December Global Regulatory Brief: Trading and markets
The Global Regulatory Brief provides monthly insights on the latest risk and regulatory developments. This brief was written by Bloomberg’s Regulatory Affairs Specialists.
Trading and markets regulatory developments
Regulatory authorities continue to advance initiatives to improve the efficiency and sophistication of global securities markets. From OTC derivatives reporting in Australia to price sensitive information in India, the following global developments in trading and markets from the past month stand out:
- UK: FCA publish final policy for UK bonds and derivatives market transparency
- Saudi Arabia: consults on foreign investment and market access reforms
- India: SEBI consults on review of Unpublished Price Sensitive Information
- China: CSRC Promotes Market Value Management
- Indonesia: Bank Indonesia to permanently cease publication of JIBOR starting 1 January 2026
- Australia: OTC derivative transaction reporting rules take effect
- US: SEC Chair Gary Gensler to depart agency on Jan. 20
- US: Treasury Department Issues Outbound Investment Final Rule
FCA publish final policy for UK bonds and derivatives markets transparency
The UK Financial Conduct Authority (FCA) published its final policy statement on the new transparency regime for UK bonds and derivatives markets.
In summary: The changes aim to ensure that investors have access to better, quicker and clearer data at a fair price. The new policy aims to establish the following:
- Greater transparency, in terms of timeliness and content of the information published to the market.
- Lower compliance costs for trading venues and investment firms by simplifying the regime.
- Higher quality post-trade data to support the creation of a consolidated tape for bonds in the UK.
In more detail: The new transparency regime aims to simplify post-trade transparency by narrowing the number of deferrals for bonds and certain OTC derivatives.
- The FCA have specified transparency requirements only for bonds admitted to trading on a trading venue and certain derivatives subject to the clearing obligation.
- The OTC trading of non-specified instruments by investment firms will not be subject to public trade reporting.
- For trading venues, the FCA have set out standards and criteria they should consider when calibrating their transparency requirements.
Derivatives identification: To aid the correct identification of OTC derivatives the FCA will not require firms to report both the ‘unique product identifier’ (UPI) and ISIN but instead move straight to requiring the reporting of UPI alone where one exists – that is, for OTC derivatives – and an ISIN otherwise.
Systematic internalizer (SI) regime: The FCA have updated the definition of an SI from a quantitative to a qualitative definition, which they do not expect to alter which firms are designated as SIs. The FCA are also asking market participants about whether the systematic internalizer regime is improving market integrity, competition, and supporting price formation.
Next steps: The new transparency rules will come into force on 1 December 2025 and the FCA have provided a transitional provision that will enable trading venues not to apply pre-trade transparency to voice and RFQ trading from 31 March 2025.
- While the bond consolidated tape (CTP) will only go live after the changes to the transparency regime take effect, the FCA confirm that they expect to start the tender to appoint a bond CTP next month, December 2024.
- Responses to the discussion paper on the future of the SI regime should be submitted by January 10, 2025. Following on from this, the FCA intend to publish a Consultation Paper on those issues in Q2 2025.
Saudi consults on foreign investment and market access reforms
The Saudi Capital Markets Authority (CMA) launched a consultation outlining draft amendments to its Investment Accounts Instructions, the rules governing Foreign Investment in Securities, and the Capital Market Institutions Regulation.
Context: The proposed amendments are intended boost the attractiveness of Saudi markets by making it easier for local and international investors to open and operate investment accounts. Currently, international participation is limited to the debt market, the parallel market “Nomu”, investment funds, and the derivatives market, while their ability to trade in the main market is limited to swap agreements as ultimate beneficiaries through capital market institutions or as clients of these institutions.
Key changes: The proposals introduce a number of important changes.
- New category of investors to the shares listed on the main market, offering them a direct channel to invest in the Saudi capital market.
- Allows individual foreign investors who previously resided in Saudi Arabia or one of the GCC countries to continue operating their investment accounts and invest in shares listed in the main market even after their residency has ended and they return to their home country, provided they have previously opened an investment account in Saudi Arabia.
- Facilitating the procedures for opening and operating investment accounts for various categories of capital market institution clients.
- At the local investor level, the amendments aim to simplify the requirements for opening investment accounts for endowments.
Next steps: The consultation is open until 20 December 2024.
ESMA recommends moving to T+1 by Q4 2027
ESMA published its Final Report assessing the shortening of the settlement cycle in the EU, which recommends migrating to T+1 simultaneously across all relevant instruments by Q4 2027, in line with the UK and Switzerland.
In short: ESMA recommends that the migration to T+1 occurs simultaneously across all relevant instruments and that it is achieved in Q4 2027. Considering the different elements assessed by ESMA, in particular the difficulties linked to the go-live of such a big project in November and December, and the challenges linked to the first Monday of October (just after the end of a quarter), ESMA recommends 11 October 2027 as the optimal date for the transition to T+1 in the EU.
Coordinated European transition: ESMA recommends following a coordinated approach with other jurisdictions in Europe.
Cost benefit analysis: ESMA suggests that the impact of T+1 in terms of risk reduction, margin savings and the reduction of costs stemming from the misalignment with other major jurisdictions globally, will represent important benefits for the EU capital markets. However, this change will also imply some challenges, including amending the Central Securities Depositories Regulation (CSDR) and the settlement discipline framework to have legal certainty. All industry will need to work on harmonization, standardization, and modernization to improve settlement efficiency.
Increasing attractiveness of EU capital markets: ESMA highlights that the increased efficiency and resilience of T+1 post-trade processes would contribute to market integration and the Savings and Investment Union objectives.
Context: A number of major jurisdictions, including the US, moved to T+1 earlier this year.
What next? The European Commission, who holds the power to initiate legislation in the EU, will now assess the report. A legislative proposal is widely anticipated early next year. In the meantime, ESMA will continue working on the T+1 governance together with the European Commission and the European Central Bank.
SEBI consults on review of Unpublished Price Sensitive Information (UPSI)
The Securities and Exchange Boards of India has published a consultation paper to review the definition of Unpublished Price Sensitive Information (UPSI) to bring clarity and uniformity in compliance, by including an additional list of events / information which may be considered as UPSI.
For context: A study conducted by SEBI observed that the events classified as material in terms of UPSI definition and those considered material and disclosed by listed entities under the Listing and Disclosure framework are not aligned, and there is a need to review the definition to bring about regulatory clarity, certainty and uniformity in compliance.
In detail: The consultation seeks inputs towards inclusion of 13 events / information proposed to be included in the definition of UPSI, some of which include:
- Proposed fund raising
- Agreements impacting the management and control of the company
- Initiation of forensic audit (by whatever name called) for detecting misstatement in financials, misappropriation/ siphoning or diversion of funds and receipt of final forensic audit report
- Action(s) initiated or orders passed by any regulatory, statutory, enforcement authority or judicial body outcome of any litigation(s) or dispute(s) which may have an impact on the listed entity
- Granting, withdrawal, surrender, cancellation or suspension of key licenses or regulatory approvals
Deadline: The consultation closes on November 30, 2024.
CSRC Promotes Market Value Management
The China Securities Regulatory Commission (CSRC) released the No.10 Guideline for Listed Company Supervision on Market Value Management on Nov 15.
The intention: The Guideline aims to increase the return to investors by forcing listed companies to improve corporate quality and investment value with concrete measures such as M&A, equity incentives, buybacks, dividend, enhancing investor relationship management and information disclosure.
Background: The China stock market has experienced a downturn for the past four years.
The quality of listed companies is the cornerstone for the market, and the CSRC has taken a variety of measures to stabilize the market and boost market confidence. The guideline is a strong push to the listed company to offer better returns for investors.
Balanced approach: The Guidance takes a balanced approach. On one hand, CSRC pushes senior management teams and controlling shareholders of listed companies to take responsibility of market value management. On the other hand, CSRC prohibits the misuse of the relevant measures for market manipulation and insider trading. The Guideline requires the companies in the main indices and persistently below book value to formulate, implement and review the market value plan.
Looking ahead: Share price will become one of the targets for listed companies. More market-oriented mechanisms will be taken to strengthen the incentives for management teams and employees, thereby improving the attractiveness of the China stock market for domestic and international investors.
Bank Indonesia to permanently cease publication of JIBOR starting 1 January 2026
Bank Indonesia (BI) announced plans to permanently cease publication of the Jakarta Interbank Offer Rate (JIBOR) starting 1 January 2026.
Broader context: The move is part of global efforts to shift from quotation-based interest rate benchmarks like the London Interbank Offer Rate (LIBOR) to more robust, transaction-based benchmarks. JIBOR, which is based on bank quotations, will be replaced with transaction-based rates like the Indonesia Overnight Index Average (IndONIA), which was introduced in 2018 as Indonesia’s rupiah overnight reference rate.
In more detail: BI said the cessation of JIBOR by 1 January 2026 will occur across all tenors, including one week, one month, three months, six months, and 12 months. The National Working Group on Benchmark Reform (NWGBR) has published guidelines to help business ensure a smooth transition from JIBOR to IndONIA. In the guidance, the NWGBR recommended market participants with JIBOR exposure to take four key steps:
- The use of alternative reference interest rates/ Alternative Reference Rate (ARR) in the form of INDONIA and Compounded INDONIA in new financial contracts in stages since January 1, 2025
- Establish or continue a transition team to ensure a smooth JIBOR transition process
- In order for the parties to ensure that the legacy JIBOR contract has fallback clause language, to include re-papering when needed
- Keep abreast of developments in domestic benchmark reform
Fallback rate: Bank Indonesia, in collaboration with the International Swaps and Derivatives Association (ISDA) and Bloomberg Index Service Limited (Bloomberg), will ensure that the fallback rate reference meets the standards applicable in the global financial markets. ISDA has selected Bloomberg as the vendor that calculates and publishes the fallback rate including spread adjustment, using a calculation method developed after consulting with global financial market players.
Australian OTC derivative transaction reporting rules take effect
The Australian Securities and Investments Commission (ASIC) has introduced new Derivative Transaction Rules that align with international reporting standards and consolidate transitional provisions and exemptions.
In summary: The introduction of the new rules follow various rounds of public consultation as well as the publication of guidance materials. ASIC has also announced that they will take a measured approach to compliance until March 2025 for reporting entities that make reasonable efforts to comply with the 2024 Reporting Rules.
The intention: The changes are intended to enhance the conformity and consistency of OTC derivative transaction data and ultimately improve its quality and useability for a range of regulatory purposes.
SEC Chair Gary Gensler to depart agency on Jan. 20
The U.S. Securities and Exchange Commission (“SEC”) announced that Chair Gary Gensler will step down from the Commission effective at 12:00 pm on January 20, 2025. While his term does not expire until mid 2026, leaders of independent regulatory agencies, like the SEC, have traditionally resigned their posts shortly before a new president is sworn in. Commissioner Jaime Lizárraga also announced his intention to step down from his role at the SEC on Jan. 17, 2025.
In more detail: Chair Gensler’s departure will leave the SEC in the hands of an acting chair, likely to be one of the two current Republican Commissioners, until a replacement is nominated by President-elect Trump and confirmed by the U.S. Senate – a process that may take months. The exact composition of the SEC during the early days of the new administration will depend on various factors. However, regardless of composition, the acting chair could make consequential decisions regarding the direction of Commission policy and its general operations.
U.S. Treasury Department issues Outbound Investment Final Rule
The U.S. Department of the Treasury issued a final rule (the “Outbound Rule”) to implement President Biden’s Executive Order 14105, Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern. The final Outbound Rule creates a prohibition and notification regime for certain U.S. investments and transactions in “countries of concern” involving a defined set of technologies that may pose national security risks to the United States.
In more detail: The final Outbound Rule seeks to limit the availability of U.S. capital, as well as “intangible benefits” that may accompany certain U.S. investments, to persons of a country of concern engaged in activities involving:
- Semiconductors and microelectronics;
- Quantum information technologies; and
- Certain artificial intelligence (AI) systems.
The final Outbound Rule has evolved since the Notice of Proposed Rulemaking (“NPRM”), including the addition of an exception for investments in derivatives that do not confer certain rights. It keeps the exception for “publicly traded” securities as proposed in the NPRM.
The final Outbound Rule is a somewhat novel approach in that entities will need to identify themselves whether a transaction is covered by the rule, and Treasury declined requests by commenters that it provide a list of entities for purposes of prohibited transactions. However, the final rule notes that Treasury plans to provide additional information to assist U.S. persons in compliance with the final rule.
Effective date: Treasury’s Outbound Rule will take effect on January 2, 2025. Congress may also consider legislation to codify and expand upon the rule in the coming months.
HM Treasury issues call for evidence on UK Financial Growth and Competitiveness
HM Treasury has issued a call for evidence on a UK Financial Services Growth & Competitiveness Strategy, which will set out the UK Government’s approach to the sector for the next 10 years.
Important context: This follows on from the Chancellor’s recently announced package of reforms to drive growth and competitiveness in financial services as part of the Mansion House Speech. In her speech, Chancellor Rachel Reeves argued that regulatory changes to eliminate risk after the financial crisis have ‘gone too far’ and led to unintended consequences.
Core policy pillars: The government has identified five core policy pillars central to the sustainable growth of the sector:
(i) Innovation & Technology: enabling and supporting increased digital adoption, including technologies such as Artificial Intelligence, which have the potential to increase productivity and open up new products and services;
(ii) Regulatory Environment: ensuring there is a robust and transparent regulatory framework that supports growth while also maintaining financial stability, ensuring that markets function well, protecting consumers and promoting competition;
(iii) Regional Growth: promoting growth across all regions to ensure the benefits of the UK’s financial sector are felt by citizens nationwide;
(iv) Skills & Access to Talent: ensuring a strong pipeline of homegrown talent and that the UK remains an attractive destination for top talent internationally; and
(v) International Partnerships & Trade: maintaining the UK’s success as a global financial hub through strong trade arrangements and international leadership on financial regulation.
Next steps: Feedback to the call for evidence can be provided until 12 December 2024.
- The government said it welcomes responses setting out analysis or data that would help to develop the strategy, as well as submissions of evidence or analysis of how the financial sector can drive growth, the role that regulation plays in the sector’s growth, and ways to improve the international competitiveness of the sector, including the role of trade agreements, the skills needs of the sector, the opportunities and risks posed by new technologies, and structural changes such as climate change and the transition to net zero.
- The Government intends to publish the final strategy in Spring 2025, alongside the industrial strategy and other sector plans.
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