FTSE Receives Benchmark Administrator Approval from UK’s FCA

FTSE Russell, a global index and data provider, announced that FTSE International Limited has received regulatory approval from the UK’s Financial Conduct Authority (FCA) to be authorized as a Benchmark Administrator, under the European Benchmark Regulation (EU BMR). The EU BMR introduced a common framework to ensure the accuracy and integrity of indexes used as benchmarks in the European Union. The FCA authorization is comprehensive across asset classes and covers the FTSE, Russell, FTSE TMX and FTSE MTS equity and fixed income indexes that are known to be used as benchmarks in the European Union. FTSE International Limited is listed on the FCA register and will be on the ESMA register for administrators.

New Derivatives Service Bureau Expands Technology Advisory Committee

The Derivatives Service Bureau announced the members of its newly formed Technology Advisory Committee (TAC). The mission of the TAC is to provide guidance and recommendations to the DSB Board on technology implementation and investment to support the DSB role as a critical market infrastructure for providing financial instrument identifiers. As part of the DSB governance structure, it will also enable the DSB to sample industry sentiment regarding potential changes in services or performance. The Derivatives Service Bureau is a new global reference data utility, launched in October 2017, that enables users to create ISO identification codes for regulatory reporting and operational management of OTC derivatives. These codes include the International Securities Identification Numbers (ISIN), Classification of Financial Instruments (CFI) and Financial Instrument Short Name (FISN). The first meeting of the TAC is planned for June 27. Topics in the meeting are expected to be potential changes in user services and performance standards, resiliency resources and technology investments that are currently under consideration in the current industry consultation on the 2019 DSB fee model.

Hong Kong Signs Agreement with German’s BaFin for Cross-Border Market Supervision

Hong Kong’s Securities and Futures Commission (SFC) has entered into a memorandum of understanding (MoU) with the German BaFin providing for consultation, cooperation and exchange of information in connection with the supervision and oversight of cross-border regulated entities in Hong Kong and Germany. The MoU, which covers financial market participants and other entities that are regulated by the SFC or the BaFin, enables the SFC and the BaFin to cooperate with each other in the interest of fulfilling their respective regulatory mandates. BaFin is the integrated financial supervisor for the banking, securities and insurance sectors in Germany. It is also responsible for consumer protection as well as the combating and prevention of money laundering and terrorist financing. The MoU came into effect on May 9, 2018, and is posted on the SFC website. 

ESMA Publishes Final Guidelines on MiFID II Suitability Requirements

The European Securities and Markets Authority (ESMA) has published its Final Report on Guidelines on certain aspects of the MiFID II suitability requirements. The assessment of suitability is one of the most important requirements for investor protection in the MiFID framework. It applies to the provision of any type of investment advice and portfolio management. Investment firms providing investment advice or portfolio management must, under Article 25(2) of MiFID II and Articles 54 and 55 of the MiFID II Delegated Regulation, provide suitable personal recommendations to their clients or make suitable investment decisions on behalf of their clients. The Guidelines in the Final Report build on ESMA’s 2012 MiFID I guidelines on suitability, which have been largely confirmed and broadened in order to: consider technological developments of the advisory market, notably the increasing use of automated or semi-automated systems for the provision of investment advice or portfolio management (robo-advice); build on NCAs’ supervisory experience on the application of suitability requirements (including the 2012 guidelines); take into account the outcome of studies in the area of behavioral finance; and provide additional details on some aspects that were already covered under the 2012 guidelines. The Guidelines, by supporting a consistent and harmonized application of the requirements in the area of suitability, will ensure that MiFID II’s objectives are achieved.

Deutsche Borse to Acquire GTX’s ECN Business

Deutsche Börse has reached a definitive agreement to acquire GTX’s ECN business from GAIN Capital Holdings Inc. for 100 million US dollar. With this transaction Deutsche Börse Group's foreign exchange unit 360T expands its participation in the global FX market. The transaction is in line with Deutsche Börse’s Roadmap 2020 to grow its business through add-on acquisitions. The deal creates a large and diverse OTC FX market place. GTX ECN complements 360T's existing product suite by adding access to deep FX Spot liquidity supported by professional financial institutions. 360T and GTX currently provide FX solutions to over 2,000 global clients that operate out of more than 75 countries around the world.

U. K.’s New Cryptoassets Taskforce Holds First Meeting

The first meeting of the UK’s new Cryptoassets Taskforce took place on May 21, 2018. The Taskforce agreed its objectives, which include exploring the impact of cryptoassets, the potential benefits and challenges of the application of distributed ledger technology in financial services, and assessing what, if any, regulation is required in response. Senior leaders from government and the financial regulators were present, including Katharine Braddick, Director General of Financial Services at HM Treasury, Andrew Bailey, Chief Executive of the FCA, and Dave Ramsden, Deputy Governor of the Bank of England. The Taskforce will consider existing analysis by the government and regulators. It will also seek new views from trade bodies, academics, consumer groups and investor representatives. The Taskforce will host a roundtable in July and publish a report in Q3 2018. First announced in April by the Chancellor of the Exchequer as part of the government’s Fintech Sector Strategy, the Taskforce is a central part of the government and financial regulators’ efforts to understand and engage with the implications of new technologies in financial services.

G.D.P.R. Makes Europe a Leading Tech Watchdog

Technology organizations throughout the world are reacting because the European Union last Friday enacted the world’s toughest rules to protect people’s online data. With the internet’s borderless nature, the regulations are set to have impact far beyond Europe, according to a story in the New York Times. In Silicon Valley, Google, Facebook and other tech companies have been working for months to comply with the new rules, known as the General Data Protection Regulation. The law, which lets people request their online data and restricts how businesses obtain and handle the information, has set off a panic among small businesses and local organizations that have an internet presence. Brazil, Japan and South Korea are set to follow Europe’s lead, with some having already passed similar data protection laws. European officials are encouraging copycats by tying data protection to some trade deals and arguing that a unified global approach is the only way to crimp technology’s power. Europe is determined to cement its role as the world’s foremost tech watchdog — and the region is only getting started. Authorities in Brussels and in the European Union’s 28 member countries are also setting the bar for stricter enforcement of antitrust laws against tech behemoths and are paving the way for tougher tax policies on the companies. Europe’s new privacy measures, called G.D.P.R. for short, let people reduce the trail of information left when browsing social media, reading the news or shopping online. Individuals will be able to request the data that companies hold on them, and demand it be deleted.

ESMA Appoints Chair of Committee of Economic and Markets Analysis

The European Securities and Markets Authority (ESMA) has appointed Mario Nava, chair of the Commissione Nazionale per le Società e la Borsa (CONSOB) of Italy, to serve as chair of its Committee of Economic and Markets’ Analysis (CEMA). CEMA contributes to ESMA’s mission by monitoring developments in financial markets, assessing systemic risks and providing economic background analysis for the general tasks of ESMA. This includes regular reporting of trends, potential risks and vulnerabilities in EU financial markets across borders and sectors. ESMA’s standing committees are expert groups drawn from ESMA staff and the national competent authorities for securities markets regulation in the Member States, and are responsible for the development of policy in their respective areas. Standing committee chair appointments are for a period of two years and commence with immediate effect.

CFTC Order Enables U.S. Investor Direct Access to Australian Securities Exchange

The Commodity Futures Trading Commission (CFTC) announced the approval of Australian Securities Exchange Limited’s (ASX 24) application to permit direct access for U.S. customers to trade on its platform. By this order issued May 15, 2018, ASX 24, a foreign board of trade (FBOT), is registered with the CFTC and is allowed to permit members and other participants in the U.S. to trade by direct access on the exchange without having to trade through an intermediary.  In order to be registered with the CFTC, an FBOT must be legally organized under its home country’s regulatory regime and must be subject to relevant regulations and appropriate supervision. The ASX 24 Order follows in the spirit of the CFTC’s regulatory deference program, which reflects the Commission’s confidence and trust in the oversight of market infrastructures and participants by the relevant home country regulators, especially in matters of market practices, transparency, and price formation. In the case of ASX 24, such supervision is carried out by the Australian Securities and Investments Commission (ASIC), which oversees ASX 24’s compliance with relevant requirements, including customer protection and market integrity measures.

U. S. Fed and Bank of England Tell Markets to Step Up Shift from Libor

The U.S. Federal Reserve and Bank of England last Thursday urged global financial markets to step up efforts to shift from the Libor reference rate to alternative interest rate benchmarks, according to a story in Reuters news. New York Fed President William Dudley, speaking at a BoE event in London, said bankers and regulators have much work to do before 2021 when the London interbank offered rate, or Libor, could cease to exist. BoE Governor Mark Carney said he hoped the adoption of a Libor alternative in Britain would spur a new “ecosystem” of financial products. After banks were fined for rigging Libor — an interest rate that underpins trillions of dollars of contracts and which the industry compiled itself at the time — central banks sought alternatives that were harder to manipulate. Dudley said there was some early progress in the adoption of the Secured Overnight Financing Rate (SOFR), which the New York Fed began publishing in early April, and which has daily volume in the underlying market of more than $700 billion. While futures contracts are already issued on the SOFR, such liquidity is needed for derivatives, as is the setting of a term reference rate, Dudley said. In Britain, the BoE and major dealers have backed Sonia, the sterling overnight index average, as its preferred “near risk-free” interest rate benchmark in sterling derivatives and other financial contracts. The BoE took over responsibility for Sonia in 2016 and wants it to replace Libor completely by the end of 2021. Sonia reflects bank and building societies’ overnight funding rates in the sterling unsecured market.