1. Welcome to Euro Shorts, a short briefing on some of the week’s developments in
the financial services industry in Europe.
If you would like to discuss any of the points we raise below, please contact me or
one of our other lawyers.
Claire Cummings
020 7585 1406
claire.cummings@cummingslaw.com
www.cummingslaw.com
EMIR
ESMA has announced that it has approved the registrations of the first four
trade repositories, namely: DTCC Derivatives Repository Limited and
UnaVista Limited, each based in the UK, Krajowy Depozyt Papierów
Wartosciowych S.A. based in Poland and Regis-TR S.A., based in
Luxembourg. Registration means that the TRs can be used by counterparties
to derivatives transactions to fulfil their trade reporting obligations under
EMIR. The registrations will take effect on 14 November 2013, triggering
the start of the EMIR reporting obligation on 12 February 2014 (i.e. 90 days
after the official registration date).
EMIR Q&As
ESMA has also updated its Q&As on the implementation of EMIR, which
are aimed at competent authorities to promote common supervisory
approaches and practices to the application of EMIR across the EU. The
updated or modified Q&As relate to the calculation of the clearing
threshold, risk mitigation techniques for contracts not cleared by a CCP,
segregation and portability, reporting of collateral and valuation and
portfolio reconciliation. The Q&As were originally published in March 2013
and were last updated in October 2013.

2. Financial Transaction Tax considered unlikely
A German deputy party leader has said this week that he does not believe
the FTT will be enacted in Germany, even though coalition negotiators have
agreed to push for the tax. He considers that such a move would have
devastating consequences for Germany’s financial centres and that it is
unlikely that there will be an international resolution on the tax. In another
report, a former advisor to Nicolas Sarkozy has said that he sees a
contradiction in the French finance minister’s call for support from French
banks for the Paris stock exchange (as ICE prepares to buy NYSE Euronext)
and the FTT, as he is unable to see a reason for backing the new Euronext
with a potential tax undermining it. Major banks in the EU have apparently
been lobbying against the FTT amid reports that the proposed standard rate
tax of 0.1% on transactions may be lowered and the tax itself introduced
more gradually.
Short Selling Regulation
The Advocate General has concluded in United Kingdom v Council and
Parliament that Article 28 of the Short Selling Regulation should be
annulled. Under Article 28, ESMA is granted powers to intervene in the
financial market of a Member State in the event of a threat to the orderly
functioning and integrity of financial markets or to the stability of the whole
or part of the financial system in the EU. During the legislative process for
the Regulation, the UK had expressed concerns that Article 28 would be
unlawful, abstaining during the EU Council vote on adoption of the
Regulation, and had brought an action against the Council. In the case, the
Advocate General concluded that Article 114 of the Treaty on the
Functioning of the European Union (TFEU) should not have been relied
upon as a basis for conferring decision making powers on ESMA under
Article 28, but that Article 352 TFEU would, instead, have been an
appropriate legal basis for Article 28 and Article 28 should therefore be
annulled. The annulment is unlikely to be of great significance to market
participants, given that ESMA's powers under the Article could only have
been exercised in the limited circumstances above.
Early introduction of ‘bail-in’ of creditors rules
Following demands from Germany, the EU appears likely to push ahead for
the early introduction of rules which would allow it to impose losses on
bank creditors, including both bondholders and savers with more than
€100,000. The so-called ‘bail-in’ of creditors rules are the most marketsensitive part of banking union and Germany has demanded their early
introduction in return for giving its full backing for the project to police and
support banks in the Eurozone. The rules were originally planned to be

3. introduced in 2018, but they are now to be finalised in the coming weeks so
as to be available for next year’s ECB health checks, discussed in previous
Euro Shorts. The ECB is in favour of early introduction, stating that moving
forward the date would provide certainty to investors.
Basel III
The Financial Stability Board has said that JP Morgan and HSBC topped the
list of the world's top 29 banks that must hold extra capital from 2016
because of their size and reach. The two banks are in the top ‘bucket’ and
will have to hold an extra 2.5% of risk-weighted core capital on top of the
7% minimum which all banks must hold by 2019 under the Basel III accord.
Barclays, BNP Paribas, Citigroup and Deutsche Bank have been placed into
the 2% surcharge bucket and BoA, Credit Suisse, Goldman Sachs, Credit
Agricole, Mitsubishi UFJ, Morgan Stanley and Royal Bank of Scotland and
UBS face a 1.5% surcharge. Next year's list from the FSB in November will
determine which banks will actually have to comply with the new surcharge
rule from 2016.
UCITS V
The Presidency of the EU Council has published a compromise proposal
relating to the Commission’s legislative proposal on UCITS V, published on
3 July 2012. UCITS V consists of proposed reforms to the UCITS regime
intended to address issues relating to the depositary function, manager
remuneration and administrative sanctions. The cover note for the
compromise proposal states that only the changes introduced following the
working party meeting of 21 October 2013 have been marked up. This
follows an earlier compromise proposal published on 11 December 2012.
CRD IV
The European Banking Authority has published its final draft ITS for
supervisory reporting on asset encumbrance as required under the CRR. The
ITS follow specific recommendations by the European Systemic Risk Board
for harmonised templates and definitions to facilitate the monitoring of asset
encumbrance across EU institutions. The confirmed implementation dates
are 30 June 2014 for institutions with assets above €30 billion (so first
reporting will be due in August 2014) and 31 December 2014 for all the
others. The asset encumbrance reporting requirements add additional
complexity to the level of reporting in relation to COREP, FINREP, large
exposures, leverage ratio and liquidity.

4. European Financial Supervision
ESMA has published a letter regarding its views on the operation of the
European System of Financial Supervision (ESFS) and sets out its proposals
for improvement. It asks the Commission to take its views into account in
the review of the ESFS that the Commission is currently undertaking.
ESMA's proposals include: (i) as timing for level 2 work deserves more
consideration when level 1 initiatives are being developed, a timetable
should be prepared, together with advice on which level 2 measures are
most critical to the operation of the level 1 initiative; (ii) the introduction of
new tools for providing temporary relief, as recent legislative acts have
introduced several provisions, such as clearing obligations, publication of
post-trade information, and reporting to trade repositories, which need to be
applied simultaneously across markets. Neither ESMA nor the national
competent authorities have the power to modify or suspend these obligations
to reflect, for example, a swift change in market circumstances; (iii) ESAs
should be provided with a stronger mandate and adequate resources to allow
for the collection of information and the development of a comprehensive IT
function to ensure that there is further harmonisation of available
information across regulatory authorities; and (iv) the Commission should
consider increasing the funding ESMA receives from entities that require
ESMA's intervention.
CFTC swap execution facility rules
The recent swap execution facility rules brought in by the CFTC have
seemingly slowed down the movement of the FX trading market towards
multi-dealer platforms. The rules call for certain FX exchange trading
instruments, such as non-deliverable forwards, to be executed under SEF
rules, but uncertainty as regards complying with the rules and how the new
environment will affect the market has caused the movement to multi-dealer
platforms to stall. The platforms, as regulated by the CFTC, launched at the
beginning of October, but users will not be mandated to trade on-SEF until
mid-February at the earliest. Market participants have apparently asked the
CFTC to issue further guidance regarding the functionality of the swaps
market post SEF-implementation, but the last formal guidance was
published prior to the October deadline.

5. Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
15 November 2013