Financial Market
"Equivalent" does not always mean the same - remarks on the ground of the new financial instruments' definition
Thursday, 12 May 2016 23:00

 

Commission Delegated Regulation of 25.4.2016 implementing MiFID II represents the coup de grâce for the hotly-debated topic of equivalency as the criterion for the differentiation of forward contracts being financial instruments from other physically settled OTC derivatives.

 

This step change from purely formal criterion based on the literal wording of the contract to the objective metric dependent only on verifiable trading data seems, however, as it stands, unworkable for legal practitioners.

 

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Systematic internalisers thresholds for emission allowances and emission derivatives determined in the MiFID II delegated Regulation
Monday, 09 May 2016 00:06

 

As you certainly know emission allowances and emission derivatives are the asset classes for which - as from the MiFID II entry into force (3 January 2018) - the systematic internalisers' thresholds must be counted.

 

Numerical values of these thresholds became clear on 25 April 2016.

 

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Inside information on the carbon market - time to build expertise
Monday, 15 February 2016 06:05

 

I'm sure your company has in place documented systems and procedures to conduct - with due diligence -  assessments, which of your emissions data will have the potential to influence on the market price of carbon (or that the said impact is, for example, negligible).

 

No? But, obviously, you have already verified whether your company exceeded, at the group level, the threshold of 6 million tonnes of carbon dioxide equivalent a year or a rated thermal input of 2,430 MW. Not true? I don't believe it! 

 

If, neglecting the above issues, you're counting on the fact that your company is already publishing inside information under the REMIT Regulation, this misunderstanding may have severe consequences.

 

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CCP-cleared trades terminated - not modified (in EMIR reports)
Tuesday, 24 November 2015 06:45

 

Where an existing contract is subsequently cleared by a CCP, it mustn't be reported under EMIR to the trade repository as a modification of the existing contract, but the original contract should be flagged as terminated and the new contract resulting from clearing should be reported.

 

This is the essence of ESMA's recent draft amendments with respect to EMIR reporting of derivatives subject to clearing.

 

It will be also expressly stipulated by the law that when a contract is concluded in a trading venue and cleared on the day of execution, only its cleared form will be reported.

 

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MiFID II position limits regime - be mindful of EEOTC (Economically-Equivalent OTC Contracts)!
Monday, 09 November 2015 06:36

Men-with-box-on-the-head

 

Among multiple issues involved with applying MiFID II position limits the most prominent appears that there is no ex ante certainty on whether contracts are recognised as EEOTC before entering into transactions. 

 

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Risk-reducing transactions more transparent
Monday, 19 October 2015 06:51

Procedures-urgently-needed

 

Non-financial companies are required to include in their internal policies "measures to ensure" that the risk-reducing transactions serve no other purpose than covering risks directly related to the commercial activities of the non-financial entity, and that any transaction serving a different purpose can be clearly identified.

 

If they still want to remain non-financials, obviously…

 

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The clock starts ticking to be authorised under MiFID II
Sunday, 11 October 2015 11:43

 MiFID-2-alarm-clock

Overall, when it comes to transitory issues, it is useful to note that for an anciliary activity exemption the clock has started ticking as from July 2015 i.e. well before 2017, which is is the date when MiFID II will enter into force.

 

It follows, the trading activity executed as from July 2015 must be assessed  against the relevant thresholds.

 

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Hedging - tornado approaches
Monday, 24 August 2015 06:56

Hedging-emir-review

 

Clearing thresholds' calculations are quite complicated - partially on account of requirement to classify all OTC derivatives transactions as hedging or non-hedging (which fatigue applies even to the smallest counterparties).

 

There is a chance, in the foreseeable future the companies' procedures setting the company's position versus clearing threshold may become simpler, but this novelty unnecessarily would mean less regulatory burden.

 

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Flawed definition for financial counterparties in EMIR
Thursday, 20 August 2015 14:48

 

Financial counterparties may find it difficult to establish whether they qualify as such under EMIR. Maybe the uniform European Register of Financial Counterparties would help somewhat.

 

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Individual client accounts uneasy take-up
Wednesday, 19 August 2015 16:30

 

Why do firms choose omnibus client accounts ignoring better protections offered by the individual form of segregation?

 

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Non-fully backed bank guarantees coming to an end as the CCP collateral
Monday, 13 July 2015 07:13

 

Expiring EMIR exemption will make as from 15 March 2016 CCP collateral more costly for non-financial counterparties.

 

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Collateral vs central clearing - alternatives for OTC derivatives market
Tuesday, 23 June 2015 20:16

 

The implementation of the central clearing obligation is expected to decrease the total gross notional outstanding for non-centrally cleared derivative activities (which is estimated about EUR 146 trillion) to about EUR 74.9 trillion (or by 49%).

 

It means 51% of these transactions will be cleared centrally and - after the implementation of the margin requirements - about 49% of the OTC derivatives market will be captured by the EMIR collateral requirement.

 

 
Intragroup transactions when calculating MiFID II ancillary activity exemption - itemised and evaluated?
Monday, 08 June 2015 06:35

 

The complicated character of the MiFID II ancillary exemption calculations (see the relevant equations for:

 

capital-employed test and

 

market-share test)

 

becomes even more complex when considering items involved with intra-group transactions.

 

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Enhanced EMIR reporting scrutiny as from November 2015
Tuesday, 05 May 2015 06:00

 

1 November 2015 marks the end of the period where trade repositories verified the completeness and accuracy of EMIR trade reports submitted by market participants using relatively less elaborate checks.

 

The first level validation, which is already in place since 1 December 2014, consisted in determining by trade repositories, which fields are mandatory in all circumstances and under what conditions fields can be left blank or include the Not Available (NA) value.

 

In turn, the second level validation, which will be mandatory as from the end of October 2015, will refer to the verification that the values reported in the fields comply in terms of content and format with the rules set out in the technical standards.

 

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MiFID II ancillary activity exemption - competitive handicap?
Monday, 04 May 2015 06:52

 

MiFID II ancillary activity exemption is sometimes perceived as a some sort of a safe harbour for commodity trading firms - for many not easy achievable, due to tight thresholds proposed in the draft level 2 legislation.

 

This harbour may, however, occur not so safe, and, equally, competitively disadvantageous.

 

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EU energy and financial regulators in a dispute when energy contracts "must be physically settled"
Wednesday, 22 April 2015 13:09

 

MiFID II interpretation undermines the EU Internal Electricity Market? The European energy regulators ACER and CEER unanimously argue this way and disagree with ESMA.

 

What sparked the fiercest discussion is whether the "REMIT carve-out" will be available to intermediaries without production, consumption or storage capabilities.

 

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Hedging after 3 January 2017 - not for everybody
Wednesday, 15 April 2015 06:50

 

Assume, the non-financial counterparty, in effect of, for example, modifications of the ancillary activity exemption, finds itself above the respective activity thresholds and, consequently, is driven under the financial regulation. Among MiFID II unexpected impacts is the fact, the legitimate hedging needs of the above entity may, potentially, by constrained by position limits. Why? Hedging exemption - in general foreseen when calculating the group's position limit - is not available to financial counterparties.

 

It appears, such conglomerate, currently being beyond financial regulation, will face the risk of its hedging transactions being cut by the position limit after 3 January 2017.

 

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