The European Securities & Markets Authority (ESMA) has today updated its Questions and Answers on the following regulatory topics:
· AIFMD
· UCITS
· EMIR Implementation
· MiFID II and MiFIR Investor Protection
· MiFIR Data Reporting
· SFTR Reporting
· CSDR
· Sustainability-related disclosures for benchmarks
· Securitisation
Full Q&As are available from the ESMA website:
https://www.esma.europa.eu/press-news/esma-news/new-qa-available
The European Securities & Markets Authority (ESMA) has updated its Opinion on Collection of information for the effective monitoring of systemic risk under Article 24(5), first sub-paragraph, of the AIFMD, in the context of AIFMD reporting.
ESMA has updated its opinion in relation to Article 24(5), first sub-paragraph of the AIFMD, on data items they believe the NCAs should require AIFMs to report on a periodic basis. With special attention placed on the clarifications of three risk measures Value-at-Risk, Net FX delta and Net commodity delta. The update provides definitions of these risk measures alongside practical examples.
Further to this, ESMA has also released a new version of their AIFMD Q&As today which aim to provide greater interpretation of the three risk measures Net DV01, NET CS01 and Net Equity Delta.
The full Opinion is available from the ESMA website:
Draft Regulatory Technical Standards have been adopted subject to broader review of the PRIIPs framework, to include the following:
how to achieve better alignment between PRIIPs, Insurance Distribution Directive and Markets in Financial Instruments Directive II regarding provisions on costs disclosure;
the scope of products as foreseen by the PRIIPs Regulation;
how to ensure that the KID contains the key information necessary for retail investors while avoiding too much or too complex information for these investors;
how to allow the creation of a digitalised KID allowing layered information and reviewing the default paper basis of the KID, taking into account the specific challenges for different types of products (e.g. multi-option products (MOPs));
the need for a more tailored approach, such as for MOPs, in order to maximise understanding and use of the information, while continuing to allow for comparability of similar products.
The final report on the Draft RTS is available here:
Direct Electronic Access (DEA) and algorithmic trading
Question
When a firm submits an order through DEA, which is then executed on-venue, should the resulting transaction be considered, from the DEA user perspective, as an on-venue or OTC transaction?
Answer
As per Article 4(1)(41) of MiFID II, DEA is a mechanism allowing a client to “electronically transmit orders relating to a financial instrument directly to the trading venue” using the trading code of the DEA provider. Hence, a DEA trade should not be considered as a series of trades (i.e. one trade involving the DEA client and the DEA provider, one trade submitted by the DEA provider and executed on-venue), but rather as one single trade submitted by the DEA user and executed on-venue.
This interpretation is however without prejudice to other specific guidance provided by ESMA for ad hoc regulatory purposes as, for instance, in the Guidelines on “Transaction reporting, order record keeping and clock synchronisation under MiFID II” (ref. ESMA/2016/1452, p.162).
Multilateral and bilateral systems
Question
To which extent can an investment firm engage in Matched Principal Trading?
Answer
As set out in Recital 19 of CDR (EU) 2017/565 and further clarified in previous ESMA guidance, Matched Principal Trading transactions are incompatible with the operation of a systematic internaliser, unless these transactions are occasional and not on a regular basis, or these transactions are executed on a trading venue.
Firms undertaking Matched Principal Trading are not ‘on risk’ for these transactions. The receipt of a performance fee or commission associated with the transaction is generally an indication that the firm is ‘off-risk’. Firms that operate as systematic internalisers should be able to demonstrate that they are effectively taking on the inherent financial risk of the associated transactions (notwithstanding any related risk mitigation arrangements that may be in place). In addition, a systematic internaliser is a bilateral execution mechanism and is not a trading venue for this purpose. Recital 19 of CDR (EU) 2017/565 makes clear that a system which increases the likelihood or efficiency of executing Matched Principal Trading transactions requires authorisation as a multilateral system. This clarification is not limited to investment firms operating as systematic internalisers.
Complete Q&As are available from the ESMA Europa site here:
