On 11 March 2016, ESMA published a Discussion Paper on proposed regulatory (RTS) and implementing technical standards (ITS) under the Securities Financing Transactions Regulation (SFTR). The discussion paper sets out proposals for implementing the reporting framework under the SFTR. Comments are invited until 22 April 2016 and ESMA expects to publish a consultation paper early in Q3 2016.

The SFTR was proposed by the European Commission in January 2014 with the aim of improving the transparency of SFTs and the understanding and identification of the risks related to them.


ESMA updates EMIR Q&A

On 16 February, ESMA published its updated Q&A with regard to the implementation of the European Markets Infrastructure Regulation (EMIR). The updated Q&A clarifies how the clearing obligation should apply to swaps resulting from the exercise of a swaption, including during the frontloading period and the approach on frontloading that was adopted in ESMA's first RTS on the clearing obligation, which entered into force on 21 December 2015.

ESMA resumes US CCP recognition process

On 15 March 2016, the European Commission adopted an equivalence decision, for the purposes of EMIR, on the US regulatory framework for CCPs authorised and supervised by the US Commodity Futures Trading Commission (CFTC). The implementing decision was published in the Official Journal of the EU on 16 March 2016 and will enter into force on 5 April 2016.

ESMA will now resume the recognition process of specific CFTC-supervised US CCPs and has issued practical guidance for the recognition of third-country CCPs.

ESAs publish final draft RTS for uncleared OTC derivatives

On 8 March 2016, the European Supervisory Authorities (EBA, EIOPA, ESMA) published final draft Regulatory Technical Standards (RTS) covering the risk mitigation techniques for OTC derivative contracts not cleared by a central counterparty (CCP) under Article 11(15) of EMIR.

The final draft RTS:

  • Prescribe that for OTC derivatives not cleared by a central counterparty (CCP), the counterparties have to exchange both initial and variation margins
  • Outline the list of eligible collateral for the exchange of margins, the criteria to ensure the collateral is sufficiently diversified and not subject to wrong-way risk, as well as the methods to determine appropriate collateral haircuts
  • Specify the operational procedures related to documentation, legal assessments of the enforceability of the agreements and the timing of the collateral exchange
  • Set out the procedures for counterparties and competent authorities related to the treatment of intragroup derivative contracts

The RTS will be applied in a proportionate manner to allow counterparties to phase in the requirements.

ESMA issues final report on risks and costs of CCP interoperability

On 1 March 2016, ESMA issued its final report on systemic risk and cost implications of interoperable arrangements between central clearing houses (CCPs‎) established under the European Market Infrastructure Regulation (EMIR). The report outlines the current interoperability arrangements between EU CCPs for different product types i.e. EU equities, EU government bonds and EU Exchange Traded Derivatives (ETDs). An assessment of the benefits and impacts on costs for the relevant parties is also included. The report also includes a prudential analysis at CCP level and the risk management tools used to mitigate the potential risks arising from interoperability, including some quantitative data. The key risk under consideration is the counterparty credit risk resulting from exposures between interoperable CCPs.

ESMA adds list of clearing members to its Public Register on EMIR

On 19 February 2016, ESMA published an update of its Public Register for the Clearing Obligation. The update relates to Category 1 clearing members, which are either financial counterparties or non-financial counterparties above the clearing threshold who are clearing members of a central clearing house (CCP). Category 1 firms will be the first firms to start the central clearing of certain types of derivative contracts by 21 June 2016. ESMA worked with national competent authorities and CCPs to identify Category 1 counterparties. All EU CCPs and third-country CCPs which are authorised or recognised to clear OTC interest rate swaps in the G4 currencies (EUR, GBP, JPY and USD) have now published on their websites the lists of their Category 1 clearing members.

MoU between ESMA and South Korean regulators on CCPs

A Memorandum of Understanding (MoU) has been signed between ESMA and the South Korean Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) respectively. The MoU provides for the exchange of information regarding Central Counterparties (CCPs) established and authorised or recognised in South Korea and which have applied for EU recognition under EMIR.

Supervisory convergence

ESMA publishes first Supervisory Convergence Work Programme

On 11 February, ESMA published its first Supervisory Convergence Work Programme 2016 (SCWP), highlighting the activities and tasks it intends to carry out to promote sound, efficient and consistent supervision across the European Union. This programme is in line with ESMA’s Strategic Orientation 2016-2020, wherein it undertook to focus more of its resources on supervisory convergence work.

The key supervisory convergence priorities for 2016 are set out as follows:

  1. Preparing for the sound, efficient and consistent implementation and supervision of MiFID 2/MiFIR
  2. Finalising the IT infrastructure to support the implementation of MiFID 2/MiFIR and MAR
  3. Supervising the OTC derivatives markets, particularly EU CCPs
  4. Supporting the effective application of Capital Markets Union

The thematic overview for 2016 includes:

  1. Corporate Finance and Reporting
  2. Investment Management
  3. Investor Protection and Intermediaries
  4. Market Integrity
  5. Post-trading
  6. Secondary Markets
  7. IT Infrastructure to support convergence

ESMA issues follow-up review on MMF guidelines

On 16 February, ESMA issued a follow-up peer review into the compliance of national competent authorities (NCAs) with guidelines regarding money market funds. This report follows up an earlier peer review from April 2013, focusing on eight NCAs that were not compliant with the guidelines. The follow-up peer review covers the period from 1 May 2014 to 1 May 2015. Peer reviews and their follow up are an important means of identifying areas for further convergence in the application of Union law and of incentivising convergence.

ESMA publishes Discussion Paper on implementation of Benchmarks Regulation

On 15 February 2016, ESMA published a Discussion Paper (DP) regarding the technical implementation of the incoming Benchmarks Regulation and invited comments until 31 March 2016.

ESMA sought stakeholder’s input to inform its future proposals on draft Regulatory Technical Standards (RTS). The DP requested stakeholder’s feedback in the following areas:

  • Definition of benchmarks
  • Requirements for the benchmark oversight function
  • Requirements for the benchmark input data
  • Governance and control requirements for supervised benchmark contributors
  • Authorisation and registration of an administrator
  • Transparency requirements regarding the benchmark methodology

ESMA will use the responses to its DP to develop detailed implementing measures upon which it will publish a follow-up consultation in Q3 2016.