NEW EU CAPITAL MARKET
LEGISLATION
November, 2012
Background
Following the outbreak of the financial crisis in 2008, in 2009 the European
Commission proposed financial reform programme, with five key objectives:
a) Providing the EU with a supervisory framework that detects potential risks
early, deals with them effectively before they have an impact, and meets the
challenge of complex international financial markets;
(b) Filling the gaps where European or national regulation is insufficient or
incomplete, based on a "safety first" approach;
(c) Ensuring that European investors and small and medium-sized companies
can be confident about their savings, access to credit and their rights as
investors in financial products;
(d) Improving risk management in financial firms and aligning pay
incentives with sustainable performance;
(e) Ensuring more effective sanctions against market wrongdoing.
The financial sector reform programme is aimed to be completed by 2013
Most ambitious reform programme in
the area of capital market
• Amending almost all existing legislation in order to address
short-termism, poor risk management and the lack of
responsibility of certain actors in the financial sector and to
correct the underlying weaknesses in the supervisory and
regulatory framework;
• Filling in the regulatory gaps where European or national
regulation is insufficient or incomplete;
• Using regulations instead of directives to the maximum
extent allowed by the Treaty in order to achieve consistent
implementation in the whole Union.
Directive 2011/61/EC on the Alternative
investment funds managers
Scope: Encompasses all funds that at present are not harmonized under
the UCITS Directive: Hedge funds, Private equity funds, Commodity
funds, Real estate funds, Infrastructure funds managing more than €
100m on aggregate or more than € 500m if they do NOT use leverage
European
national
regulation is
and have a lock-inwhere
period
of moreorthan
5 years;
insufficient or incomplete,
Objectives: Ensure that all AIFM are subject to appropriate
authorization and registration requirements; Enhance transparency of
AIFM; Monitor and respond to macro-prudential risks caused or
amplified by AIFM; Improve risk management to mitigate microprudential risks, Enhance investor protection, Increase accountability
for AIF holding controlling stakes in companies, Develop single market
for AIFM, Insure an appropriate treatment of third-country entities;
Deadline for transposition: 22 July, 2013
Revision of the Markets in Financial
Instruments Directive (MiFID)
Form: Directive (MIFID2) and Regulation (MIFIR). Most of the provisions
from MIFID will be in the Regulation, including the definitions, list of financial
instruments, enforcement! The Directive will deal with licensing and withdrawal,
organisational and conduct of business requirements for the investment firms
and markets;
where European or national regulation is
Objectives:
insufficient or incomplete,
• introduces new regulated trading venues – organised trading facility (OTF)
that encompass almost all existing trading platforms;
• introduces new safeguards for algorithmic and high frequency trading
activities;
• aligns the requirements for all trading venues – RM, MTF and OTF;
• pre- and post-trading transparency requirements to be applied to all financial
instruments – bonds, derivatives, structured products traded on all trading
venues;
• harmonises the supervisory powers;
Stage of the negotiations: COREPER, to be adopted in 2013
Revision of the Market Abuse Directive
Form: Regulation on insider dealing and market manipulation (market
abuse), and Directive on criminal sanctions for insider dealing and market
manipulation.
Objective of the Directive: to ensure that the criminal offences of insider
dealing and marketwhere
manipulation
are subject to criminal sanctions.
European or national regulation is
Objectives of theinsufficient
Regulation:
or incomplete,
• to align the market abuse legislation with the new market reality and the
technology advancement, extending the scope to all financial instruments
(incl. OTC derivatives and commodities) traded on all market venues (incl.
OTFs)
• to reinforce regulators' investigative and sanctioning powers;
• a new offence of "attempted market manipulation" is introduced;
Stage of the negotiations: National experts; to be adopted in 2013
Proposal of a Directive modifying the
Transparency Directive 2004/109/EC
Scope of the proposal:
• To modify the reporting requirements for major holdings - investors would
need to notify all financial instruments that have the same economic effect as
holdings of shares;
• To increase transparency
to the payments
by the is
extractive and logging
where European
or nationalmade
regulation
industries to governments.
Reporting taxes, royalties and bonuses that a
insufficient or incomplete,
multinational pays to a host government will show a company's financial
impact in host countries;
• To harmonise reporting periods in EU. Only annual and 6-months reports
can be required for transparency purposes.
• To harmonise and to reinforce the regulators’ enforcement powers, including
the power to abolish the right to vote of shareholders that have violated the
rules for major holdings reporting;
• To reduce the administrative burden for small companies by simplifying the
preparation of financial statements;
Stage of the negotiations: National experts; to be adopted in 2013
Regulation 236/2012 on Short selling and
certain aspects of Credit Default Swaps
Scope: Refers to all financial instruments defined by MIFID and admitted for
trading in EU, including when traded OTC, and all physical and legal persons that
enter in short positions with financial instruments, government debt or CDSs on
government debt instruments;
Main provisions: where European or national regulation is
or naked
incomplete,
• Prohibition of insufficient
entering into
short positions in shares, government debt
or CDSs on government debt instruments;
• Reporting obligation to the national supervisor of all net short positions in
shares exceeding 0.2% of the issued shareholder capital;
• Reporting obligation to the public of all net short positions in shares
exceeding 0.5% of the issued shareholder capital;
• Only regulatory reporting of the short positions in government debt where
the thresholds depend on the amount of the debt and its liquidity;
Entering into force: 1 November, 2012
Regulation 648/2012 on OTC Derivatives, Central
Counterparties and Trade Repositories (known as
"EMIR" - European Market Infrastructure Regulation)
Scope: Refers to all financial and non-financial counterparts trading in OTC
derivatives, central counterparties (CCPs) and trade repositories.
Main provisions:
where European or national regulation is
• Requirement for
standard or
derivative
contracts to be cleared through Central
insufficient
incomplete,
Counterparties (CCPs);
• Requirement for margins for uncleared trades;
• Establishment of stringent organisational, business conduct and prudential
requirements for the CCPs subject of licensing by the national regulators;
• All European derivative transactions to be reported to trade repositories and
be accessible to supervisory authorities;
• ESMA to authorise and supervise the trade repositories.
Entering into force: 16 August, 2012
Proposal for a Regulation on improving securities
settlement in the European Union and on central
securities depositories (CSDs)
Scope: Refers to all central securities depositories.
Main provisions:
• obligation of dematerialisation for all securities traded on regulated markets,
• harmonised T+2
settlement
periods
for transactions
in is
such securities,
where
European
or national
regulation
insufficient
or incomplete,
• settlement discipline
measures;
• authorisation and supervision of CSDs by their national competent
authorities;
• EU passport of CSDs;
• common rules for central securities depositories (CSDs): organisational,
conduct of business and prudential requirements;
• CSDs in the EU to have access to any other CSDs or other market
infrastructures such as trading venues or Central Counterparties (CCPs),
whichever country they are based in.
Stage of the negotiations: National experts; to be adopted in 2013
Proposal for a Regulation on a new Key Information
Document for investment products (Known as
Packaged retail investment products “PRIPS”)
Scope of the proposal:
• Refers to investments where regardless of the legal form of the investment
the return to the investor is exposed to fluctuations in reference values or in
the performance of one or more assets which are not directly purchased by
the investor; where European or national regulation is
insufficient
or incomplete,
• Improves the quality
of the
information provided to the consumers when
considering investment in complex products;
• Introduces “Key Information Document” – standardised format for the
information for investors, easy to understand that allows comparison between
different products
• Each KID will provide information on the product's main features, as well as
the risks and costs associated with the investment in that product;
Stage of the negotiations: Initial phase
Proposal of a Directive amending Directive
2009/65/EC as regards depositary functions,
remuneration policies and sanctions (UCITS V)
Scope of the proposal:
• a precise definition of the tasks and liabilities of all depositaries acting on
behalf of a UCITS fund;
• clear rules on where
the remuneration
of UCITS
managers:
European or national
regulation
is the way they are
remunerated should
not encourage
excessive risk-taking but rather be linked
insufficient
or incomplete,
with the long-term interest of investors and the achievement of the
investment objectives of the UCITS;
• a common approach to how core breaches of the UCITS legal framework are
sanctioned, introducing common standards on the levels of administrative
fines so as to ensure they always exceed potential benefits derived from the
violation of provisions;
Stage of the negotiations: Initial phase