oversight - six group · as for mifir and associated rts have not been extended (see below). mifid...

Securities Services

OVERSIGHT

> EU Initiatives Affecting the Value Chain 02

> CCP Regulation & OTC Derivatives Clearing 04

> EU Institutional Developments 07

> Market Infrastructure Initiatives by Other Standard-setters 09

As we move into 2016, I thought I would bring you a slightly different perspective. In this edition you will find the latest on the CSDR, the delay in the implementa-tion of MiFID II, and other initiatives affecting the transaction value chain. We expect imminent recognition for SIX x-clear under EMIR from ESMA; if not by the end of this month, then shortly after. This effectively coincides with the start of our clearing offer for the Nordic markets. And FinfraG along with its associated Ordinances entered into force on 1 January this year.

But back to my theme: regulation is not the only factor driving change. We face a constant pressure to improve efficiencies and lower costs. Our clients’ needs – your needs and priorities – are also changing driven to some extent by regulation as well. This has an impact on how you now view capital, liquidity, ring-fencing or recovery and resolution. This of course sheds an entirely different light on the relationship you have with your infrastructure provider.

This has not gone unnoticed in the world of infrastructure either. Consolidation and the reduction of inefficiencies in the value chain still have to run their course. Whatever the merits of the proposed

LSEG/DBAG merger, this is just one further example of actors in the value chain deciding that synergies and effi-ciencies have to be explored.

At SIX Securities Services we continue to explore such efficiencies and are working closely with our Strategic Advisory Board to identify opportunities for efficiency and synergy gains.

The European Central Bank seem to be thinking along similar lines. For the next generation architecture, which they have dubbed Vision 2020, the ECB are actively proposing to merge the Target 2 and T2S platforms. There is a consultation and a hearing later this month on this subject.

Though not unexpected from my point of view, this could be ground-breaking. So our hands will be full in 2016: imple-menting existing requirements and thinking about the future, while going about our daily business of serving you, our clients. We won’t lack for things to do.

Thomas ZeebChief Executive OfficerSIX Securities Services

It’s Not Just Regulation that is Changing Things

Regulatory Update

No. 21 | March 2016

OversightBrought to you by SIX Securities Services.

Welcome to Oversight – our quarterly update on market policy developments and the regulatory landscape. If you would like to subscribe to this newsletter electronically please send an e-mail to [email protected]

If you would like to learn more about topics covered in this edition, please contact: Alex Merriman, Head of Global & European Regulatory Affairs (alexander.merriman@six-group .com) or at +44 (0)20 7550 5442.Securities Services

EU Initiatives Affecting the Value ChainNearly there on x-clear’s EMIR Recognition; more CSDR draft standards published; New Implementation deadline for MiFIDII/MiFIR; Other EU initiatives in progress, such as the TSFTR, as well as the FTT.

a) General OverviewChanges since the last edition of Oversight are highlighted in bold in the table below. There is a bit more clarity on the MiFID II/MiFIR timetable, but the triggering of application deadlines under the CSDR are still uncertain:

Segment of the Value Chain Measure

Proposed (Published)

Adopted (Finalised)

Entry into Force (after Technical Standards)

Trading Review of Market in Financial Instruments Directive (MiFIDII/MiFIR)

20 October 2011 13 May 2014 3 January 2018

Clearing Regulation on OTC Derivatives, central counterparties & Trade Repositories (“EMIR”)

15 September 2010 4 July 2012 15 March 2013 (main Text)21 June 2016 (Clearing Obligation)

Settlement Central Securities Depositories Regulation (CSDR)

7 March 2012 28 August 2014 Q2/Q3 2016 (exceptSettlement DisciplineQ2 2018)

Underpinning Law Securities Law Legislation(SLL)

Further Work in CMU Action Plan by end-2017

? ?

b) The EU Regulation on OTC Derivatives, central counterparts, and trade repositories (EMIR)The finalisation of SIX x-clear’s application with ESMA continues. Following the publication of the Equivalence Decision on Swiss CCP requirements last year, ESMA released, on 8 January, the text of the MoU concluded between itself and the Swiss authorities. Oversight anticipates that the grant of recognition by ESMA should occur in the next weeks; if not by the end of March, then shortly thereafter. We will report more fully on this issue in the next edition.

There was more good news with the announcement on 10 February that the Commission had come to an arrangement with the US CFTC on the mutual recogni-tion of CCP regimes. Oversight subsequently learnt that the draft Equivalence Decision (“ED”) for the US was discussed in the European Securities Committee on 24 February, paving the way for formal adoption by the Commission. ESMA also confirmed that it was resuming consideration of the applications by US CCPs. While the eventual inclusion of 9 US CCPs in the list of recognised Third Country CCPs means that the bulk of TC CCPs will have been recognised, this will nonetheless still leave a number of Third Country jurisdictions and CCPs outstanding. Having already

extended the deferral of the distinction in the CRR between Qualifying and Non-Qualifying CCPs for a further six months to 15 June 2016, Oversight suspects that this may well need to occur once more as a result, so that the remaining Third Country jurisdictions are not penalised.

c) Central Securities Depositories Regulation (CSDR)Since the last edition of Oversight, ESMA and EBA have finalised the respective Regulatory Technical Standards (RTS) on settlement discipline (SD) and CSD capital, and sent these to the Commission. The Commission is now examining the drafts (together with that of the earlier RTS on CSD Requirements) and preparing the necessary implementing acts which will begin, where relevant, the process of final ratification of the complete CSDR “package”.

There are a number of pending issues. The first relates to the adoption timetable. The Commission must consult the European Parliament and the Council, but cannot say at this stage how long this will take, nor in which order the RTS will be assessed. There are hints that the ratification process could slip to the other side of the summer holidays. This is important as the

02SIX Securities Services | Regulatory Update | No. 21 | March 2016

finalization of the ratification process will trigger the start of the application timetable for EU and non-EU CSDs requiring authorization under the CSDR, so we could be looking at early 2017 for an application submission deadline.

Second, in terms of content, the revised RTS are some-what better from a CSD perspective, but still contain some undesirable aspects. While the EBA has listened to CSD entreaties to remove a separate custody risk requirement, the whole capital calculation remains inflexibly additive, and the minimum 25% of gross operational expenses threshold against business risk abnormally high. The revised ESMA SD RTS rightly adopts Option 1 in terms of responsibility for buy-ins at the trading level (at the CCP level, if the financial instruments are cleared). Nonetheless, CSDs will still be responsible for ensuring that relevant buy-in information is promulgated along the value chain, as well as enabling the daily calculation of penalties.

d) MiFID II/MiFIRFollowing representations from ESMA, the Commission confirmed on 10 February that it would propose to extend the implementation timetable for MiFIDII by an additional year to January 2018. Other deadlines, such as for MiFIR and associated RTS have not been extended (see below). MiFID II notably contains the pre-and post-trading transparency rules, as well as conditions for access by trading venues to CCPs and CSDs. The Commission published the necessary amending legislation on 10 February, and work has already begun in Council to finalise the text, which must also be ratified by the European Parliament. The delay in implementation has been widely welcomed by the industry, although some voices were calling for a longer delay. Nonetheless the Commission will continue to pursue the finalisation of a number of RTS, in particular approximately 50 separate level 2 measures are due mostly in March 2016: – Commission Delegated Regulation on MiFID as

regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of MiFID;

– Commission Delegated Regulation supplementing MiFIR with regard to definitions, transparency, derivatives and supervisory measures on product intervention and positions and supplementing the Regulation on key information documents for packaged retail and insurance-based products;

– Commission Delegated Regulation with regard to regulatory technical standards (RTS) setting out criteria to establish when an activity is considered to be ancillary to the main business; and

– Commission Delegated Regulation supplementing MiFIR with regard to RTS on transparency requirements for trading venues and investment firms in respect of shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments and the obligation for investment firms to execute transactions in shares on a trading venue or a systematic internaliser.

e) The EU Regulation on the Transparency of Securities Financing TransactionsThe Regulation was published in the EU Official Journal before Christmas and entered into force on 12 January. ESMA has been charged with producing a number of regulatory technical standards, mainly on the shape, content and format of reports to trade repositories, as well as additional obligations for UCITS investment and management companies, and AIF management com-panies to report their use of SFTs. The main deadlines include:– 13 July 2016: Article 15 obligation to seek prior

approval for the re-use of securities in an SFT;– 13 January 2017: reporting obligations for

UCITS & AIFs;– 13 July 2017: transparency in pre-contractual

documents for UCITS and AIFs.

ESMA is expected to produce draft RTS about April 2017, and the bulk of reporting obligations for banks and to Trade Repositories will follow during 2018.

f) Financial Transactions Tax (FTT) Although agreement on the main issues of scope of instruments (including on whether to include derivatives and government bonds), calculation of levies, and the extent of exempted institutions, (including potentially pension funds, clearing houses and market-makers) remains elusive, work continues in Council between the ten remaining participating Member States. Following the exit of Estonia, some of the remaining smaller participating Member States have expressed concern at the potentially (limited) revenue raising potential in some markets, and have asked the Commission to examine this.

If you would like to find out more on EU financial market infrastructure legislation or on any other regulatory topic, please contact: Alex Merriman, Head of Global & European Regulatory Affairs ([email protected]) or by phone to +44 20 7550 5442. Previous editions of Oversight and other regulatory information about us are also available at: www.six-securities-services.com


CCP Regulation & OTC Derivatives ClearingWork to finalise the global and European regulatory frameworks continues in the G-20, the FSB, the CPMI-IOSCO and at the level of the European Commission, ESRB and ESMA. The EU proposal for the Recovery & Resolution Plans for CCPs is delayed until the end of the year.

Hardly a month seems to go by without further initiatives in this area. The focus is very much on completing the framework, notably in time for the EU clearing obligation to enter into force on 21 June. At the Shanghai G-20 summit in February, the FSB also confirmed the direction onstrengthening the resilience of CCPs, with the first reports and consultations expected in mid-year. These are the main, recent, developments concerning all standard setters:

On 19 January, the European Systemic Risk Board (ESRB) published a report on the systemic risk implications of CCP interoperability arrangements, to assist the European Commission in fulfilling its obligation to provide an annual report assessing any possible systemic risk and cost implications of interoperability arrangements.

In the ESRB’s view, CCP interoperability arrangements can have implications for financial stability by containing systemic risks in a situation where a number of different CCPs clear the same financial instruments (by allowing intermediaries to hold their position with one CCP, thereby avoiding fragmentation across different CCPs).

The ESRB considers, however, that CCP interoperability arrangements can have systemic risk implications by creating significant complexity in overall risk manage-ment systems, and by adding a direct contagion between two or more CCPs. To mitigate that risk, the ESRB suggests that CCPs must be:– properly monitored;– subject to a sound risk management framework; and – backed by adequate financial resources.

The report has therefore proposed: – a number of policy issues for further consideration

by the Commission, including the possibility of more granular and prescriptive regulation in relation to CCP interoperability arrangements in order to constrain the current flexibility that national competent authorities (NCAs) possess with respect to their interpretation of the EMIR Level 1 text and the ESMA guidelines;

– clarification of the role of interoperability arrangements in a CCP default waterfall, in order to specify the contingent commitments of linked CCPs in the event that pre-funded financial resources are depleted;


– further analysis of potential new derivatives links, focusing in particular on potential over-the-counter derivatives links; and

– a review of the ESRB’s role, to provide it with a consultative function in the decision-making process for any future extension of the scope of interoperability and the development of related guidelines and regulations.

On 5 February, the Committee for Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a joint state-ment in light of industry developments with respect to CCP clearing of deliverable FX instruments and the associated models for effecting their settlement. The statement discusses the responsibilities of CCPs in relation to the clearing and settlement of deliverable FX instruments, and it clarifies that a CCP intending to clear deliverable FX instruments:– is not obliged to use any particular settlement

process, but shall remain responsible for the settlement process and for ensuring that it satisfies the CPMI-IOSCO Principles for financial market infrastructures (PFMIs);

– should ensure that it maintains sufficient qualifying, highly reliable liquid resources in accordance with PFMI 7 to cover liquidity shortfalls in all currencies in default scenarios;

– should ensure the same level of confidence in the completion of same day settlement of obligations on the originally specified settlement date, irrespective of whether a potential liquidity shortfall on default relates to the obligation of the CCP itself or to obligations of one participant to another; and

– conduct appropriate due diligence on its participants’ ability to understand, quantify and manage the associated contingent liquidity obligations under its rules.

On 22 February, in a letter to the G-20 summit, the Financial Stability Board (FSB) Chairman, Mark Carney, confirmed the direction of travel in strengthening CCP resilience, recovery and resolvability. By the time of the next G-20 summit in Hangzhou, the following two initiatives are expected to be launched:

– CPMI-IOSCO consultation covering granular guidance on CCP resilience and recovery; and

– FSB publishing high-level guidance on CCP resolution issues.

A further FSB consultation on standards or guidance for CCP resolution planning, and resolution strategies and tools will be published by the end of the year.

Forthcoming EU Proposal on Recovery and Resolution Plans (RRPs) for CCPs: The Commission confirmed on 9 February that it is delaying its Proposal, so that this can fall into line with the work being undertaken by the FSB and the CPMI-IOSCO. As a consequence, Commissioner Hill has confirmed that the EU Proposal is not likely to see the light of day until “towards the end of the year” at the earliest.

Following the ESRB work described above, ESMA in turn issued, on 1 March, a report on systemic risk and cost implications of interoperable arrangements between CCPs, with the following main features:

– First the report details how the concept of interoperability has emerged in the EU and the general EU regulatory framework applicable to it as described in Title V of EMIR and in the Guidelines and Recommendations for establishing consistent, efficient and effective assessments of interoperability arrangements (the Guidelines and Recommendations).

– Then, it provides a mapping and a description of the current interoperability arrangements between EU CCPs for different product types i.e. EU equities, EU government bonds and EU Exchange Traded Derivatives (ETDs). Further an assessment of the benefits and impacts on costs for the relevant parties is included.

– Finally, the last section is dedicated to the prudential analysis at CCP level and the risk management tools used to mitigate the potential risks arising from interoperability, including some quantitative data. The key risk under consideration is the counterparty credit risk resulting from exposures


between interoperable CCPs. While there are scenarios under which under-collateralisation can materialise, EMIR and ESMA Guidelines and Recommendations address how these cases should be catered for via inter-CCP arrangements. Along those lines, the evidence collected on the current CCP practices show that EU CCPs have set-up mechanisms to adequately mitigate potential risk of under-collateralisation, even in cases where re-use is permitted.

– Next steps: This report is being submitted to the European Commission (EC) and is expected to feed into the report on any possible systemic risk and cost implications of interoperability arrangements that the EC will prepare and submit to the European Parliament and the Council.

Also on 1 March, the European Commission imple-mented a further aspect of the clearing obligation under EMIR, in the form of a Delegated Regulation. It refers to some types of credit default swaps and requires certain OTC credit derivative contracts to be cleared through CCPs. The Delegated Regulation refers in particular to certain credit default swaps (CDS) that are denominated in Euro covering some European corporates.

This clearing obligation will enter into force subject to the views of the European Parliament and the Council of the EU. It will be phased in over three years to give extra time for smaller market participants to comply.

On 8 March, the European Supervisory Authorities (EBA, EIOPA, ESMA - ESAs) published the final draft Regulatory Technical Standards (RTS) under EMIR, in respect of the risk mitigation techniques related to the exchange of collateral to cover exposures arising from non-centrally cleared OTC derivatives. These RTS also specify the criteria concerning intragroup exemptions and the definitions of practical and legal impediments to the prompt transfer of funds between

counterparties. The draft RTS contain the following provisions:

– For OTC derivatives not cleared by a CCP, the draft RTS prescribe that counterparties have to exchange both initial and variation margins. This will reduce counterparty credit risk, mitigate any potential systemic risk and ensure alignment with international standards.

– They outline the list of eligible collateral for the exchange of margins, the criteria to ensure the collateral is sufficiently diversified and not subject to wrong-way risk, as well as the methods to determine appropriate collateral haircuts.

– They lay down the operational procedures related to documentation, legal assessments of the enforceability of the agreements and the timing of the collateral exchange.

– They cover the procedures for counterparties and competent authorities related to the treatment of intragroup derivative contracts.

The RTS will be applied in a proportionate manner to allow counterparties to phase in the requirements.

In developing these standards, the ESAs have taken into consideration the need for international consistency and have, therefore, used the framework established by the Basel Committee on Banking Supervision (BCBS) and IOSCO, and the BCBS supervisory guidance for managing risks associated with the settlement of foreign exchange transactions, while taking into account the specific features of the European financial market.


EU Institutional Developments The Commission’s review of the impact of EU financial services legislation; the new European Post-trade Forum; ESMA publishes its Supervisory Convergence Work Programme priorities for 2016; ESMA signs MoU with the ECB.

a) Commission Consultation on the EU regulatory framework for financial servicesAs part of its CMU Action Plan, this consultation closed on 31 January, and the Commission is now examining the huge volume of responses received. The consulta-tion was looking for empirical evidence and concrete feedback on:– Rules affecting the ability of the economy to

finance itself and growth;– Unnecessary regulatory burdens;– Interactions, inconsistencies and gaps; and– Rules giving rise to unintended consequences

In some preliminary remarks made on 4 March, Commis-sioner Jonathan Hill noted that a number of common themes had emerged from the responses, relating to EU legislation:– not being sufficiently proportionate in relation to

the different size and type of financial services companies, for instance in terms of the reporting and hedging requirements under EMIR imposed on non-systemic, non-financial companies;

– weighing negatively on the availability of finance in the wider economy, for instance in terms of capital and liquidity rules, notably the squeeze on corporate bond markets; and

– causing an excessively high compliance burden due to unexpected interactions, duplications and inconsistencies, particularly in relation to reporting requirements.

b) Commission sets up European Post-trade Forum (EPTF)The Commission has set up this consultative body and it met for the first time on 4 March. The membership of the Forum is constituted almost entirely of represent-atives from (European) Trade Associations, including ones, which SIX belongs to, including EACH, ECSDA and FESE, as well as a number of so-called independent experts. In its first phase (until the summer), the EPTF will take stock of the impact of existing post-trade rules, moving in the second half of 2016 to analyzing the remaining barriers to efficient clearing and settlement. The work should also encompass a vision of what the post-trade landscape should look in a decade’s time. A report should issue with recommendations in early 2017.

c) ESMA publishes its Supervisory Convergence Work ProgrammeFollowing the publication of its 2016 Work Programme, on 11 February 2016, ESMA published its first Super-visory Convergence Work Programme 2016 (SCWP), which details the activities and tasks it will carry out to promote sound, efficient and consistent supervision across the EU. The priority areas for 2016 are:– Preparing for the sound, efficient and consistent

implementation and supervision of MiFID 2/MiFIR;– Finalising the data and IT infrastructure needed

to support the effective implementation and supervision of MiFID 2/MiFIR and MAR (Market Abuse Regulation);


– Facilitating the sound and consistent supervision of OTC derivatives markets and in particular of EU CCPs;

– Ensuring that measures are in place for the adequate supervision of CSDs; including issuing mandatory and voluntary guidelines in a number of areas at “level 3”; and

– Supporting the effective application of the European Commission’s Capital Markets Union plan.

In addition ESMA also aims to provide support to NCAs through supervisory briefings, workshops, live case forums and mediation assistance. Implementation of the 2016 SCWP will be monitored in the course of 2016 and priorities may be readjusted depending on devel-opments during the year. It will also be used to inform ESMA’s Annual Work Programme and its supervisory convergence work programme for future years, both of which will be risk-based.

Separately, ESMA also reported on, 11 February, its annual supervisory review of its supervision of Credit Rating Agencies (CRAs) and Trade Repositories (TRs), as well as its supervisory priorities for these bodies in 2016. The latter include CRA governance, strategy and ratings quality; as well as the TRs’ data quality, and access to data issues.

d) ESMA and ECB conclude MoUOn 8 February, ESMA and the ECB announced that they had concluded a Memorandum of Understanding (MoU) that will allow the exchange of information and cooperation which will assist both entities fulfilling their respective mandates.

The MoU describes in general terms how the authorities will cooperate with one another in the performance of their respective tasks and mandates under EU law, including in relation to financial institutions and markets. The framework proposed by the MoU covers cooperation in the field of statistics, risk management, supervision, market infrastructures and regulation. It also includes a cooperative arrangement between the ECB, relevant national central banks (NCBs), ESMA and the authorities competent to supervise CSDs participating in T2S that is to be signed by the parties. The arrangement sets up a framework for cooperation between the ECB, ESMA, NCBs and each competent authority supervising a CSD participating in T2S.

Finally, ESMA and the ECB have also agreed upon a template MoU to be used between national authorities responsible for markets in financial instruments, and the ECB. This template MoU provides for a common framework for cooperation and may be agreed and complemented bilaterally, on a voluntary basis for the performance, respectively, of the tasks under the SSM Regulation and those under MIFID.


Market Infrastructure Initiatives by Other Standard-setters The new migration timetable into T2S; ECB launches consultation and holds hearing on future RTGS/SSS infrastructure; IOSCO policy and risk mitigation priorities; Swiss FMI Act enters into force; Bank of England publishes 2015 report on supervision of UK FMIs.

a) European Central Bank – T2S has been running smoothly for the past eight

months, with the five CSDs, including SIX SIS. The ECB say they have gained valuable operational experience from this. The second migration wave into T2S is expected on time on 28 March, but, as mentioned in last edition, without the participation of the Euroclear ESES markets. These (with the exception of Finland) now have been deferred until September, with the final wave of CSDs migrating in September 2017.

– Having trialed its 2020 Vision in a speech at SIBOS in September, the ECB launched on 15 February a consultation on the future of the Eurosystem financial market infrastructure. The consultation runs to 4 April, and the ECB is holding a one-day hearing at its premises on 22 March. This is an important initiative involving the rationalization of the TARGET 2/T2S architecture and notably poses questions as to future functionality of the combined system. This includes aspects such as current use of services, liquidity and collateral management and other ancillary services such as: regulatory compliance, data analysis and settlement of ancillary systems.

– The ECB has also brought its policy on the oversight of retail payment systems (RPS) up to date. In a February release, the ECB said that the existing standards (from 2003) had been now benchmarked against the Principles for Financial Market Infrastructures (PFMIs), as these relate to payment systems, and particularly those RPS deemed systemically important (“SIPS”). The new framework identifies the various RPS categories, and the oversight standards applicable to each RPS category. It also offers guidance on the organization

and coordination of oversight activities, where more than one central bank is involved in the oversight of a relevant system.

– Following the release (and now closing) of the CPMI-IOSCO consultation on its draft Guidance on Cyber Resilience, the ECB organized a workshop for interested parties including FMIs on 13 January. Some of the themes discussed arising out of the draft Guidance included the need for a collective industry approach, the need for Board buy-in, dedicated company cyber-resilience capacity, and flexible recovery times. The CPMI-IOSCO is expecting to finalise its guidance later in the year.

b) Initiatives by IOSCO On 22 February, IOSCO issued a press release following a meeting of its board to discuss and respond to the challenges facing global securities markets. The meeting was preceded by roundtable discussions on recent market developments and volatility in world cap-ital markets and the challenges and opportunities posed by fintech, specifically block chain (distributed ledger technology). In relation to recent market developments, the board: – agreed on further research on fintech subsectors

with particular relevance for securities regulators, including block chain;

– supported further work on the use and regulation of automated advice tools in securities markets and understanding the risks arising from the use of cloud technology;

– discussed a report on IOSCO’s work addressing the challenges of cyber risk; and

– heard updates on the work of the growth and emerging markets committee on digitisation and fintech.


In relation to capacity building and cooperation, the board: – approved the framework for a global certificate

programme to be run in conjunction with the programme of international financial systems at Harvard University and designed specifically for market regulators;

– welcomed the completion of an online toolkit for regulatory capacity building to be launched in March 2016;

– progressed work on the enhanced IOSCO multilateral memorandum of understanding on cooperation and the exchange of information, with a view to seeking the presidents’ committee approval in May 2016; and

– supported further work on regulatory powers to compel witness statements on behalf of a foreign securities regulator and another proposal in respect of regulators taking enforcement action based on sanctions in foreign jurisdictions.

On 2 March, IOSCO published its securities markets risk outlook for 2016. This deals with important trends and risks in securities markets which are of relevance from a systemic risk perspective. For this outlook, IOSCO noted that the scope went beyond financial stability to also include IOSCO’s two other key objec-tives: investor protection and market efficiency. The paper focuses on risks in relation to:– corporate bond market liquidity;– risks associated with the use of collateral in

financial transactions;– harmful conduct in relation to retail financial

products and services; and– cyber threats.

IOSCO commented that risks identified in the previous outlook, namely the search for yield, capital flows to emerging markets, central clearing, use of collateral,

and the governance and culture of financial firms remained on its list of risks, continued to be monitored and were being addressed in its policy work. One particular area of focus remains the issues around the asset management industry, in the light of the current debate over the systemic importance of this industry and the regulatory work underway. c) The Swiss Legal Framework for FMIs On 1 January, the Swiss FMI Act (“FinfraG”), together with related FMI Ordinances from the Federal Council, the National Bank and the FINMA entered into force. The authorized entities in SIX, the CCP, the CSD and the Exchange will have until the end of this year to prepare and submit applications for re-authorisation to the FINMA. Work is being taken forward in the Division for the implementation of the new requirements.

d) Bank of England The Bank published its 2015 report on its supervision of FMIs. During 2015, the Bank’s main areas of priority included: (i) enhancing cyber-resilience; (ii) increasing risk robustness in FMIs; and (iii) improving the govern-ance and risk management of FMIs, particularly CCPs. The main priorities for 2016 include taking a look at (i) outsourcing of FMI functions; and (ii) continued emphasis on various aspects of CCP resilience and risk management (in tandem with the work being undertaken by the FSB, and CPMI-IOSCO), notably in the areas of– stress testing;– business models; and– default management fire drills

For further information on any of these issues, please contact: Alex Merriman, Head of Global & European Regulatory Affairs ([email protected] or +44 (0)20 7550 5442).

SIX Securities Services | Regulatory Update | No. 21 | March 2016 10

A glossary of acronyms

AIFMD Alternative Investment Fund Management Directive Governing regulation of hedge funds

BIS Bank for International Settlements Global standard setter for major NCBs

BRRD Directive on the Recovery & Resolution of Banks EU harmonizing measure for NRA Responsibilities and tools

CPMI Committee for Payments & Market Infrastructures BIS Committee of central banks

CSDR Central Securities Depository Regulation EU measure governing requirements for CSDs

CMU Capital Markets Union A Commission plan for regenerating finance for firms

DG FISMA Directorate-General for Financial Stability, Financial Services & CMU

Commission entity responsible for financial services initiatives

ECON Economic & Monetary Affairs Committee of the European Parliament

EEA European Economic Area The 28 Member States plus Iceland, Norway & Liechtenstein (‘The 3’)

EEA Agreement The mechanism through which EU Laws/Acts become law in ‘The 3’

EBA European Banking Authority Pan-European banking regulator

ECB European Central Bank Requires no explanation

EDs Equivalence Decisions Commission confirming compatibility of a Third Country’s regime (e.g. CCPs)

EDIS European Deposit Insurance Scheme Commission proposal to mutualise bank deposit protection schemes

EIOPA European Insurance and Occupational Pensions Authority

Pan-European insurance & Pension Fund regulator

EMIR European Market Infrastructure Regulation Governing requirements for CCPs, derivatives clearing & trade repositories

ESAs European Supervisory Authorities Such as EBA and ESMA

ESMA European Securities & Markets Authority Pan-European securities regulator

EU European Union The 28 Member States (MS)

FMIs Financial Market Infrastructures CCPs, CSDs & Trade Repositories

FSB Financial Stability Board Forum of central banks, regulators from major market economies

IOSCO International Organisation of Securities Commissions Forum of global securities regulators

MAR Market Abuse Regulation Tackling insider trading & market abuse

MiFID/MiFIR Market in Financial Instruments Directive/Regulation Rules governing requirements for, and supervision of, investment firms & trading venues

NCAs National Competent Authorities MS regulators and supervisors

NCBs National Central Banks Central banks of the EU

PFMIs Principles for Financial Market Infrastructures Guidance for FMIs’ management of business and risks

RRPs Recovery & Resolution Plans Plans by which firms will mitigate threat of failure and authorities will alleviate systemic contagion

SRB Single Resolution Board Euro-area banking resolution authority

SRD Shareholder Rights Directive EU measure prioritizing rights of shareholders to company information

SRM Single Resolution Mechanism Euro-area framework for resolving failing banks and mutualizing funds

SSM Single Supervisory Mechanism The banking supervision framework for the euro-area

TC Third Country (like Switzerland) Non-member of the EU/EEA

TLAC Total Loss Absorption Capacity Total availability of capital resources above regular capital adequacy

TSFTR Regulation on transparency of SFTs Commission Regulation on reporting of Securities Financing Transactions and re-use of collateral

TTIP Trans-Atlantic Trade & Investment Partnership Framework for EU – US liberalization of trade & investment (in negotiation)

T2S Target 2 Securities Single euro settlement platform project by the ECB

UCITS Units of Collective Investment In Transferable Securities (Directive)

Products known as Unit Trusts in UK or SICAVs in France or Belgium

SIX Securities Services | Regulatory Update | No. 21 | March 2016 11

Although SIX Securities Services makes every effort to ensure the accuracy of this publication, neither it nor any contributor can accept any legal responsibility whatsoever for consequences that may arise from errors or omissions or any opinions and advice given. This publication is not a substitute for professional advice on a specific transaction. No reproduction without prior permission.

SIX Securities ServicesBrandschenkestrasse 47P. O. BoxCH-8021 Zurichwww.six-securities-services.com

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