions on the marketing, distribution or sale of contracts for differences (CFDs) to retail clients, in effect since 1 August, from 1 May 2019 for a further three-month period.

26 March 

ESMA REAPPOINTS THE CHAIR OF ITS SUPERVISORY CONVERGENCE STANDING COMMITTEE 

 

ESMA has reappointed the current chair João Sousa Gião, who is a Member of the Board of Directors of the Comissão do mercado de valores mobiliários (CMVM) of Portugal, of its Supervisory Convergence Standing Committee (SCSC).

26 March 

ESMA RESPONDS TO EC CONSULTATION ON UPDATE OF REPORTING GUIDELINES TO REFLECT CLIMATE-RELATED DISCLOSURES

ESMA welcomes the European Commission’s proposal to update the non-binding Guidelines on non-financial reporting with the introduction of a specific supplement addressing climate-related disclosures. ESMA takes the opportunity to make some recommendations on how the Guidelines can be further developed to promote higher quality disclosures.

25 March 

ESMA REGISTERS UNAVISTA TRADECHO B.V. AS TRADE REPOSITORY

 

ESMA, the EU supervisor of trade repositories (TRs), has registered today UnaVista TRADEcho B.V. as a TR under the European Market Infrastructure Regulation (EMIR), with effect from 25 March 2019. 

21 March 

ESMA PUBLISHES TAXONOMY FILES TO FACILITATE IMPLEMENTATION OF THE ESEF REGULATION

 

ESMA has published taxonomy files to facilitate implementation of the requirements set out by the draft RTS on ESEF. Preparers can access the taxonomy in the form of a set of electronic XBRL files (‘ESEF XBRL taxonomy files’) that are available in a machine-readable and freely downloadable format.

21 March 

ESMA ADDS NEW VENUES TO REGISTER OF DERIVATIVES TO BE TRADED ON-VENUE UNDER MIFIR

ESMA has updated the public register of those derivative contracts that are subject to the trading obligation under the Markets in Financial Instruments Regulation (MiFIR).

20 March 

ESMA AGREES POSITION LIMITS UNDER MIFID II

 

ESMA has published seven opinions on position limits regarding commodity derivatives under the Markets in Financial Instruments Directive and Regulation (MiFID II/MIFIR). 

19 March 

ESMA PUBLISHES ITS DATA OPERATIONAL PLAN UNDER A NO-DEAL BREXIT SCENARIO 

 

ESMA has published a statement in relation to the impact on ESMA’s databases and IT systems of a no-deal Brexit scenario on 29 March 2019.

19 March 

ESMA’S APPLICATION OF THE TRADING OBLIGATION FOR SHARES FOLLOWING A NO-DEAL BREXIT

 

ESMA has published a statement on the impact on the MiFIR trading obligation for shares (TO) of the United Kingdom (UK) leaving the European Union (EU) on 29 March 2019 without a withdrawal agreement (no-deal Brexit), and without an equivalence decision for the UK by the European Commission (EC).

18 March 

MIFID II: ESMA PUBLISHES RESULTS OF THE ANNUAL TRANSPARENCY CALCULATIONS OF THE LARGE IN SCALE (LIS) AND SIZE SPECIFIC TO THE INSTRUMENTS (SSTI) THRESHOLDS FOR BONDS

ESMA has today made available the results of the annual transparency calculations of the large in scale (LIS) and size specific to the instruments (SSTI) thresholds for bonds. 

18 March 

ESMA REGISTERS BEYOND RATINGS SAS AS CREDIT RATING AGENCY

ESMA, the EU’s direct supervisor of credit rating agencies (CRAs), has registered today Beyond Ratings SAS as a CRA under the CRA Regulation.

15 March 

ESMA CLARIFIES ENDORSEMENT OF UK CREDIT RATINGS IN CASE OF A NO-DEAL BREXIT

ESMA has issued a statement which sets out the implications for credit rating agencies (CRAs) based in the United Kingdom (UK), including the endorsement of UK credit ratings, should the UK withdraw from the European Union (EU) without a withdrawal agreement (no-deal Brexit).

14 March 

REGTECH AND SUPTECH – CHANGE FOR MARKETS AND REGULATORS

ESMA has carried out an analysis of the regulatory and supervisory technologies currently being developed in response to various demand and supply drivers. The results of this analysis are presented in an article in the latest Trends, Risks and Vulnerabilities (TRV) Report.

14 March 

ESMA INCLUDES MIFID II/ MIFIR IN ITS INTERACTIVE SINGLE RULEBOOK

ESMA has updated its Interactive Single Rulebook, an online tool allowing a comprehensive overview of and an easy access to all level 2 and level 3 measures adopted in relation to a given level 1 text.

13 March 

ESAS’ JOINT BOARD OF APPEAL DECIDES ON FOUR APPEALS UNDER THE CREDIT RATING AGENCIES REGULATION

The Joint Board of Appeal (BoA) of the European Supervisory Authorities (ESAs – ESMA, EIOPA and EBA) issued decisions regarding four appeals it received by Svenska Handelsbanken AB, Skandinaviska Enskilda Banken (SEB) AB, Swedbank AB, and Nordea Bank Abp against decisions by the European Securities and Markets Authority (ESMA) regarding infringements of the Credit Rating Agencies Regulation (CRAR).

11 March 

WEBINAR : NEW UPDATE ON USE OF LEI NOW AVAILABLE

ESMA staff recently participated in Global Financial Markets Association (GFMA) webinar on Legal Entity Identifier (LEI)

8 March 

ESAS PROPOSE AMENDMENT TO PRIIPS KEY INFORMATION DOCUMENT TO CLARIFY APPLICATION TO INVESTMENT FUNDS

The European Supervisory Authorities (ESAs) submitted to the European Commission, draft regulatory technical standards to amend the Delegated Regulation covering the rules for the Key Information Document (KID) for Packaged Retail and Insurance-based Investment Products (PRIIPs).

8 March 

ESMA PUBLISHES RESPONSES TO ITS CONSULTATIONS ON CSDR GUIDELINES

ESMA has published the responses received to its Consultations on CSDR Guidelines.

7 March 

MIFID II: ESMA ISSUES LATEST DOUBLE VOLUME CAP DATA

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). 

7 March 

ESMA REPORT VALUES EU ALTERNATIVE INVESTMENT FUNDS AT €4.9 TRILLION

ESMA published its first statistical report on European Union (EU) Alternative Investment Funds (AIF). The study finds that the EU AIF sector in 2017, as measured by Net Asset Value (NAV), amounted to €4.9tn or nearly one third of the total EU fund industry. The report is based on data from 26,378 AIFs, or 80% of the market, and will be published annually.

7 March 

ESMA SETS OUT ITS APPROACH TO SEVERAL MIFID II/MIFIR AND BMR PROVISIONS UNDER A NO-DEAL BREXIT

ESMA has today published a statement on its approach to the application of some key MiFID II/MiFIR and Benchmark (BMR) provisions should the United Kingdom (UK) leave the European Union (EU) under a no-deal Brexit.  

6 March 

MIFID II: ESMA MAKES AVAILABLE THE RESULTS OF THE ANNUAL TRANSPARENCY CALCULATIONS FOR EQUITY AND EQUITY-LIKE INSTRUMENTS

ESMA has today made available the results of the annual transparency calculations for equity and equity-like instruments.

6 March 

KEYNOTE BY ESMA CHAIR MAIJOOR AT ALFI 2019 CONFERENCE

ESMA Chair Maijoor delivered a keynote speech at the ALFI 2019 Conference in Luxemburg on ESMA’s priorities for the asset management community.

4 March 

ESMA NEWSLETTER - Nº2

This month we catch up on the full list of publications from February, highlight a new call for experts and look back at some keynote addresses by Steven Maijoor, ESMA Chair.

1 March 

ESMA WITHDRAWS THE REGISTRATION OF BLOOMBERG TRADE REPOSITORY LTD

ESMA, the EU supervisor of trade repositories (TRs), has today withdrawn the registration of Bloomberg Trade Repository Ltd (UK). 

1 March 

ESMA REGISTERS DTCC DATA REPOSITORY (IRELAND) PLC AS TRADE REPOSITORY

ESMA, the EU supervisor of trade repositories (TRs), has registered today DTCC Data Repository (Ireland) PLC as a TR under the European Market Infrastructure Regulation (EMIR), with effect from 1 March 2019. 

1 March 

ESMA TO RECOGNISE THE UK CENTRAL SECURITIES DEPOSITORY IN THE EVENT OF A NO-DEAL BREXIT

ESMA has announced that, in the event of a no-deal Brexit, the Central Securities Depository (CSD) established in the United Kingdom (UK) – Euroclear UK and Ireland Limited – will be recognised as a third country CSD to provide its services in the European Union (EU).

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Speakers

  • March's keynote speeches 
Date ESMA Speaker  Event  Read more
6 March Steven MAIJOOR ALFI 2019 Conference - Luxembourg Read the full speech 
  • Speaking appearances by ESMA staff this month: The full list of ESMA's planned speaking appearances for this month can be found here

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@ESMA

GFMA Webinar Global Legal Entity Identifier LEI Update

ESMA staff presented on the topic of LEI requirements under the Markets in Financial Instruments Directive (MiFID II) and the upcoming LEI requirements under other sectoral legislation such as EMIR and SFTR.

ESMA's LinkedIn page keeps growing 

This month we passed the 20,000 followers mark on our LinkedIn page. We hope ESMA stakeholders will continue to use the page as a useful resource for updates and publications. 

Thanks to all for liking and sharing our content and don't forget you can also follow ESMA on Twitter @ESMAComms 

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Vacancy Notices 

Open vacancies & deadlines 

Traineeship notice – Transversal profile (F/M)  31/12/2019 
Traineeship notice – Legal profile (F/M)  31/12/2019 
Traineeship notice - Financial Markets Profile (F/M) 31/12/2019

All open vacancies can be found on ESMA's recruitment portal