Głowacki Law Firm

Financial Market
EU energy and financial regulators in a dispute when energy contracts "must be physically settled"
Wednesday, 22 April 2015 12:09


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.


Hedging after 3 January 2017 - not for everybody
Wednesday, 15 April 2015 05:50


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.


REMIT carve-out versus MiFID II position limits - something missing?
Monday, 13 April 2015 06:42


The impact of MiFID II position limits on the commodity derivatives market remains uncertain. It is not only due to the ongoing process of establishing the regulatory technical standards, but equally depends on the market participants' behaviour in response to the MiFID II regulatory modifications.


Forwards in power or natural gas traded on an OTF that must be physically settled (so-called REMIT carve-out) - which are not covered by the MiFID II position limits' framework - may potentially represent the exemplary environment for testing the above hypothesis.


Does IOSCO intend to kill derivatives' OTC market?
Tuesday, 24 March 2015 17:43


New rules on initial and variation margin prepared by financial regulators would pose a serious threat to derivatives' OTC market liquidity.




Mandatory clearing - market partcipants in the face of increased workload
Thursday, 19 March 2015 13:49


Mandatory clearing on OTC derivative contracts along with the frontloading requirement deserve particular interest in the following months. 



Actions to be scheduled cover:

- analysing portfolios to identify contracts potentially subject to this requirement (taking account of their counterparties' statuses),

- carrying out the necessary calculations associated with the use of thresholds, 

- examinations whether the intragroup exemption from mandatory clearing could be applied under circumstances and whether its use is adequate to the company's business model,

- communications between counterparties whether they are subject to the mandatory clearing and the to the frontloading requirement,

- providing appropriate representations,

- amendments to the documentation of OTC derivatives contracts, 

- pricing models' adaptations, pricing recalculations to include the price of the frontloading in the contracts,

- implementing necessary arrangements for the frontloading to take place,

- making relevant changes to systems, controls and internal procedures to reflect these determinations and representations.


If the above analyses show the counterparty is within the scope of application of mandatory clearing, and, potentially, of the frontloading requirement, it will be necessary to arrange for the necessary clearing relationships.


The above process will have the iterative character, first come the IRS derivatives but the potential scope is much more extensive.


Read more on mandatory clearing...


New formula of the trading criterion for financial instruments' definition under MiFID II - equivalent contracts
Monday, 09 February 2015 05:19


In order to establish whether given physical forward is a financial instrument under MiFID II counterparties will have to implement the process for ongoing comparison of their trading conditions with on-venue contracts (and, moreover, not only with contracts traded on regulated markets, MTFs and OTFs, but also with those traded on third-country trading venues).


Is it really the intention? Consequences may be severe... Take for example the term for reporting the OTC derivative contract to the trade repository under EMIR - one working day only. Is this enough time for such complex analyses?




Attention! SI data business' niche
Tuesday, 27 January 2015 23:00


Systematic internalisers are lacking the necessary data sources. To carry out thresholds' calculations under the new MiFID II business' formula information about the total volume of trading or total number of transactions in the same financial instrument in the European Union will be needed.


This data is currently not available. The European financial regulator - ESMA - did also not receive any empowerment to publish the relevant trading figures (see Final Report ESMA's Technical Advice to the Commission on MiFID II and MiFIR of 19 December 2014 (ESMA /2014/1569) p. 223).


Hence, such services will need to be developed within the MiFID II implementation phase (i.e. till 2017) - maybe a business opportunity worth considering?


Read more on the systematic internalisers' legal framework under MiFID II Directive...


Surprising effects of MiFID II exemptions' cumulation
Monday, 26 January 2015 05:30


It is not possible for the person exempted under the MiFID II ancillary activity exemption to trade, for example, in IRS through the medium of direct, electronic access to a trading venue. Am I wrong?




Gross notional 2016 derivatives' value to delineate non-financials under MiFID II
Friday, 23 January 2015 12:30


Have you already made the preliminary assumptions for the gross notional value of your planned derivatives' speculative trades in the EU market for 2016 to establish whether you can still remain beyond the scope of the financial sector oversight under MiFID II?




Clearing Thresholds Compliance Check - ready for verification?
Thursday, 04 December 2014 14:08


Try our EMIR Clearing Thresholds Compliance Check!


Beware of derivatives' reporting when you establish yourself in the EU!
Wednesday, 05 November 2014 18:49


ESMA latest EMIR Q&A October edition brings an important clarification on derivatives' reporting duties placed by the EMIR Regulation on the businesses relocated into the EU.


The EU financial authority explained the regulatory stance with regard to the following issue:


"Are third country entities (not subject to the reporting obligation when it came into force on 12 February), that have subsequently become financial counterparties in the EU (due to re-location or because they are managed by an AIFM which becomes authorised or registered under AIFMD), required to report trades that were entered into before they became subject to EMIR?"


So, the answer is:


"Yes. When a counterparty to a derivative contract that is outstanding establishes itself in the EU it becomes subject to the reporting obligation. This applies to all outstanding contracts, so that such counterparty's risks are known in the EU where that entity is now based. Non-reporting of those outstanding contracts would represent hidden risk that would be contrary to the EMIR / G20 reform objectives."


The logical implication is, before the relocation into the EU is effected due diligence process within the financial institution needs to  identify and establish whether there are any derivatives contracts outstanding and ensure they are reported to the trade repository within the required deadlines.


Read more on the EMIR reporting requirements...


Repo not for EU ETS operators
Monday, 13 October 2014 04:46


It looks like a repo transaction with the use of emission allowances will no longer be available for EU ETS operators beyond 2016 (MiFID II entry into force).




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