CFTC Approves Order Giving U.S. Investors Access to National Stock Exchange of India

The Commodity Futures Trading Commission (CFTC) today issued an order to the National Stock Exchange of India (NSE) as part of its longstanding program of regulatory deference to foreign regulatory frameworks. Through its Part 30 exemptive program, the CFTC provides U.S. customers with increased access to foreign futures markets. The CFTC began the Part 30 exemptive program nearly three decades ago and has expanded relief to 12 jurisdictions in South America, Europe, Asia and Australia. Currently, over 120 foreign brokers across the globe are authorized to deal directly with U.S. futures customers, resulting in more efficient and less costly transactions. The order issued to NSE permits its members to accept U.S. customer funds directly for trading in futures and options contracts on NSE without the members having to register with the CFTC as a futures commission merchant. The relief is based on the finding by the CFTC that the local laws and regulations in India applicable to NSE members provide a comparable level of customer protection, including licensing standards, minimum financial requirements, and robust compliance programs.

Tel Aviv Stock Exchange Plans Blockchain Technology for Securities Lending Platform

The Tel Aviv Stock Exchange (TASE) is the first global player in the Israeli market to embed blockchain technology into its operating business, utilizing it as the technological basis of a new Securities Lending Platform. Securities Lending is currently executed in the capital market, primarily using inter-bank mechanisms within, and if necessary outside, banking group limits. As a result, the market has not been fully exploited to satisfy the potential needs of economic agents. The purpose of this project is to create one central platform that will transform the Securities Lending market in Israel by enabling direct lending among all the major financial instruments.  The platform will function as a one-stop-shop for all securities lending activities, permitting access to larger securities volumes within shorter timeframes, even operating in shorter-term positions. The use of Distributed Ledger Technology (DLT) as the basis of this new trading platform will harness some of the blockchain’s primary advantages and features, such as direct peer-to-peer transactions, Smart Contracts, and enhanced security through immutability.  All of these are expected to benefit TASE, its custodians and their clients by reducing costs, increasing security and enabling the market to exploit its full potential. This project brings together The Floor, Accenture and Intel to develop this platform for the TASE. This project is structured with a two phased approach comprised of an initial Proof of Concept (PoC), which upon its success, will be followed by a deployment of the solution in a production environment.

Deutsche Borse and Clearstream to Partner in FinTech Acceleration Platform

Deutsche Börse Group and its post-trade services provider Clearstream will partner with Germany-based FinTech firm Figo and Luxembourg-based RegTech start-up Finologee to create a common FinTech Acceleration Platform. The launch is targeted for the fourth quarter of 2018, subject to regulatory approval. The new platform will enable established financial industry players and new generation digital companies to distribute and leverage each other’s services resulting in new revenue opportunities. It will allow access to Deutsche Börse Group’s market and reference data as well as functional services via web-based APIs. The first services offered by third parties will be access to the account gateway for banks for the second Payment Services Directive (PSD2). PSD2 aims to increase competition and create a level playing field in the European payments industry by opening itself up to other parties.

European Central Bank Offers Framework for Testing Cyberattack Preparedness

The European Central Bank (ECB) has published a framework for testing the preparedness of Europe’s financial systems for cyberattacks. The European Framework for Threat Intelligence-based Ethical Red Teaming (TIBER-EU), released on May 2, is the first Europe-wide plan for strengthening the cyber defenses of the European Union’s banks, stock exchanges and other financial institutions. In practice, TIBER-EU-based tests would employ teams of external hackers to find and exploit weaknesses in the cyber defenses of the organizations being tested. This method, known as penetration testing, is widely used in the private sector. Determining if and when a TIBER-EU-based test will be performed is up to the “relevant authorities,” the ECB said in a press release. “Tests will be tailor-made and will not result in a pass or fail – rather they will provide the tested entity with insight into its strengths and weaknesses and enable it to learn and evolve to a higher level of cyber maturity,” the release read. The European Union has seen a spike in cyberattacks targeting financial systems over the past two years. In April, the joint committee of the EU supervisory authorities said cyberattacks were one of two key risks to the EU financial system. 

ESMA Offers Database on Financial Service Providers

Investors seeking information on whether a financial service provider is authorized within the European Union (EU) will now be able to do so on the European Securities and Markets Authorities (ESMA)'s new Companies' Portal. The portal provides investors with a one-stop-shop database which includes: MiFID Investment firms including Systematic Internalizers; MiFID Trading venues; MiFID data reporting service providers; UCITS management companies and AIFMD fund managers including funds managed/marketed in the Union. The portal provides reference to sanctions applied by the competent authorities in the Member States under several European legislations.

SFTR is the New Regulatory Challenge Faced by Firms in the EU

Though the smoke from the MiFID II implementation has barely cleared, the next regulatory challenge facing firms operating in the EU is already on the horizon: the Securities Financing Transaction Regulation (SFTR). According to a story in Bloomberg news, the rules aim to increase transparency on the use of instruments such as repos and stock loans, and on the risks around entering collateral arrangements. While there has been relatively little noise around SFTR to date, and some of its elements are already implemented, firms will keep an eye out in the following weeks as the European Commission is expected to endorse the final details of the third and final pillar of the regulation: the transaction reporting rules. This will kick-off EU institutions’ projects to meet a rolling implementation calendar which is likely to start in Q3 2019. Considering the level of details already visible, it’s advisable to pre-empt such formal ratification and begin compliance projects as soon as possible. SFTR will not only increase reporting requirements, but it will also directly impact trading and collateral management. If it ever truly was previously, collateral will no longer be completely fungible, and that will have practical trading and process implications. Both financial and, ultimately, non-financial companies will be required to report all Securities Financing Transactions (SFTs) to approved trade repositories. The first pillar of SFTR, which is already operational, requires that collateral providers are made aware of the risks involved in allowing collateral to be reused. The second pillar is also in force already and increases the disclosure obligations for funds, such as managers of UCITS and alternative investment funds, regarding their use of SFTs in periodical reports for investors. When ESMA finalized the draft transaction reporting rules of the third pillar in March 2017, the European Commission reportedly held back from approving them due to the logistical challenges the industry already faced with MiFID II implementation. The Commission is now expected to move forward with formal adoption of the rules, and since reporting starts one year after, this could mean that reporting goes live in the second or third quarter of 2019. While the draft reporting rules are still a draft, they are already quite familiar. They have been available for over a year and many of the rules are very similar to the European Market Infrastructure Regulation (EMIR), which requires reporting of all derivatives to Trade Repositories (TRs).

ASX Blockchain Post-trade System to Go Live by 2021

The Australian Securities Exchange (ASX) plans to go live with a new equity post-trade system based on blockchain technology by the first quarter of 2021, according to a story in The Trade. In a consultation paper published by the exchange, the new clearing and settlement system, designed by blockchain specialist Digital Asset, will be completed between the end of 2020 and Q1 2021. “ASX is proposing a single cutover weekend from CHESS to the new system, based on feedback from stakeholders and the positive experience with other more recent transitions being conducted on a similar basis,” the consultation said. ASX aims to start software testing the second quarter of 2019, followed by industry-wide testing in Q1 2020. Migration testing is then expected to begin in June 2020 with migration rehearsal weekends in preparation for the go-live.

SET Launches Crowdfunding Platform Using Blockchain Technology

“LiVE” – the first Thailand crowdfunding platform for startups and SMEs developed by The Stock Exchange of Thailand (SET), with support from the public and private sectors, has officially launched with eight targeted businesses from various sectors. Businesses such as mobile application, consumer products and medical equipment. Over 50 companies plan to follow suit amid growing enthusiasm from investors. SET President Kesara Manchusree said that SET has established Live Fin Corp Co.,Ltd. having 99.99 percent of shares held by SET, to operate a crowdfunding platform which provides the Over-the-Counter (OTC) trading service for startups and SMEs to access capital funding. The “LiVE” platform has been developed with the use of blockchain technology as an infrastructure for participating businesses to expand and create future business partnerships.


ESA Launches Consultations on OTC Derivatives Under EMIR

The European Supervisory Authority (ESA) launched two joint consultations to amend Regulatory Technical Standards (RTS) on the clearing obligation and risk mitigation techniques for OTC derivatives not cleared. These standards, which implement the European Market Infrastructure Regulation (EMIR), aim to amend the current regulation on the clearing obligation and risk mitigation techniques on OTC derivatives not cleared by a central counterparties (CCPs) in order to provide a specific treatment for simple, transparent and standardized (STS) securitization, and ensure a level playing field for covered bonds. The consultations run until June 15, 2018. The Securitization Regulation and the amended EMIR provide a specific treatment for STS Securitization in relation to the clearing obligation and on risk mitigation techniques on non-cleared OTC derivatives frameworks.

CQG Announces Connectivity to Dalian Commodity Exchange

CQG, Inc. announced its connectivity to the Dalian Commodity Exchange (DCE) to offer global clients access to iron ore futures. The move marks the second Chinese market available on CQG, as the firm continues to expand business in China with offices, local staff, infrastructure, and exchange coverage.  In mid-March, CQG announced that the Shanghai International Energy Exchange (INE), a unit of the Shanghai Futures Exchange that launched March 26, would be the first Chinese market available on CQG. The launch of that marketplace represented the first-time retail foreign investors could participate in a Chinese commodities market.