Last Wednesday, the European Commission published for comment its version of the U.S.'s Volcker rule which would prohibit banks from engaging in proprietary trading and require them to separate themselves from certain types of investment vehicles.

The EC's proposal would apply only to the largest European banks, those deemed to be of global systemic importance or those exceeding certain thresholds (€30 billion in total assets, and trading activities either exceeding €70 billion or 10 per cent of the bank's total assets). The proposal would prohibit those institutions from engaging in proprietary trading in financial instruments and commodities; grant supervisors the power and, in certain instances, the obligation to require the transfer of other high-risk trading activities (such as market-making, complex derivatives and securitization operations) to separate legal trading entities within the group; and provide rules on the economic, legal, governance, and operational links between the separated trading entity and the rest of the banking group.

To prevent banks from attempting to circumvent these rules by shifting parts of their activities to less-regulated sectors, structural separation measures must be accompanied by provisions improving the transparency of shadow banking. An accompanying transparency proposal would provide a set of measures aimed at enhancing regulators' and investors' understanding of securities financing transactions.

The European Banking Authority also proposed new rules last week. The EBA's proposal addresses capital requirements for investment firms with limited authorization to provide investment services. Under the proposal, investment firms would be required to hold eligible capital of at least one-quarter of the fixed overheads of the previous year, or projected fixed overheads in the case of an investment firm not having completed business for one year. The proposal outlines the calculation of fixed overheads and other aspects relevant for this purpose. Comments should be submitted on or before September 30, 2014.

Earlier in January the European Securities and Markets Authority updated its guidance on prospectus related issues by including two new questions and answers. The newly added items concern the format of the individual summary for several securities and the applicable registration document schedule where a listed issuer proposes to issue convertible or exchangeable debt securities where the underlying securities are the issuer's shares. View ESMA's updated Prospectus Guidance here.