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
UK to form free trade zone within the EU?
The Chancellor has said that Britain should try to form a free trade zone
within the EU to speed up completion of the single market. Mr Osborne
expressed frustration at the slow pace of EU reform and suggested that the
principles of enhanced cooperation be used i.e. like-minded EU Member
States should be able to create a free trade agreement in the same way as 11
Member States have signed up for the proposed financial transaction tax.
AIFMD: FCA update on application process
The FCA has published information about the application process on its
AIFMD webpage. The new section explains that when a prospective AIFM
applies to the FCA for authorisation or a VoP, a "triage team" will decide
whether that application contains enough information to be assigned to a
case officer. The FCA carries out this analysis as quickly as possible, but it
is expecting to receive a high volume of AIFM applications in January 2014,
so the assessment could take longer than expected. If an application is
deemed to be incomplete, the FCA will notify the firm and ask the firm to
send the necessary information. The statutory timeframe for determinations
will only start once an application is complete.

2. MiFID II
The European Parliament has published a press release announcing that
informal political agreement in trialogue has been reached on the proposed
MiFID II Directive and the proposed Markets in Financial Instruments
Regulation (MiFIR). The press release highlights the agreements reached on
the following issues: market structure, investor protection, commodities (in
particular, the power of competent authorities to limit the size of a net
position that a person may hold in commodity derivatives), high-frequency
algorithmic trading in financial instruments and the use of an "EU passport"
by third countries whose rules are equivalent to those of MiFID II. The EU
plans to implement MiFID II by the end of 2016.
Eurex plans penalties
Deutsche Borse’s Eurex derivatives market is planning to impose financial
penalties on certain high-speed trading practices, amidst German and EU
attempts to curb computerised transactions. Eurex has said that it will start
charging those that submit an unusually high number of orders in relation to
closed transactions, which places a burden on the infrastructure of exchanges
and brokerages. It is believed that the plans are targeting high-speed traders
flooding the market with bids and offers in an attempt to find
counterparties. Eurex will also penalise those firms that exceed a daily
maximum of transactions. Germany is moving to implement stricter rules on
high-frequency trading ahead of EU rules that will also step up oversight.
ISDA cancels Euro Libor interest rate
ISDA has cancelled the ISDAfix Euro Libor rate, as Citigroup has decided to
stop submitting data for setting the benchmark. Without Citigroup, there are
not enough contributors and, as participation is voluntary, ISDA has been
forced to suspend the rate. The cancellation comes amid ongoing
investigations into the manipulation of benchmarks worldwide. Regulators
are concentrating on rates that are based on self-reported data by banks,
rather than being automatically calculated from actual trades. Some of
ISDA’s own bank-reported ISDAfix rates are also under investigation for
potential manipulation.

3. Capital Requirements Regulation: own funds
Further to the implementing Regulation relating to the disclosure of own
funds requirements under the Capital Requirements Regulation (CRR)
adopted by the European Commission last week, draft RTS have been set out
in a cover note published this week. The RTS cover a number of areas,
including: common equity tier 1 capital, additional tier 1 capital, deductions
from common equity tier 1 capital and from own funds in general,
transitional grandfathering provisions for own funds and specification of the
concept of gain on sale. The EBA published a final draft version of these
RTS in July 2013.
EMIR reporting deadline
According to reports, industry participants trading in the EU are struggling
to meet the EMIR reporting deadline due to the huge operational challenges
and a squeezed timetable for compliance. Operators of trade repositories to
which the deals will be reported say that many market participants have yet
to begin testing their systems, although there has been a surge in applications
for LEIs. It is believed that corporates and non-financial entities are less
likely to be ready than those financial firms representing the largest share of
trade reporting volumes.
Basel III proposals endorsed
The BIS has announced that the Basel Committee on Banking Supervision
(BCBS) has endorsed a number of Basel III proposals. These proposals
relate to completion of post-crisis regulatory reforms and include: (i) a
common definition of the leverage ratio; (ii) changes to the net stable
funding ratio (NSFR); (iii) minimum requirements for liquidity-related
disclosures; and (iv) the strategic priorities of the BCBS for the next two
years. A common definition of the leverage ratio has been formulated to
overcome differences in national accounting frameworks which had
prevented ready comparison and the ratio has been adjusted following
warnings that the rule could penalise low-risk financial activities and curtail
lending. The LCR-related disclosure requirements are intended to improve
the transparency of regulatory liquidity requirements and enhance market
discipline; the liquidity rules was also modified to make it easier to count a
certain type of central bank loan against regulatory standards.

4. First Renminbi ETF listed on LSE
A new qualified fund has been launched on the London Stock Exchange
enabling investors to invest directly in the Chinese equity markets in
Renminbi (RNB). CSOP Asset Management, a Chinese firm based in Hong
Kong, and Source, a UK firm based in London, are launching the fund,
which will be the first RNB qualified foreign institutional investor (RQFII)
exchange traded fund (ETF) listed in London. The Hong Kong and UK
RQFII schemes permit financial institutions to use offshore RNB to invest in
the Chinese mainland equity markets (that is, investments in shares, bonds
and money market instruments). This development follows steps taken by
the Chinese and UK governments to develop the offshore RNB market in
London. The fund will be available to retail and institutional investors across
the EU.
Benchmark Regulation
The ECB has published an opinion on the EC’s proposed Benchmark
Regulation in response to requests to do so from the EU and European
Parliament. ECB expresses its support for the proposed Regulation, but
states that, despite progress in strengthening the governance process and
restoring credibility, further steps need to be taken. The ECB also strongly
encourages market participants to be actively involved in the rate design
process to ensure that the resulting rate meets the market's needs. Amongst
others, specific observations on the legislative proposal cover the following
areas: scope of the proposed Regulation, the definition of "interbank interest
rate benchmark”, sectoral requirements, critical benchmarks and mandatory
contribution, supervisory co-operation and use of benchmarks provided by
third country administrators. The ECB's detailed drafting proposals are set
out in an Annex to the opinion.
Cummings
Tel: + 44 20 7585 1406

5. Mob: + 44 7734 057 327
www.cummingslaw.com
17 January 2014