Brexit

The European Securities and Markets Authority (ESMA) wants to inform stakeholders that, following the European Council’s decision today extending the period under Article 50(3) relating to the United Kingdom’s (UK) withdrawal from the European Union (EU), its previous statements relating to its preparations for a no-deal Brexit will no longer apply as of 31 October. 

The reference date for Brexit in all of ESMA’s previously published measures and actions, including public statements, issued regarding the possibility of a no-deal Brexit scenario, should now be read as 31 January 2020.

However, given the nature of the current extension ESMA will issue further announcements and updated measures as matters develop.

The European Securities and Markets Authority (ESMA) will publish the systematic internaliser (SI) and bond market liquidity data on 8 November, this follows the latest developments around the departure of the United Kingdom (UK) from the European Union (EU).

ESMA will publish the SI regime data for equity, equity-like instruments and bonds and the quarterly liquidity assessment for bonds on 8 November 2019 and the requirements based on this publication will apply from 16 November 2019.

ESMA was due to publish the SI regime data for equity, equity-like instruments and bonds and the quarterly liquidity assessment for bonds by 1 November 2019. However, the developments concerning the UK’s departure from the EU have an impact on this publication date, which was already indicated in the 7 October public statement on ESMA’s Data Operational Plan under a potential no-deal Brexit scenario occurring on 31 October 2019.

Background

MiFID II became applicable on 3 January 2018 introducing, amongst others, pre-trade transparency obligations for SIs and pre- and post-trade transparency requirements for equity and non-equity instruments, including for bonds.

According to Article 4(1)(20) of Directive 2014/65/EU (MiFID II) investment firms dealing on own account when executing client orders over the counter (OTC) on an organised, frequent systematic and substantial basis are subject to the mandatory SI regime.

Commission Delegated Regulation (EU) No 2017/565 specifies thresholds determining what constitutes frequent, systematic and substantial OTC trading. In particular, investment firms are required to assess whether they are SIs in a specific instrument (for equity and equity-like instruments, bonds, ETCs and ETNs and SFPs) or for a (sub-) class of instruments (for derivatives, securitised derivatives and emission allowances) on a quarterly basis based on data from the previous six months. For each specific instrument/sub-class, an investment firm is required to compare the trading it undertakes on its own account compared to the total volume and number of transactions executed in the European Union (EU). If the investment firm exceeds the relative thresholds it will be deemed an SI and will have to fulfil the SI-specific obligations. ESMA, upon request of market participants and on a voluntary basis, decided to compute the total volume and number of transactions executed in the EU in order to help market participants in the performance of the test since that data is essential for the operation of the SI regime and is not otherwise easily available.

Post-trade, MiFID II requires real-time publication of the price and quantity of trades in liquid bonds. It is possible to defer the publication of post-trade reports if the instrument does not have a liquid market, or if the transaction size is above large-in-scale thresholds (LIS), or above a size specific to the instrument (SSTI). In order to assist market participants to know whether a bond should be considered as liquid or not, ESMA publishes these quarterly liquidity assessments for bonds.

On 29 March 2017, the United Kingdom of Great Britain and Northern Ireland (UK) invoked Article 50 of the Treaty on European Union (TEU) which triggered the process for its withdrawal from the European Union (EU), or Brexit. The invocation procedure provides that after a negotiation period of up to two years, the TEU cease to apply to the Member State which invoked Article 50.  

ESMA initiated a systematic analysis of the potential impact of a no-deal Brexit for EU securities markets and for ESMA as an organisation, when it was preparing for a potential no deal scenario on 29 March 2019 and 12 April 2019, and communicated to the market on its contingency planning.

On 10 April 2019, the European Council (Council) agreed a further extension to Brexit until 31 October 2019 to allow for the ratification of the Withdrawal Agreement by both Parties. If the Withdrawal Agreement fails to be ratified and no further extension is agreed by the Council, the UK will leave the EU on 31 October 23:00 (UK time).

The reference date for Brexit in all of ESMA’s previously published measures and actions, including public statements, issued regarding the possibility of a no-deal Brexit scenario, should now be read as 31 October 2019. The full list of statements and measures issued previously is available on ESMA’s website and also included in the annex to this statement.

Some of the measures announced need updating in case of a no-deal Brexit on 31 October 2019, so ESMA is issuing today updated measures in the following areas:

-       Public Statement on the Use of UK data in ESMA databases and performance of MiFID II calculations updating the communication issued on 5 February 2019.

-       Public Statement on the Impact of no-deal Brexit on MiFID II/MiFIR and the Benchmark Regulation (BMR) – C(6) carve-out, ESMA opinions on third-country trading venues for the purpose of post-trade transparency and position limits, post-trade transparency for OTC transactions, BMR ESMA register of administrators and 3rd country benchmarks calculations updating the communication issued on 7 March 2019.

-       Public Statement on Operational plans related to ESMA databases and IT systems updating the communication issued on 19 March 2019.

Next steps

There is still a high level of uncertainty as to the final timing and conditions of Brexit, and should these change, ESMA will adjust the approach for its IT applications and databases and will inform the public of the adjusted approach as soon as possible.

 

Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), has delivered the keynote speech at today's session of AFME's Legal and Compliance Conference in Paris.

In an address focusing on the challenges facing ESMA including: enhancing the role and responsibilties of ESMA; strengthening the supervision of EU and non-EU CCPs; and Brexit, Mr. Maijoor reiterated that:

"my positivity on the steps taken in recent times to strengthen the EU’s regulatory and supervisory framework, through initiatives such as the ESAs Review and the introduction of EMIR 2.2. The EU’s financial system will continue to face many challenges, including those challenges stemming from Brexit, and the system must be robust enough to tackle those head on."

​Key highlights included:

​Enhancing the role and responsibilities of ESMA - following the completion of the ESAs Review and EMIR 2.2., he emphasised that: 

"the ultimate outcome is still a very important evolution in ESMA's role and powers. The most important changes come via new and improved instruments to foster convergence in the way the European financial sector is supervised."

​Strengthening the supervision of EU and non-EU CCPs ​- speaking on changes in this area, he said that:

"the strengthened supervisory framework for CCPs [...], improves the ability of CCPs in EU and non-EU countries to tackle emerging risks and challenges. It also addresses some of the limitations of the current recognition regime for non-EU CCPs."

"...ESMA's experience and expertise on CCPs, gained from its pivotal roel in ensuring supervisory convergence for EU CCPs, including through its active participation in the 17 CCP supervisory colleges, and its pioneering work in CCP stress-testing, provide essential building blocks for this new supervisory mandate."

"I believe that this is also a very proportionate solution, as it does not introduce any additional requirements for non-systemic non-EU CCPs. The new framework is also quite sensible in the global context, as it brings us in substance closer to the US regime for third country CCPs, and that closer alignment is beneficial for all."

Brexit ​- while in covering the key immediate issue facing ESMA he reiterated that:

"While preparations are ongoing for a potential no-deal Brexit, ESMA once more urges all market participants, investors as well as consumers to ensure contingency planning, as you should not rely on public solutions to mitigate potential cliff-edge effects, should they materialise. ESMA has been aiding this work as much as possible." 

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