Global Regulatory Brief: Trading and markets, April edition
The Global Regulatory Brief provides monthly insights from regulatory bodies on developments within risk and regulation. This brief was written by Bloomberg’s Regulatory Affairs Specialists.
Trading and markets regulatory developments
The MiFIR-D regime is reaching its final stages, and along with a number of global regulatory updates, it will bring significant changes to the rules governing the trading landscape. Navigate the regulatory challenges that are reshaping financial markets with confidence.
- European Parliament adopts negotiating position on the MiFIR Review
- UK Treasury begins review into investment research
- FCA publish trade data review findings and launches wholesale data market study
- UK regulators set out updated draft rules on derivatives reporting
- SEC proposes to modernize the submission of certain forms, filings, and materials under the Securities Exchange Act of 1934
- Hong Kong consults on clearing rules to reflect IBOR transition
- Korea aims to launch new alternative trading systems by year-end
- CFTC announcements and updates
European Parliament adopts negotiating position on the MiFIR Review
The European Parliament (EP) has agreed its position on the review of the Markets in Financial Instruments Regulation and Directive (MiFIR-D) that aims to reflect lessons learnt since the regime went live in 2018. The EP has backed a series of amendments relating to, among other things, data quality, the consolidated tape regime, payment for order flow (PFOF) and market transparency rules.
The vote by MEPs follows the work of Danuta Hübner MEP who has led the negotiations between MEPs for the past year, involving consideration of a wide range of stakeholders and factors. Hübner remarked that the EP’s position is intended to support the establishment of a consolidated tape in all asset classes, to simplify the transparency framework, and to increase the level of protection of retail investors. Notably, the EP’s position aims to account for the approach of other jurisdictions such as the UK and US in an attempt to ensure that the EU capital markets remain competitive and exhibit best practice globally.
The EP’s vote sets the stage for the final negotiations (‘trilogues’) between the EP, member states and EU Commission to decide on final rule changes to the MiFIR-D regime. The updated rules are expected to be finalized by the end of 2023 and then start to apply in 2024-2025, bringing significant changes to the rules and processes governing the European trading landscape over the coming years.
UK Treasury begins review into investment research
HM Treasury has kicked off its review into investment research in an attempt to enhance the UK’s attractiveness as a globally competitive listings destination. The review will consider the relationship between research levels and the attractiveness of the UK as a destination to list. The review will also evaluate options to improve the market for investment research in the UK and this may include changes to the research unbundling rules first introduced by the MiFID II framework in 2018.Â
Investment research is used by potential investors to inform investment decisions in both public and private markets and there has been significant debate about it in recent years, especially since MiFID II ushered in far reaching requirements aimed at addressing perceived conflicts of interest where execution and research are bundled. The independent review will be chaired by Rachel Kent (Senior Partner at Hogan Lovells) and will report back within three months by June 2023.
The review into investment research was first announced as part of the ‘Edinburgh Reforms’ announced by the Chancellor last December, a substantial package of regulatory reform designed to boost UK competitiveness in the global financial markets. This review follows the limited exemptions to the original research unbundling rules introduced by the FCA in March 2022. Â
FCA publish trade data review findings and launches wholesale data market study
The FCA has published a report on UK wholesale trading data in which it underlines the importance of access to good quality trade data for healthy financial markets. This follows the FCA’s work over a number of years on accessing and using wholesale data.Â
The FCA found that trade data users are generally able to access the data they need and this data plays an important role in investment activity in the UK. However there are instances where competition is not working as well as it could be. The FCA plans to issue proposals for consultation on a viable consolidated tape regime which is intended to improve cost, quality and accessibility of wholesale data.Â
In parallel, the FCA launched a market study on market data vendors, benchmarks providers and credit ratings agencies. The FCA will decide whether to make a market investigation reference to the Competition and Markets Authority (CMA) on one or more of these markets by September 1, 2023. The market study report will be published by March 1, 2024.
UK regulators set out updated draft rules on derivatives reporting
The FCA and Bank of England (BoE) have published a joint policy statement containing final draft amendments to derivatives reporting rules under the UK version of the European Market Infrastructure Regulation (UK EMIR). The proposals are intended to align the UK derivatives reporting framework with international guidance to ensure a more globally consistent dataset. The policy statement also contains measures relating to mandatory delegated reporting requirements, counterparty notifications, registration and reconciliations processes, and the use of XML schemas and global identifiers.Â
Following any final feedback on the UK EMIR validation rules and XML schemas, the final rules will be published shortly and will come into effect from September 30, 2024. There will be a 6-month transition period until March 31, 2025 for firms to update their derivative reporting in line with the new standards. The main difference between the UK and EU rules is the timing as the UK rules will apply 4-months after the EU, where the EMIR Refit reporting rules go live from April 29, 2024.
SEC proposes to modernize the submission of certain forms, filings, and materials under the Securities Exchange Act of 1934
The SEC proposed amendments designed to modernize its information collection and analysis methods by, among other things, proposing that a number of filings be submitted to the Commission electronically on EDGAR using structured data where appropriate. Specifically, the proposed amendments would require the electronic filing, submission, or posting of certain forms, filings, and other submissions that national securities exchanges, national securities associations, clearing agencies, broker-dealers, security-based swap dealers, and major security-based swap participants make with the Commission. The proposed amendments would also make certain amendments regarding the Financial and Operational Combined Uniform Single (FOCUS) Report to harmonize it with other rules, make technical corrections, and provide clarifications. In addition, the proposed amendments would require withdrawal of notices filed in connection with an exception to counting certain dealing transactions toward determining whether a person is a security-based swap dealer in specified circumstances. The public comment period will remain open for 30 days after publication in the Federal Register or until May 22, 2023, whichever is later.
Hong Kong consults on clearing rules to reflect IBOR transition
The Hong Kong Monetary Authority (HKMA) and Securities and Futures Commission (SFC) have launched a joint consultation on proposals to implement changes to the regulatory regime for Hong Kong’s over-the-counter derivatives market.Â
Specifically, the Hong Kong regulators are seeking to change the mandatory clearing regime by removing the requirement to clear certain OTC derivative transactions referencing interbank offered rates (IBORs) that are or will no longer be published or considered representative. Instead, the regulators will require clearing of those instruments that reference alternative reference rates (ARRs). The consultation period runs until April 11, 2023.
Korea aims to launch new alternative trading systems by year-end
As part of the push to introduce alternative trading systems (ATS) into the Korean capital markets, the Korean Financial Services Commission (FSC) and Financial Supervisory Service (FSS) will decide whether to grant preliminary approvals to applicants over April and May. The FSC opened applications for ATS preliminary accreditation for a short window at the end of March. Firms that obtain preliminary authorisation will have to formally apply after meeting certain requirements and will be expected to start business within 6 months after authorization. On this timetable, it seems likely that Korea will see the launch of new ATS before the end of the year.Â
The introduction of an ATS for securities is intended by the Korean authorities to increase competition with the Korea Exchange (KRX), boost transaction volumes, reduce costs for investors, and improve overall market efficiency.
CFTC approves proposed rule to codify no-action position regarding the treatment of separate accounts of a single customer by clearing members
The CFTC unanimously approved a proposed rule to codify the no-action position in CFTC Staff Letter No. 19-17 regarding the treatment of separate accounts of a single customer by futures commission merchants (FMs) that are clearing members of derivatives clearing organizations (DCOs). The proposed rule would codify the no-action position regarding that regulation by adding new CFTC Regulation 39.13(j). The proposed rule would modify certain of the no-action conditions, including by adding: (i) reporting requirements for clearing members that are required to cease separate account treatment; (ii) an explicit process for clearing members to resume separate account treatment; and (iii) provisions designed to further clarify the no-action condition that separate accounts be on a one-business day margin call. The comment period will be open for 60 days after publication in the Federal Register.
CFTC staff announces modifications to the swap data reporting and public dissemination requirements
The CFTC announced the publication of modifications to Version 3.1 of the CFTC Technical Specification, issued in Aug. 2022. The Technical Specification provides detailed instructions for swap data reporting and public dissemination requirements under Parts 43 and 45 of CFTC regulations. The Technical Specification includes the definitions, formats, and allowable values for data elements that are to be reported to swap data repositories (SDRs). The modifications to the Technical Specifications relate to the CFTC’s issuance of an order designating a unique product identifier and product classification system to be used in swap recordkeeping and reporting (See CFTC Press Release No. 8659-23).
CFTC announces the Technology Advisory Committee and new subcommittees of the Global Markets Advisory Committee
CFTC Commissioner Christy Goldsmith Romero, sponsor of the CFTC’s Technology Advisory Committee (TAC), announced the newly constituted membership, which includes Carole House as Chair and Ari Redbord as Vice Chair. At the TAC’s inaugural meeting on Mar. 23, the Commissioner will hear technology experts present on decentralized finance, cyber resilience, and responsible artificial intelligence issues, followed by a discussion on the membership on these topics as well as the renewal of certain subcommittees.Â
CFTC Commissioner Caroline D. Pham announced new subcommittees of the Global Markets Advisory Committee (GMAC). The subcommittees are the Global Market Structure Subcommittee, Digital Assets Markets Subcommittees, and the Technical Issues Subcommittee. Commissioner Pham sponsors the GMAC and sought membership nominations for each subcommittee; new members for the subcommittees will be announced in the future.
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