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NEW EU CAPITAL MARKET LEGISLATION

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Background Following the outbreak of the financial crisis ... Regulation 648/2012 on OTC Derivatives, ... Design PowerPoint Presentation PowerPoint ... – PowerPoint PPT presentation

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Title: NEW EU CAPITAL MARKET LEGISLATION


1
NEW EU CAPITAL MARKET LEGISLATION
November, 2012
2
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
3
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.

4
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 and have a lock-in
    period of more than 5 years
  • 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 micro-prudential 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

where European or national regulation is
insufficient or incomplete,
5
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
  • Objectives
  • 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

where European or national regulation is
insufficient or incomplete,
6
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 market
    manipulation are subject to criminal sanctions. 
  • Objectives of the Regulation
  • 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

where European or national regulation is
insufficient or incomplete,
7
  • 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 made by
    the extractive and logging industries to
    governments. Reporting taxes, royalties and
    bonuses that a 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

where European or national regulation is
insufficient or incomplete,
8
  • 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
  • Prohibition of entering into naked 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

where European or national regulation is
insufficient or incomplete,
9
  • 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
  • Requirement for standard derivative contracts to
    be cleared through Central 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

where European or national regulation is
insufficient or incomplete,
10
  • 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 T2 settlement periods for
    transactions in such securities,
  • 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

where European or national regulation is
insufficient or incomplete,
11
  • 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
  • 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

where European or national regulation is
insufficient or incomplete,
12
  • 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 the remuneration of UCITS
    managers the way they are remunerated should not
    encourage excessive risk-taking but rather be
    linked 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

where European or national regulation is
insufficient or incomplete,
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