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
AIFMD: MoU table published
ESMA has published a table showing the state of play of AIFMD MoUs
signed by EU national supervisors with non-EU regulators worldwide.
The AIFMD MoUs are co-operation agreements that allow the exchange
of information between EU and non-EU supervisors, enabling non-EU
fund managers to market alternative funds within the EU. According to
the table, the FCA has entered into MoUs with all non-EU regulators
listed in the table.
MiFID IIl
The European Parliament and EU states have broadly agreed on a
package to regulate high frequency trading, which accounts for more than
30 per cent of trading volumes on some European exchanges. The
package is part of the MiFID II proposals, but crucially excludes the socalled minimum resting period which the Parliament had demanded and
which had attracted widespread criticism. The resting period would have
required a share order to stay on an order book for 500 milliseconds,
effectively killing off high-frequency trading and other dealers too who
now operate at much faster speeds measured in microseconds. Similarly,
sponsored access appears set to stay, albeit under tough controls. The
deal on speed trading and progress on market access has raised hopes of
an overall agreement in principle on MiFID during a series of
negotiations planned for November.

2. EMIR
ESMA is consulting on procedural rules for the exercise of its power to
impose fines and periodic penalty payments on trade repositories. The
consultation paper sets out ESMA's preferred options for the rules, which
include the following: (i) a reasonable time limit for written submissions;
(ii) procedures regarding access to files by the persons subject to
investigation, and the protection of confidential information affecting
third parties; (iii) documents to be submitted; (iv) limitation periods for
the imposition or enforcement of penalties; and (v) methods for
collecting fines or periodic penalty payments. ESMA considers that a
panel or committee should be appointed to carry out particular steps of
the procedure, considering this to achieve a more effective process.
Comments are invited by 15 November 2013. ESMA has also updated its
Q&As on the implementation of EMIR, which were last updated in
August 2013.
CRD IV
The European Banking Authority has published a consultation paper on
the applicable notional discount rate for variable remuneration under
CRD IV. CRD IV establishes that the variable component shall not exceed
100% of the fixed component of the total remuneration for those
categories of staff whose professional activities have a material impact on
the risk profile of the institution. Member States may set a lower
maximum percentage. A higher ratio of up to 200% may be allowed,
subject to shareholder approval. When calculating the ratio between
variable and fixed component, Member States may allow institutions to
apply a discount rate of 25% (or less subject to national laws) of the
variable remuneration, provided the latter is paid in instruments that are
deferred over a period of not less than five years. The consultation period
ends on 18 January 2014. The EBA will finalise the draft guidelines at the
beginning of 2014.
LIBOR re-fixing
BBA LIBOR Ltd (BBALL) and the Interim LIBOR Oversight Committee
(ILOC) have published a joint consultation paper on the proposed
introduction of intraday re-fixing for LIBOR. Re-fixing allows the
administrator of a financial benchmark to take account of late
submissions or calculation errors that it may have been notified to it after
the initial fixing of the daily rate. In the case of intraday re-fixing, the refixed value is published several hours later that same day. The
consultation paper analyses what LIBOR re-fixing would entail and seeks
views on its introduction. The consultation closes on 30 November 2013.
Meanwhile, the CEO of ISDA has said that moving away from LIBOR as a

3. benchmark in OTC derivatives transactions would be difficult because of
pervasiveness of the rate and a lack of better alternatives.
IOSCO second hedge fund survey
IOSCO has published the findings of its second hedge fund survey,
which provides an overview of the hedge fund industry as of September
2012. The report covers: (i) qualifying funds, noting that hedge fund
managers and advisers are predominately located in the US and the UK;
(ii) investment strategy, and the report indicates that the single most
represented strategy among active funds is equity-oriented, with macrooriented and multi-strategy funds also being significant; (iii) use of
leverage and market exposure; and (iv) liquidity risk, where the survey
suggests that under current market conditions, few funds actually need to
restrict investor liquidity. IOSCO will continue to promote the collection
of comparable hedge fund data among regulators with the aim of creating
an internationally consistent approach. Data collection for the next
survey will begin in September 2014.
CFTC revised position on limits rule
The CFTC is apparently considering dropping its legal defense of a rule
limiting the positions that financial firms can take in commodities
speculation. The rule is one of the most controversial parts of the DoddFrank law and would compound the regulatory troubles facing Wall
Street's role in physical commodity markets. Banks had complained they
were facing high costs as a result of the rule because they needed to keep
track of commodity positions held by affiliate businesses as soon as they
owned more than just 10 percent of the shares. The CFTC's new rule will
contain a better legal justification to conform with the court's ruling that
the agency had failed to prove that the limits were needed and will better
weigh the costs and benefits of the rule. The rule will allow an exemption
from the limits for companies in which banks own up to 50 percent, as
long as the bank can prove it does not control those units.
European Commission 2014 work programme
The European Commission has outlined its 2014 work programme, which
sets out the legislative and non-legislative initiatives in detail. The
following legislative proposals in respect of financial services are included
in Annex 1 as priority items: MiFID II, the single resolution mechanism
(SRM), European long-term investment funds (ELTIFs) and the fourth
money laundering directive (MDL4). The forthcoming initiatives listed in
Annex 2 include, in relation to financial services, a legislative or non-

4. legislative initiative following the Commission's Green Paper on the longterm financing of the EU economy. The main policy objective is to
increase the supply of capital to long-term investment. This may require
adapting or changing framework conditions, and in particular financial
markets regulation, to ensure that financial markets are better able to
provide long-term finance. The Commission has also published a list of
roadmaps for its 2014 initiatives.
European Parliament proposals
The European Parliament has published a provisional edition of the text
of the adopted resolution on organised crime, corruption and money
laundering. The resolution sets out an EU action plan for 2014-19 on
organised crime, corruption and money laundering for the Parliament,
the European Commission and the EU Council. The European
Parliament has also updated its procedure files on the legislative
proposals for MiFID II and the CSD Regulation for central securities
depositaries. The procedure file for the proposed MiFID II Directive
(including MiFIR) indicates that the Parliament will now consider these
legislative proposals in its plenary session to be held from 9 to 12
December 2013, rather than 24 to 27 February 2014 as previously
indicated. The procedure file for the CSD Regulation now indicates that
the Parliament will consider the legislative proposal in its plenary session
to be held from 13 to 16 January 2014, rather than 3 to 6 February 2014.
FATF summary
FATF has published a summary of its plenary meeting held in Paris from
16 to 18 October 2013. At the meeting, among other things, FATF
published the following documents as part of the FATF's ongoing work to
identify jurisdictions that may pose a risk to the international financial
system: (i) a public statement on jurisdictions with strategic anti-money
laundering (AML) and combating the financing of terrorism (CFT)
deficiencies; and (ii) a document listing those jurisdictions with strategic
AML/CFT deficiencies for which an action plan has been developed with
FATF. It also approved and published a best practices paper on the use of
the FATF recommendations to combat corruption, which aims to provide
policy makers and practitioners with guidance and best practices on how
AML/CFT measures can be used to combat corruption.

5. Single Supervisory Mechanism (SSM)
The ECB has published a transcript of Q&As concerning the
comprehensive assessment of large banks that the ECB is to carry out in
advance of assuming full responsibility for supervision as part of the
SSM. The transcript comments on: (i) the importance of how the exercise
is perceived and received by all stakeholders, not only the banks involved;
(ii) the definitions of capital to be used for the individual parts of the
exercise (i.e. the asset quality review and the stress test); (iii) the
inclusion of sovereign bonds as part of the exercise; and (iv) the timetable
for the exercise. The exercise will start in November 2013 and take 12
months to complete.
We have taken great care to ensure the accuracy of this version of Euro
Shorts. However, Euro Shorts is written in general terms and you are strongly
recommended to seek specific advice before taking any action based on the information
it contains. No responsibility can be taken for any loss arising from, action taken or
refrained from on the basis of this publication.
Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
25 October 2013