13 februaRY - 17 february, 2012

ESMA Launches Consultation on EMIR; Announces 6 March Hearing
The European Securities and Markets Authority (ESMA) issued a discussion paper on the regulatory and implementing technical standards (ITS) on OTC derivatives, CCPs and trade repositories as required by the European Parliament and Council. The first portion of the paper focuses on the clearing obligation, risk mitigation techniques for contracts not cleared by a CCP and exemptions to certain requirements. The second part focuses on CCP requirements, where a number of provisions need to be specified through technical standards. The third part covers trade repositories and in particular the content and format of the information to be reported to trade repositories, the content of the application for registration to ESMA and the information to be made available to the relevant authorities. 

Following this discussion paper, ESMA will prepare draft technical standards that will “most likely be published around summer 2012." ESMA also announced a public hearing on 6 March to gather input before the comment period closes. The European Banking Authority (EBA), European Insurance and Occupational Pensions (EIOPA) and ESMA are expected to issue a joint discussion paper on regulatory technical standards in “the coming weeks.” Finally, the EBA is also expected to issue in the coming weeks a discussion paper on draft regulatory technical standards on capital requirements for CCPs. The deadline for comment is 19 March.
ESMA consultation
ESMA public hearing

ESMA Publishes Consultation on Short Selling and CDS; Announces 29 February Hearing
ESMA published a consultation on draft technical advice for regulations on short selling and certain aspects of credit default swaps. The paper is divided into multiple sections and covers the following issues: the net position in shares or sovereign debt covering the concept of holding a position; advice on the cases in which a credit default swap (CDS) transaction is considered to be hedging against a default risk; the initial and incremental levels of the notification thresholds to apply for the reporting of net short positions in sovereign debt; the parameters and methods for calculating the threshold of liquidity on sovereign debt for suspending restrictions on short sales of sovereign debt; and what constitutes a significant fall in value for various financial instruments. The deadline for comment is 9 March. ESMA announced an open hearing scheduled for 29 February to solicit feedback prior to the deadline for comments.
ESMA consultation
ESMA public hearing

ESMA Chair Maijoor Discusses Derivatives Reform, Other European Regulatory Priorities
Speaking at an AFME conference earlier this week, ESMA Chair Steven Maijoor outlined progress on a number of important financial regulatory reform items, including EMIR. Maijoor said “we are very close to a political agreement … and that while making technical standards regarding CCPs, trade repositories and central clearing will not be easy, we will do our utmost to avoid that the ball will become a hot potato.” He also identified international consistency in the regulation and supervision of the derivatives market as an ESMA priority. “Equivalent regimes and mutual recognition is important to ensure that we not only avoid regulatory gaps, but also regulatory overlap,” Maijoor said.

He also argued that given the systemic role CCPs play, the liquidity collected by CCPs mainly in the form of cash cannot be allowed to be put at risk, and called for strict rules on CCPs’ investment policies.  With respect to FX derivatives, he noted that concern should not be focused on the clearing obligation, but rather the bilateral collateralisation. Finally, Maijoor identified the establishment of Legal Entity Identifiers (LEI) as “important not only for derivative trade reporting, but also for many of the other regulatory reporting, like transaction reporting, short positions reporting and alike.”
Maijoor speech

EBA Publishes Consultation on Draft ITS for Reporting of Large Exposures
The European Banking Authority (EBA) published a consultation paper on a draft Implementing Technical Standard (ITS) for the reporting of large exposures. The draft ITS aims at implementing uniform reporting requirements which are necessary to ensure fair conditions of competition between comparable groups of credit institutions and investment firms. The EBA intends to finalise the draft ITS and submit it to the European Commission by 30 June 2012, though this deadline assumes a capital requirements regulation (CRR) will be available beforehand. The deadline for comment is 26 March. 
EBA consultation 

U.S. OMB Publishes FY ’13 Budget; Includes Bank Tax, CFTC User Fee
The Office of Management and Budget (OMB) published its fiscal year 2013 budget that includes proposals for a bank tax and a “user fee” to fund the Commodity Futures Trading Commission (CFTC). The bank tax, known as the “Financial Crisis Responsibility Fee,” seeks to raise $61 billion over 10 years and would be applied to covered liabilities at a rate of 17 basis points. The fee would apply to U.S.-based bank holding companies, thrift holding companies, certain broker-dealers, companies that control certain broker-dealers, and insured depository institutions with more than $50 billion in consolidated assets. U.S. subsidiaries of foreign firms that fall into these categories and that have assets in excess of $50 billion also would be covered. Though the proposal sets out a 1 January 2014 date for implementation, it must be approved by Congress before it takes effect.

SIFMA’s President & CEO, Tim Ryan, stated “…Imposing a broad-based tax on financial institutions and unfairly tying it to the mostly repaid TARP program ultimately serves as a tax increase on individual investors. While our economy seems to be at the beginning stages of more sustained economic growth, our economic security remains in a delicate state. Financial institutions already face the burden of higher capital and liquidity standards set by Dodd-Frank and the Basel III framework.  Adding onto these measures with a bank tax will only serve to impede the ability of financial institutions to provide the necessary capital formation and credit availability to continue to spur economic growth and job creation.” 

The budget also noted strong support for funding the CFTC through user fees. The authorization of user fees would bring the CFTC into line with all other Federal financial regulators, which are funded in whole or in part through user fees. Rep. Peter Welch (D-Vt.) introduced a bill in December 2011 to create a new funding mechanism for the CFTC modeled after the Security and Exchange Commission's funding source. The bill did not specify a rate but allowed the CFTC to determine an appropriate level. Notably, in the FY 2013 budget, the CFTC requested an operating budget increase of $103 million, nearly a 50 percent increase from FY 2012.
FY 2013 Budget
FY 2013 Treasury Green Book
CFTC user fee proposal
Rep. Welch user fee bill
SIFMA press release

Federal Regulators Publish Submissions as Comment Period on Volcker Rule Closes
U.S. Federal regulators published comments received in response to the Volcker rule as the deadline for comment closed Monday. A number of foreign financial regulators submitted comments expressing concern with the rule. Bank of Canada Governor and head of the Financial Stability Board Mark Carney submitted a letter expressing concern over the extraterritorial reach and its impact on trading in government securities. The Financial Services Authority (FSA) weighed in, reinforcing concerns about the impact on soverign debt markets. The Deutsche Bundesbank and the Bundesanstalt für Finanzdienstleistungsaufsicht (BAFIN) also submitted a letter outlining similar concerns with “the extraterritorial reach of the Volcker Rule and the planned exception for proprietary trading in US governmental obligations only.” A full list of responses can be found in the link below.

SIFMA offered several ideas to multiple federal regulators to better implement the Rule, all in compliance with Congressional intent but without damaging the liquidity and resiliency of U.S. capital markets.  Five comment letters were filed that addressed the following issues: proprietary trading; hedge funds and private equity; private funds restrictions; municipal securities; and securitization and insurance-linked securities transactions.
Carney letter
BAFIN letter
UK FSA letter
SIFMA responses
List of responses submitted

MAS Reviews Regulation of Derivatives Market in Singapore; Issues Two Consultations
The Monetary Authority of Singapore (MAS) published two consultations on the OTC derivatives market as part of a review of its current regulations. The first consultation, Regulatory Oversight of OTC Derivatives Markets, proposes expanding the scope of the Securities and Futures Act (SFA) to include: mandatory central clearing of OTC derivative trades at regulated central counterparties; mandatory reporting of OTC derivative trades to regulated trade repositories; and establishing regulatory regimes for market operators, clearing facilities, trade repositories and market intermediaries for OTC derivatives.

The second consultation, Regulatory Oversight of OTC Commodity Derivatives, proposes transferring the regulatory oversight provided in the Commodity Trading Act, from the International Enterprise (IE) Singapore, to the SFA. According to MAS, the objective is to “harness synergies and align regulatory approaches across the major classes of OTC derivatives, while at the same time, provide greater clarity to industry participants on the regulatory approach for commodity futures and other commodity derivatives.” The deadline for both consultations is 26 March. 
MAS consultation - Regulatory Oversight of OTC Derivatives Markets
MAS consultation - Regulatory Oversight of OTC Commodity Derivatives

Mexican G20 Presidency Publishes Discussion Paper
The Mexican G20 Presidency issued a discussion paper that presents a strategic vision of the G20 agenda for 2012 and outlines the priorities of Mexico’s Presidency. The paper outlines five priorities: establishing economic stabilization and structural reforms as foundations for growth and employment; strengthening the financial system and fostering financial inclusion to promote economic growth; improving the international financial architecture in an interconnected world; enhancing food security and addressing commodity price volatility, and promoting sustainable development, green growth and the fight against climate change. The document also includes a calendar of events, a timetable for outreach dialogue that will take place during Mexico’s Presidency, and a broad overview of other topics that will be analyzed.
G20 discussion paper

IOSCO Consults on Revised CIS Valuation Principles
The Technical Committee of the International Organization of Securities Commissions (IOSCO) published a consultation on the Principles for the Valuation of Collective Investment Schemes (CIS) that outlines principles used to assess the quality of regulation and industry practices concerning the valuation of CIS.  The consultation updates IOSCO’s principles for CIS valuation that were originally developed in 1999. It also clarifies some concepts put forward by IOSCO in its report Principles for the Valuation of Hedge Fund Portfolios, such as the entity responsible for establishing a policy governing valuation and the independence of the valuation duty. The deadline for comment is 18 May.
IOSCO consultation

Joint Forum Publishes Report on Intra-group Support Measures
The Joint Forum issued a report to assist national supervisors in gaining a better understanding of the use of intra-group support measures in times of stress or unexpected loss by financial groups across the banking, insurance and securities sectors. The report provides an important overview of the use of intra-group support at a time when authorities are increasingly focused on ways to ensure banks and other financial entities can be wound down in an orderly manner during periods of distress. It also provides an overview and analysis of the types and frequency of intra-group support measures used in practice and discusses in-depth seven main findings.
Joint Forum report 

The CityUK Publishes Review of UK Financial Services Industry
The CityUK published its annual UK Financial Services Industry Review that highlights the size and structure of the UK financial services industry and the increasing overseas interest in the sector. The report finds that more than 1,000 international firms own businesses in UK financial services, which demonstrates the openness of the sector. It also notes that more than a third of all businesses are privately held, with over a quarter owned by overseas firms. This number increases to 33 percent for businesses valued £25-100m and 45 percent for those worth over £100m.  
CityUK report

The Weeks Ahead

February

• 22-24 February — EU Commissioner Barnier visit to United States

• 24 February — Deadline for comment on ESMA consultation on MiFID requirements for suitability and compliance

• 24-25 February — G20 Finance Deputies Meeting (Mexico)

• 25-26 February — G20 Finance Ministers and Central Bankers Meeting (Mexico)

• 29 February — ESMA public hearing on short selling and CDS**
  
  

March

• 2 March — Deadline for comment on BCBS consultation on audit functions in banks

• 2 March — Deadline for comment on FINMA consultation on Banking Insolvency Ordinance

• 5 March — Deadline for comment on Treasury Proposed Rule on Office of Financial Research Fee

• 6 March — ESMA public hearing on EMIR**
• 9 March — Deaadline for comment on ESMA consultation on short selling and CDS**

• 15-16 March — G20 Sherpas Meeting (Mexico)

• 16 March — Deadline for comment on Joint Forum consultation on supervision of financial conglomerates

• Mid-March — Deadline for comment on CFTC version of Volcker rule (pending publication in Federal Register)

• 19 March — Deadline for comment on ESMA consultation on EMIR**

• 20 March — Deadline for comment on BCBS review of core principles for effective banking supervision

• 23 March — Deadline for comment on FSA discussion paper on AIFMD implementation

• 26 March — Deadline for comment on Monetary Authority of Singapore consultation on derivatives markets reform**
• 26 March — Deadline for comment on EBA consultation on large exposures**

• 30 March — Deadline for comment on ESMA consultation on UCITS ETFs

• 31 March — Deadline for comment on Federal Reserve proposal on Section 165(a)

• By end March — Comprehensive compensation guidelines for banks operating in India due to RBI

April

• 19 April — Deadline for comment on European Commission consultation on financial conglomerates**
• 30 April — Deadline for comment on proposed FATCA regulations**

May

• 18 May —Deadline for comment on Joint Forum paper on intra-group support measures**