20.04.2017 | KPMG Law Insights

Derivate – Insights – Derivatives | Edition No. 2/2017

Dear readers,

A number of the Delegated Regulations and the Delegated Directive under the Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) were finally published in the Official Journal of the EU.

Further, the proposal of the European Securities and Markets Authority (ESMA) to postpone the clearing obligation under the European Markets Infrastructure Regulation (EMIR) for Category 3 counterparties (small financial counterparties) was endorsed by the European Commission. The postponement is envisaged for 2 years until 21 June 2019, subject to further approval by the European Parliament and the Council.

Besides that, there was a progress in the Level 2 and Level 3 legislation in the areas of the Benchmarks Regulation, the Securities Financing Transaction Regulation (SFTR) and the Market Abuse Regulation (MAR).

To read more about these and other regulatory developments affecting the derivatives and / or securities markets, please see the news items below.

Sincerely yours,

Andres Prescher


Progress on postponement of EMIR clearing obligation for Category 3 counterparties

On 16 March 2017 the European Commission (EC) endorsed the proposal of the European Securities and Markets Authority (ESMA) to extend the deadline for compliance with the clearing obligations under the European Markets Infrastructure Regulation (EMIR) for counterparties in Category 3, i.e. financial counterparties (FCs) with a limited volume of activity and certain funds classified as non-financial counterparties (NFCs). For additional information on ESMA’s proposal please refer to our previous newsletter.

According to the proposal the start of the clearing obligation for Category 3 counterparties shall be postponed until 21 June 2019 with regard to all three Delegated Regulations in force on the clearing obligation, i.e. (i) OTC interest rate derivatives denominated in EUR, GBP, JPY and USD (Delegated Regulation (EU) 2015 / 2205), (ii) OTC index credit default swaps (Delegated Regulation (EU) 2016 / 592), and (iii) OTC interest rate derivatives denominated in NOK, PLN and SEK (Delegated Regulation (EU) 2016 / 1178).

The respective draft Commission Delegated Regulation is now subject to further approval by the European Parliament and the Council.

Further information

Commission Delegated Regulation


Developments in EMIR bilateral margining implementation

The European Supervisory Authorities (ESAs) acknowledged the fact that many counterparties faced operational challenges in meeting the deadline of 1 March 2017 for exchanging variation margins. As a result they issued a joint communication stating that market participants are expected to document the steps taken towards full compliance and, if necessary, put in place alternative arrangements. In turn, the competent authorities should apply their supervisory powers in a risk-based manner.

Further, the Association of German Banks (Bundesverband deutscher Banken, BdB) amended its contractual documentation by publishing on 23 February 2017 an edited EMIR Annex to the master agreement for financial derivative transactions (EMIR-Anhang zum Rahmenvertrag für Finanztermingeschäfte) in order to align the dispute resolution systems with the respective provisions in the collateral annex (Besicherungsanhang). It has also published an additional agreement on the collateral security for the financial derivative transactions with respect to the sub-funds (Ergänzungsvereinbarung für die Besicherung von Finanztermingeschäften im Zusammenhang mit Segmenten).

In addition, the European Commission (EC) amended the Delegated Regulation (EU) 2016 / 2251 by adding two paragraphs (Art. 37 (3) and (4)) on the phase-in of the variation margin requirements to intra-group transactions that were erroneously not included in the original version. For more information please refer to the Corrected Commission Delegated Regulation.


Further EMIR developments

The European Securities and Markets Authority (ESMA) published on 3 April 2017 updated Questions and Answers (Q&A) on practical questions regarding the European Markets Infrastructure Regulation (EMIR) as well as the updated validation rules for the reports submitted under the revised technical standards. Both will become applicable from 1 November 2017.

On 30 March 2017 ESMA provided an updated list of recognized central counterparties (CCPs) located in the following third countries: USA, Brazil, Japan, India or the UAE.

Furthermore, on 31 March 2017 the Delegated Regulation (EU) 2017/610 amending EMIR as regards the extension of the transitional periods related to pension scheme arrangements was published in the Official Journal of the EU. The transitional period has been extended until 16 August 2018.


Developments in SFT legislation

The European Securities and Markets Authority (ESMA) published on 31 March 2017 a final report on standards implementing the Securities Financing Transaction Regulation (SFTR) and amendments to the European Markets Infrastructure Regulation (EMIR). The standards affect, inter alia, the SFT reporting, data collection and availability as well as defined access levels.

Moreover, ESMA issued a research report aimed at understanding the level and the calculation methodologies of haircuts applied by SFT market participants.


ESMA published final report on Benchmarks Regulation

On 30 March 2017 the European Securities and Markets Authority (ESMA) published its final report on the draft regulatory and implementing technical standards (RTS / ITS) under the Benchmarks Regulation.

The draft standards aim to ensure that:

  • the full process of provision of a benchmark is checked by a new oversight function that administrators have to establish;
  • the potential manipulation of benchmarks is minimized through new rules regarding the methodology of calculation and the contribution of input data;
  • conflicts of interest of administrators and contributors are properly managed; and
  • a level playing field across different Member States for the authorization and registration of benchmarks’ administrators is established.

The draft technical standards have been submitted to the European Commission, which now has three months to decide whether to endorse them.

Further information

ESMA’s final report


Developments on the Unique Transaction Identifier

The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published on 28 February 2017 a report on technical guidance to authorities on assigning uniform global Unique Transaction Identifiers (UTIs) to OTC derivatives transactions.

Furthermore, the Financial Stability Board (FSB) started a consultation on the governance arrangements for the UTI. The consultation document identifies, inter alia, key criteria for the UTI governance arrangements, governance functions to be performed and the mapping of those functions. Comments and responses can be sent to the FSB by 5 May 2017.

Further information

Report on harmonization of the UTIs

FSB’s consultation document


MiFID II and MAR developments

On 31 March 2017 28 Delegated Regulations and 1 Delegated Directive on delegated acts and regulatory or implementing technical standards (RTS / ITS) under the Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) were published in the Official Journal of the EU.

In addition, the European Securities and Markets Authority (ESMA) revised its draft implementing technical standards (ITS) on position reporting of commodity derivatives under MiFID II. ESMA also updated its Questions and Answers (Q&A) on (i) market structures topics, (ii) commodity derivatives topics and (iii) transparency topics under MiFID II and MiFIR.

Finally, ESMA published its final report on draft regulatory technical standards (RTS) on the treatment of package orders under MiFID II and MiFIR. In particular, its draft RTS specify how the pre-trade transparency requirements shall apply to package orders. The European Commission has now three months to decide on the endorsement of the standards published.

As regards the Market Abuse Regulation (MAR), the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) informed ESMA that it will comply with ESMA’s guidelines on information relating to commodity derivatives markets or related spot markets for the purpose of the definition of inside information on commodity derivatives.

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