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JWG regulatory trading digest

Published in Automated Trader Magazine Issue 37 Summer 2015

The G20's 2009 Pittsburgh plan, which was designed by world leaders to ensure that another global financial crisis would be avoided, has recently had its fifth birthday. Five years on, despite the over 50,000 pages of regulation that we have seen published since 2009, regulators across the globe still have a long way to go to finish implementing the full plan.

It is striking that regulators in different jurisdictions are at such different stages of implementing the plan, as will become clear in our round up of the latest activity from some key regulators.

In Washington the Securities and Exchange Commission (SEC) marked the first week in May by announcing their approval of a new tick size regime that was first proposed in Q4 2014. The programme has been approved for an initial 2 year period and will widen the minimum tick size for stocks of 'smaller companies'.

SEC Chair Mary Jo White commented: "The data generated by this important market structure initiative will deepen our understanding of the impact of tick sizes on market quality." For Europe's securities regulator the European Securities and Markets Authority (ESMA) it is a pity that this data will likely be available too late to inform their implementation of a much more ambitious market-wide minimum tick size regime under MiFID II.

Indeed there was further evidence that transatlantic regulatory co-operation is not quite what it could be as Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad travelled to Brussels to discuss the overlap of the EU and US derivatives clearing regimes. However it continues to be the case that CFTC-registered derivatives clearing organisations located in the United States cannot obtain recognised CCP status under the European Market Infrastructure Regulation (EMIR).

As ever MiFID has been a dominant topic in Europe, but for a change this past quarter has been focused on the old MiFID I regime rather than the impending MiFID II. This is because ESMA has altered the definition of commodities and FX under MiFID I, in order to improve the application of EMIR to those markets. However this has left many in the industry complaining that ESMA are fundamentally changing the foundations on which the ongoing MiFID II implementation is being built.

The new transaction reporting regime under MiFIR, which will go live on 3 January 2017, has been the focus of the European regulatory agencies' attention in the past months. Speaking at a two day 'MiFIR Reporting & Beyond' conference attended by JWG last month regulators were clear that the industry cannot afford to repeat the reporting mistakes of EMIR. When compared to the currently in place MiFID regime, MiFIR increases the number of data fields to be reported by 250%.

MiFIR isn't the only reporting regime on the European agenda though. The proposed Securities Financing Transactions Regulation (SFTR) is set to have a big impact on the industry, adding to the ever increasing pressure on banks to produce reports about trading activity. SFTR aims to reduce the risks created by securities lending and repo transactions by enforcing central reporting, disclosures to clients, minimum requirements for reuse of collateral and minimum requirements relating to haircuts. With a plenary session set for September and a speculative implementation timeline in 2017, new requirements could come into force as early as Q3 2016.

As daunting as these two regimes sound (and are) we are still not done with the new EU reporting regimes. 7 April marked six months until transaction reporting requirements under the Regulation on Energy Market Integrity and Transparency (REMIT) go live, and all standard power and gas trades must be centrally reported.

Five years into the G20 plan benchmarks are finally hitting the top of the agenda in the UK. The Financial Conduct Authority (FCA) has published Policy Statement 15/6 'Bringing additional benchmarks into the regulatory and supervisory regime'. The final rules contained in PS15/6, came into force on 1 April 2015, make amendments to the glossary of definitions, fees manual, market conduct sourcebook and the SUP FCA handbooks.

At the same time UK regulatory bodies have turned their attention to how they will implement MiFID II with two consultation papers on the process of transposition into British law. The first paper, published by the Treasury, focuses largely on market structure issues, and in particular on the new classification of trading venue, the organised trading facility (OTF). The second paper is from the FCA and focuses on conduct of business and organisational requirements.

Across the channel the Autorité des Marchés Financiers (AMF), France's primary markets authority, has been focusing its attention on the ever-ongoing implementation of EMIR. They have published a report that emphasises the ways in which asset managers can improve their compliance with the regime including in the areas of calculating mandatory clearing thresholds, correctly resolving dispute resolution measures and obtaining LEIs. Germany In neighbouring Germany a new major piece of insurance regulation has been officially published. The Insurance Supervision Act has been long expected, but is now official. The responsible regulator, BaFin, stated that: "The key points of the Act are: regulation of the valuation of assets and liabilities, in particular of the technical provisions, new own funds rules, new provisions on the calculation of the Solvency Capital Requirement (SCR), governance requirements for insurers, and measures that insurers offering long-term guarantees can take on request."

The Monetary Authority of Singapore (MAS) has revised its guidance around anti-money laundering and countering the financing of terrorism. The revisions are designed to implement recommendations from the Financial Action Task Force (FATF) that most G20 countries already have put into practice. Under the new regime MAS will require firms to undertake more comprehensive enterprise-wide risk assessments. The new guidance also takes into account a new category of Politically Exposed Persons (PEPs).

Hong Kong
The Hong Kong Monetary Authority (HKMA) has laid out its approach to applying some key requirements in the Banking Liquidity Rules (BLR). The BLR essentially is aimed at implementing the Basel III liquidity coverage ratio in Hong Kong. The liquidity coverage ratio has been widely implemented across the G20 and is designed to reduce the risks involved with short-term disruptions to liquidity.

While national regulators press on with implementing more and more of the G20 plan, global standards bodies are busy adding to the plan. The International Organization of Securities Commissions (IOSCO) have been focusing on strengthening the rules governing trading venues. They are recommending a series of measures aimed at enhancing trading venue risk management and capabilities to swiftly resume their services in the event of disruption. In particular IOSCO wants to build best practice standards around how trading venues develop risk mitigation mechanisms.

That is all we have room for in this brief round-up, but by now it should be clear that, over five years on from the G20's 2009 Pittsburgh plan, none of the regulators have succeeded in fully implementing the plan and they are all at different stages of doing so. Stay tuned for more from us next time…