November 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 markets. From research unbundling in Europe to derivatives transaction reporting in Australia, the following global developments in trading and markets from the past month stand out:
- Australia: ASIC introduces new derivative transaction rules
- USA: SEC issues fines worth more than $88 million for widespread recordkeeping failures
- India: SEBI consults on minimum retention period of mandatory communication records
- EU: ESMA consults on amendments to MiFID investment research regime
- India: SEBI undertakes review of Equity Index Derivatives Framework
- Japan: FSA calls on banks called to improve internal audit function
- USA: SEC Adopts Regulation NMS Amendments
- USA: SEC Adopts Amendments to Forms N-Port and N-CEN
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 usability for a range of regulatory purposes.
Eleven firms to pay more than $88 million combined to Settle SEC’s charges for widespread recordkeeping failures
The U.S. Securities and Exchange Commission (“SEC”) announced charges against 12 firms, including broker dealers, investment advisers and one dually registered broker-dealer and investment adviser, for widespread and longstanding failures by the firms and their personnel to maintain and preserve electronic communications in violation of recordkeeping provisions of the federal securities laws.
The firms admitted the facts set forth in their respective SEC orders, acknowledged their conduct violated recordkeeping provisions of the federal securities laws, and agreed to pay combined civil penalties of $88,225,000.
Important context: The most recent charges follow nearly $390 million in off-channel fines last month and are the latest in the SEC’s expansive sweep of regulated entities’ off-channel communications recordkeeping practices.
SEBI consults on minimum retention period of mandatory communication records
The Securities and Exchange Board of India has published a consultation regarding a requirement for Regulated Entities to retain mandatory communication records for at least eight years.
Context: Currently, REs are mandated to communicate various types of information to numerous stakeholders. However, the record of such mandatory communication is required to be maintained only for a limited class of communication.
- SEBI believes that the legally verifiable record of mandatory communication would help in resolving investor grievances, protecting the interest of investors and identifying instances of breach of provisions of securities laws, if any, by providing the relevant evidence of the content of such communication.
- This would ultimately lead to improved regulatory compliance, increase transparency, protect investors’ interest and boost their confidence in the securities market.
- Records must be made available to SEBI upon request.
ESMA consults on amendments to MiFID investment research regime
The European Securities and Markets Authority (ESMA) has launched a consultation on amendments to the research provisions under the Markets in Financial Instruments II (MiFID II) following changes introduced by the Listing Act.
Important context: The Listing Act enables joint payments for execution services and research for all issuers, irrespective of the market capitalisation of the issuers covered by the research.
In summary: This consultation describes proposals to amend Article 13 of the MiFID II Delegated Directive in order to align it with the new payment option offered. In particular, ESMA’s proposals aim to ensure that:
- The annual assessment of research quality is based on robust criteria; and
- The remuneration methodology for joint payments for execution services and research does not prevent firms from complying with best execution requirements.
Next steps: ESMA will consider feedback to this consultation, which is open until January 28, and intends to provide technical advice to the Commission in Q2 2025.
SEBI undertakes review of Equity Index Derivatives Framework
SEBI introduced measures to strengthen the equity index derivatives framework for enhanced investor protection and market stability. The key changes include adjustments in risk management, revised contract sizes, and rationalized trading rules, effective in phases from November 2024 to April 2025.
Background: The derivatives market aids in price discovery, liquidity improvement, and risk management for investors. However, evolving market dynamics — particularly increased retail participation, short-tenure index options, and high speculative volumes on expiry dates — led SEBI to implement changes aimed at investor protection and market stability. The changes follow the consultation paper issued by SEBI in July 2024.
Key changes:
- Revised Contract Sizes: Index derivative contract sizes will be updated to align with market growth
- Weekly Expiry Rationalization: Only one benchmark index per exchange will be available for weekly expiry, discouraging hyperactive trading
- Additional 2% Margin on Expiry Day: An extra margin for short options on expiry day will help cover tail risks
- Upfront Option Premium Collection: Buyers will now pay option premiums upfront to prevent excessive intraday leverage
- Calendar Spread Removal on Expiry Days: This change mitigates basis risk by removing calendar spread benefits for contracts expiring on the day
- Intraday Position Limit Monitoring: Position limits will now be monitored intraday to prevent excessive trading activity
Looking ahead: The measures are expected to go live in phases:
- November 20, 2024: New contract sizes, weekly expiry rationalization, and tail risk coverage adjustments take effect
- February 1, 2025: Upfront premium collection and calendar spread removal begin
- April 1, 2025: Intraday monitoring of position limits will commence
Japanese banks called to improve internal audit function
The Japanese Financial Services Authority (JFSA) published its latest monitoring survey on the internal audit function of major Japanese financial institutions and regional banks.
Key findings: The survey found a lack of maturity in risk recognition, particularly among the regional banks.
Key highlights from survey report: The JFSA underscored the importance of the internal audit function to predict and control risks, and how internal audits were integral to business operations to ensure financial stability.
- This was especially crucial in the current environment of heightened economic volatility and rising domestic interest rates.
- The FSA also emphasized the role which internal audit plays in providing assurance to stakeholders, such as senior management and regulators, as well as maintaining good corporate governance and business sustainability.
Looking ahead: The JFSA called on financial institutions to take a more proactive approach to risk identification and management, improve internal communication, and to ensure that senior management played an active role in overseeing the internal audit function.
- The regulator said that financial institutions should refer to the Global Internal Audit Standards to enhance their internal audit functions.
- Firms should comply with the Standards by 1 January 2025.
SEC adopts Regulation NMS amendments
The SEC voted to adopt various amendments to Regulation NMS relating to minimum pricing increments (known as “tick sizes”), reduce the access fee caps for protected quotations of trading centers, and accelerate implementation of the Market Data Infrastructure (“MDI”) Rules.
In more detail: Specifically, the amendments establish a half-cent tick size for NMS stocks priced at or greater than $1 per share that met certain spread criteria when evaluated, and retains the one-cent spread for other NMS stocks that had wider spreads.
- The amendments also reduce the access fee cap for NMS stocks priced at $1 or more to one-tenth of a cent and prohibit a national securities exchange from imposing any fee or providing any rebate for the execution of an order in an NMS stock unless such fee or rebate can be determined at the time of execution.
- Finally, the amendments accelerate the deadline for market participants to implement the odd-lot information and round lot definitions under the MDI rules and require existing exclusive securities information processors (“exclusive SIPs”) to collect, consolidate, and disseminate odd-lot information and will require national securities exchanges and associations to provide the data necessary to generate odd-lot information to the exclusive SIPs.
Looking ahead: The amendments will become effective 60 days after the date of publication of the adopting release in the Federal Register. For Rule 612, Rule 610, and the round lot definition, the compliance date will be the first business day of November 2025. For odd-lot information, the compliance date will be the first business day of May 2026.
SEC adopts amendments to Forms N-Port and N-CEN
The SEC adopted amendments to reporting requirements on Forms N-PORT and N-CEN to require registered funds to file information on their portfolio holdings (Form N-Port) on a monthly basis (due within 30 days after the end of the month to which they relate).
The Commission will publish the forms (with certain data redacted) 60 days after the end of the month. Additionally, amendments to Form N-CEN require open-end funds that are subject to liquidity risk management program requirements under the liquidity rule to report certain information about service providers used to fulfill those requirements, including identifying information about the liquidity service providers and the asset classes for which the liquidity service providers are used.
Looking ahead: The amendments to Forms N-PORT and N-CEN will become effective on November 17, 2025.
- Funds generally will be required to comply with the amendments for reports filed on or after that date.
- Fund groups with net assets of less than $1 billion will have until May 18, 2026, to comply with the Form N-PORT amendments.
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