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ECON publishes draft report on proposal for Market Abuse regulation

In a draft report published on 20 March 2012, the European Committee on Economic and Monetary Affairs proposes a number of amendments to the Commission’s draft for a new European market abuse framework.

Following its review of the current European framework on market abuse, the European Commission adopted in October 2011 proposals (collectively: the “Proposals”) for a new regulation and for an amended directive on market abuse. The Proposals seek to address gaps in the current market abuse framework, as well as regulators’ inability to effectively enforce the applicable rules. To that end, the Proposals oblige Member States to treat severe cases of market abuse as criminal offences, subject to criminal sanctions in their national law.

 

In itsdraft report on the Proposals, the European Committee on Economic and Monetary Affairs proposes a number of amendments to the Proposals. Key amendments are:

 

(a) scope clarification;
(b) amendment of the definition of “inside information”;
(c) introduction of an obligation on the operators of trading venues to have in place rules to avoid abusive order entry;
(d) introduction of the concept of a "trading window", prohibiting managers from conducting any transactions on their own account during certain periods;
(e) removal of the €20,000 threshold for reporting of managers' transactions, resulting in all transactions carried out by managers needing to be reported;
(f) for high frequency trading (“HFT”): (i) creation of an advisory committee to investigate the link of HFT with the risk of market abuse and (ii) incorporation of the knowledge gained in the market manipulation definition; and
(g) strengthening of the provisions for the protection of whistleblowers.

 

Once the new rules have been negotiated and adopted at a European level, Member States will have two years to transpose the amended directive into national law. As for the regulation, it is expected to enter into force at an earlier point.

ECON publishes draft report on MiFID II proposals

In a draft report published on 16 March 2012, the European Committee on Economic and Monetary Affairs expresses a broad support of the European Commission’s proposals extending the scope of MiFID and limiting the current MiFID exemptions

The Markets in Financial Instruments Directive and implementing measures (“MiFID”) hit the European markets in November 2007. MiFID further harmonised the regulatory framework for the provision of “investment services” in “financial instruments” and introduced new types of regulated trading platform (in addition to “regulated markets”), effectively putting an end to the “concentration rule”.

In October 2011, the European Commission published its proposals for an amended MiFID directive and a new markets in financial instruments regulation (together: “MiFID II”). On the one hand, MiFID II builds on the existing MiFID Directive, dealing with current and new authorisation requirements (such as that for “Organised Trading Facilities”), restricting the scope of the current MiFID exemptions, amending the organisational and conduct of business requirements for trading venues and investment firms and establishing new rules applicable to third-country firms operating via a branch in the European Economic Area. On the other hand, in a new regulation, MiFID II sets out the requirements in relation to the disclosure of trade transparency data to the public and transaction data to competent authorities, removing barriers to non-discriminatory access to clearing facilities, the mandatory trading of (standardised) derivatives on organised venues, specific supervisory actions regarding financial instruments and positions in derivatives, and the provision of services by third-country firms without a branch in the European Union.

 

In a draft report published on 16 March 2012, the European Committee on Economic and Monetary Affairs (“ECON”) expresses its broad support of the Commission’s proposals, but proposes certain material amendments. Notably, ECON proposes to limit the scope of “Organised Trading Facilities” to non-equities trading venues. ECON also proposes a less strict approach in relation to independent investment advisers (no ban on “inducements” and more neutral definition of “independent investment adviser”).

ESMA publishes second part of its final advice on possible delegated acts for the Prospectus Directive

The amended Prospectus Directive was adopted in 2010. In a second technical advice to the European Commission on possible delegated acts under the directive, ESMA deals with issuers’ prior consent to “retail cascade offerings” and provides its feedback following its review of the current Prospectus Regulation.

Under the provisions of the amended Prospectus Directive, the European Securities and Markets Authority (“ESMA”) was required to provide a technical advice to the European Commission on a number of topics for the purpose of adoption of delegated acts by the Commission. ESMA delivered its first advice to the Commission in that regard on 4 October 2011. ESMA’s first advice dealt with issues relating to, inter alia, the format, content and structure of prospectuses, summaries and supplements.

 

In this second part of its final advice on possible delegated acts for the Prospectus Directive, ESMA deals with issues in connection with “retail cascade offerings” by intermediaries (prior consent by issuer, additional prospectus disclosure, liability, etc.) and provides its feedback to the European Commission following its review of the provisions of the Prospectus Regulation. The document also contains ESMA’s “feedback statement” on the comments made by stakeholders following ESMA’s call for evidence.

 

The amended Prospectus Directive must be implemented by Member States by 1 July 2012. The Dutch legislative proposal to that effect was submitted to the Dutch Parliament on 5 October 2011.

ESMA publishes guidelines on automated trading environment for trading platforms, investment firms and competent authorities

In Europe (inter alia), an increasing part of trading in financial instruments takes place through electronic trading systems operated by market operators or investment firms. On 24 February 2012, ESMA published guidelines that clarify the application of the MiFID in relation to such trading platforms.

The implications of the Markets in Financial Instruments Directive (“MiFID”) in relation to automated trading are not always clear. In order to provide clarity in that regard, the European Securities and Markets Authority (“ESMA”) has published on 24 February 2012 the final version of its guidelines on automated trading environment for trading platforms, investment firms and competent authorities. The guidelines describe the arrangements market operators (regulated markets or investment firms operating a multilateral trading facility) should have in place in relation to automated trading, as well as specific organisational requirements for investment firms providing direct market access facilities to clients or using algorithms for trading or client order execution purposes. The new guidelines will enter into force on 1 May 2012.

European regulation on short selling adopted by the European Parliament

On 21 February 2012, the European Parliament has adopted a new regulation imposing certain restrictions and requirements regarding short selling activities with respect to certain listed instruments.

The new regulation on short selling and certain aspects of Credit Default Swaps (“Regulation”) will enter into force on 1 November 2012. It provides for a harmonised European framework governing short selling of certain listed instruments. Among others the Regulation:

 

(h) prohibits the use of ‘uncovered’ Credit Default Swaps (“CDs”) in sovereign debt, i.e. transactions where no underlying long position exists in the relevant sovereign bond are no longer permitted (Member States are however allowed to suspend the prohibition in their own jurisdiction in certain circumstances);
(i) imposes certain ‘certainty of settlement’-requirements in relation to uncovered short selling of shares and sovereign bonds;
(j) introduces an harmonised notification and reporting regime for shares, whereby holders of net short positions must notify these privately to the regulator when they exceed 0.2% of the issued share capital of the issuer company and must publicly disclose these (on a named basis) when they exceed 0.5%. In each case, further notification or reporting is required at each 0.1% above the initial threshold;
(k) provides national competent authorities and ESMA with additional powers to intervene in the markets in times of stress; and
(l) excludes sales under a repo agreement or futures contracts from the definition of short sales in shares and debt instruments.

 

Many provisions of the Regulation are to be further implemented by means of delegated acts and technical standards. ESMA has been requested to advise the European Commission in that regard.

ESMA publishes second consultation paper on short-selling of certain instruments

ESMA consults with the market in connection with the elaboration of further measures implementing the new European regulation on short-selling.

On 15 February 2012, the European Securities and Markets Authority (“ESMA”) published a consultation paper regarding its draft technical advice on possible delegated acts in respect of the new regulation on short selling and certain aspects of Credit Default Swaps (the “Regulation”), of which it is required to submit a definitive version to the European Commission by 31 March 2012.

 

The Regulation will enter into force on 1 November 2012. It provides for a harmonised European framework governing short selling of certain listed instruments. Among other, the Regulation:

 

(a) prohibits the use of ‘uncovered’ Credit Default Swaps (“CDs”) in sovereign debt, i.e. transactions where no underlying long position exists in the relevant sovereign bond are no longer permitted (Member States are however allowed to suspend the prohibition in their own jurisdiction in certain circumstances);
(b) imposes certain ‘certainty of settlement’-requirements in relation to uncovered short selling of shares and sovereign bonds;
(c) introduces an harmonised notification and reporting regime for shares, whereby holders of net short positions must notify these privately to the regulator when they exceed 0.2% of the issued share capital of the issuer company and must publicly disclose these (on a named basis) when they exceed 0.5%. In each case, further notification or reporting is required at each 0.1% above the initial threshold;
(d) provides national competent authorities and ESMA with additional powers to intervene in the markets in times of stress; and
(e) excludes sales under a repo agreement or futures contracts from the definition of short sales in shares and debt instruments.

The consultation is designed to obtain comments from stakeholders on the technical advice that ESMA proposes to give to the European Commission. The deadline for stakeholders to submit comments has been set on 9 March 2012.