Pathfinder - Deloitte monthly regulatory update - November 2013
European market and infrastructure Regulation (EMIR)
Publication of the list of trade repositories (TRs) operating in Europe
According to Article 9 of Regulation 648/2012/EU of the European Parliament and of the Council of
4 July 2012 on over-the-counter (OTC) derivatives, central counterparties and trade repositories (EMIR), counterparties and Central counterparties (CCPs) shall report the details of any derivative contract they have concluded and of any modification or termination of the contract to a registered TR. TRs centrally collect and maintain the records of derivatives. They play a central role in enhancing the transparency of derivative markets and reducing risks to financial stability. ESMA has direct responsibilities regarding the registration, supervision and recognition of TRs.
On 7 November 2013, ESMA published the list of the first four TRs operating in Europe:
- Regis-TR S.A. (Luxembourg);
- DTCC Derivatives Repository Ltd (UK);
- Krajowy Depozyt Papierów Wartosciowych S.A. (Poland);
- UnaVista Ltd (UK).
All asset classes will be covered by the registered TRs (commodities, credit, foreign exchange, equity, interest rates and others), the derivative contract is OTC or exchange traded.
Start date of reporting obligations
Following the announcement of these registrations, the reporting obligations will be effective on 12 February 2014, i.e. 90 days after the official registration date of these four TRs (14 November 2013).
Please see our website for further information on the European Market and Financial Infrastructure Regulation (EMIR) and on the EMEA Centre for Regulatory Strategy.
ESMA has issued final draft regulatory technical standards (RTS) related to derivative transactions by non-European Union counterparties. The RTS implement provisions of the Regulation on OTC derivatives, central counterparties and trade repositories. This final report has been submitted to the European Commission by 15 November 2013. The Commission has three months to decide whether to endorse ESMA’s draft regulatory technical standards.
Exchange traded funds (ETFs) and other UCITS issues
On 27 November 2013, the ESMA published an updated version of the Q&A on ETFs and other UCITS issues. Compared to the previous versions dated of 15 March 2013 and 11 July 2013, this new version adds two Q&A’s on the following matters: issuer concentration limits applicable to reinvested cash collateral (Q&A 6m), rule on changes to previously published index values (“backfilling”) (Q&A7i).
Key takeaways from the new Q&A’s are:
- The reinvested cash collateral should be combined with direct holdings and taken into account for the calculation of the issuer concentration limits laid down in the UCITS Directive;
- The provision that prevent retrospective changes to previously published index values (“backfilling”) does not apply to calculation mistakes.
Directive 2013/50/EU of 22 October 2013 amending Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market, Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading and Commission Directive 2007/14/EC laying down detailed rules for the implementation of certain provisions of Directive 2004/109/EC - OJ L 294 06/11/2013
On 17 October 2013, the European Council approved a Directive updating the transparency requirements introduced in the Directive 2004/109/EC (the Transparency Directive), Directive 2003/71/EC and Directive 2007/14/EC.
On 6 November 2013, the Directive 2013/50/EU of the European Parliament and of the Council of 22 October 2013 has been published in the Official Journal of the European Union.
Transparency requirements for listed companies have been revised primarily to reduce the administrative burden for small and medium-sized issuers, harmonise the notification and reporting requirements and to lay down sanctions in the event of breach in the transparency requirements, among others.
The changes will need to be introduced in Luxembourg regulations by the end of November 2015 at the latest.
Transparency requirements for issuers in the regulated market
What are the main modifications in the revised Transparency Directive?
- Publishing interim financial reports
- Abolishing the requirement to publish interim management statements and quarterly financial information: The obligation to publish interim management statements or quarterly financial reports is deemed too burdensome for small and medium-sized issuers to the extent that it is no longer sustainable for investor protection measures. Hence, this requirement has been abolished. However, the home Member State may only under specific conditions require issuers to publish additional periodic financial information on a more frequent basis than the annual or half-yearly reports required by the Directive, namely if, after an assessment of the impacts, it is shown that such additional requirement does not lead to an excessive focus on short-term results and performance of the issuers and to a negative impact on the access of small and medium sized issuers to capital in the regulated market. Companies could also decide to publish quarterly information on a voluntary basis, if they wish to.
- Extending the deadline for publishing half yearly financial reports: The deadline for publishing half yearly financial reports have been extended to three months after the end of the reporting period.
- Activities in the extractive or logging of primary forest industries
- Requirement to disclose, on an annual basis, the payments made to governments in countries where the issuer operates: Listed companies operating in the oil, gas and mineral extractive as well as forest industry need to disclose in a separate report prepared annually at consolidated level, any payments made to governments in the countries where they operate. The Directive refers to the principles defined in Chapter 10 of Directive 2013/34/EU on materiality (EUR 100,000 threshold), government and project-by-project reporting, universality and comprehensiveness.
- Notification requirements
- New definition of financial instruments covered by the disclosure requirements: The definition of financial instruments is broadened to all instruments of similar economic effect to holdings of shares and entitlements to acquire shares, whether giving right to a physical settlement or not. It covers cash-settled derivatives (a derivative contract where one party holds a long position and the other party holds a short position in a particular stock, with any nominal value difference at maturity settled in cash) as well as similar financial instruments not yet available on the markets but which could be the result of financial innovation. The new definition focuses on the economic effect of a financial instrument rather than enumerating the types of financial instruments covered. The holdings of financial instruments with similar economic effect to holdings of shares and entitlements to acquire these that provide exclusively for a cash-settlement, shall be calculated on a “delta-adjusted” basis. ESMA shall develop draft regulatory standards to specify the methods of determining delta for this purpose which will be submitted to the Council for adoption.
- New rules for aggregation of holdings of shares with holdings of financial instruments: Holdings of financial instruments will be aggregated with holdings of shares for the purpose of calculating the thresholds that trigger the notification requirement. Should the aggregated holdings of the voting rights including those from the financial instruments exceed the notification threshold without affecting the overall percentage of the previously notified holdings, a new notification is required to disclose the change in the nature of the holdings. Member States are allowed to set lower or additional thresholds for notification of holdings of voting rights and impose stricter notification obligations than in the Transparency Directive with regard to content, process, timing and additional information.
- Access to and storage of regulated information
- Improving access to regulated information: In order to create an effective pan-European marketplace for capital, the European Commission will take measures to improve the functioning of the network of officially appointed national storage mechanisms and to develop technical criteria for access to regulated information at the EU level. Together with ESMA, the European Commission aims to develop and create a web portal that will serve as the European electronic “access point” of regulated information.
- Sanctions for breaches
- Reinforcing sanctions for non-compliance to key provisions: Sanctions for serious breaches in the provisions of the Transparency Directive have been reinforced. Member States are allowed to broader powers to apply such sanctions in other circumstances or to apply higher levels of administrative sanctions than those mentioned in the Transparency Directive.
- Definition of Issuers
- Clarifying the definition of issuers: The definition of issuer has been further clarified to also include issuers of non-listed securities represented by depositary receipts admitted to trading on the regulated market. The definition now also includes natural persons as issuers.
- Home Member States
- Simplifying how to determine home Member State: The new revisions provide clarity on how home Member State are determined including rules on the notification of the choice of home Member State.
- Overlap in regulations
- Abolition of the disclosure of new loan issues: Due to implementation complexities and overlap with other EU Directives, the requirement to disclose new loan issues by the issuers has been removed.
- Abolition of the communication to authorities of change’s proposals in the issuer’s incorporation documents: To reduce unnecessary burden on the issuers, the requirement to transmit to the competent authority of the home Member State and to the regulated market, any amendments to the issuer’s instrument of incorporation or statutes has been abolished.
Discover the other topics of this newsletter in the attached PDF.
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