Welcome to Euro Shorts, a short briefing on some of the week’s developments in

the financial services industry in Europe.

If you would like to discuss any of the points we raise below, please contact me or

one of our other lawyers.

Claire Cummings

020 7585 1406

claire.cummings@cummingslaw.com

www.cummingslaw.com

EMIR

ESMA has announced that it has approved the registrations of the first four

trade repositories, namely: DTCC Derivatives Repository Limited and

UnaVista Limited, each based in the UK, Krajowy Depozyt Papierów

Wartosciowych S.A. based in Poland and Regis-TR S.A., based in

Luxembourg. Registration means that the TRs can be used by counterparties

to derivatives transactions to fulfil their trade reporting obligations under

EMIR. The registrations will take effect on 14 November 2013, triggering

the start of the EMIR reporting obligation on 12 February 2014 (i.e. 90 days

after the official registration date).

EMIR Q&As

ESMA has also updated its Q&As on the implementation of EMIR, which

are aimed at competent authorities to promote common supervisory

approaches and practices to the application of EMIR across the EU. The

updated or modified Q&As relate to the calculation of the clearing

threshold, risk mitigation techniques for contracts not cleared by a CCP,

segregation and portability, reporting of collateral and valuation and

portfolio reconciliation. The Q&As were originally published in March 2013

and were last updated in October 2013.

Financial Transaction Tax considered unlikely

A German deputy party leader has said this week that he does not believe

the FTT will be enacted in Germany, even though coalition negotiators have

agreed to push for the tax. He considers that such a move would have

devastating consequences for Germany’s financial centres and that it is

unlikely that there will be an international resolution on the tax. In another

report, a former advisor to Nicolas Sarkozy has said that he sees a

contradiction in the French finance minister’s call for support from French

banks for the Paris stock exchange (as ICE prepares to buy NYSE Euronext)

and the FTT, as he is unable to see a reason for backing the new Euronext

with a potential tax undermining it. Major banks in the EU have apparently

been lobbying against the FTT amid reports that the proposed standard rate

tax of 0.1% on transactions may be lowered and the tax itself introduced

more gradually.

Short Selling Regulation

The Advocate General has concluded in United Kingdom v Council and

Parliament that Article 28 of the Short Selling Regulation should be

annulled. Under Article 28, ESMA is granted powers to intervene in the

financial market of a Member State in the event of a threat to the orderly

functioning and integrity of financial markets or to the stability of the whole

or part of the financial system in the EU. During the legislative process for

the Regulation, the UK had expressed concerns that Article 28 would be

unlawful, abstaining during the EU Council vote on adoption of the

Regulation, and had brought an action against the Council. In the case, the

Advocate General concluded that Article 114 of the Treaty on the

Functioning of the European Union (TFEU) should not have been relied

upon as a basis for conferring decision making powers on ESMA under

Article 28, but that Article 352 TFEU would, instead, have been an

appropriate legal basis for Article 28 and Article 28 should therefore be

annulled. The annulment is unlikely to be of great significance to market

participants, given that ESMA's powers under the Article could only have

been exercised in the limited circumstances above.

Early introduction of ‘bail-in’ of creditors rules

Following demands from Germany, the EU appears likely to push ahead for

the early introduction of rules which would allow it to impose losses on

bank creditors, including both bondholders and savers with more than

€100,000. The so-called ‘bail-in’ of creditors rules are the most market-

sensitive part of banking union and Germany has demanded their early

introduction in return for giving its full backing for the project to police and

support banks in the Eurozone. The rules were originally planned to be

introduced in 2018, but they are now to be finalised in the coming weeks so

as to be available for next year’s ECB health checks, discussed in previous

Euro Shorts. The ECB is in favour of early introduction, stating that moving

forward the date would provide certainty to investors.

Basel III

The Financial Stability Board has said that JP Morgan and HSBC topped the

list of the world's top 29 banks that must hold extra capital from 2016

because of their size and reach. The two banks are in the top ‘bucket’ and

will have to hold an extra 2.5% of risk-weighted core capital on top of the

7% minimum which all banks must hold by 2019 under the Basel III accord.

Barclays, BNP Paribas, Citigroup and Deutsche Bank have been placed into

the 2% surcharge bucket and BoA, Credit Suisse, Goldman Sachs, Credit

Agricole, Mitsubishi UFJ, Morgan Stanley and Royal Bank of Scotland and

UBS face a 1.5% surcharge. Next year's list from the FSB in November will

determine which banks will actually have to comply with the new surcharge

rule from 2016.

UCITS V

The Presidency of the EU Council has published a compromise proposal

relating to the Commission’s legislative proposal on UCITS V, published on

3 July 2012. UCITS V consists of proposed reforms to the UCITS regime

intended to address issues relating to the depositary function, manager

remuneration and administrative sanctions. The cover note for the

compromise proposal states that only the changes introduced following the

working party meeting of 21 October 2013 have been marked up. This

follows an earlier compromise proposal published on 11 December 2012.

CRD IV

The European Banking Authority has published its final draft ITS for

supervisory reporting on asset encumbrance as required under the CRR. The

ITS follow specific recommendations by the European Systemic Risk Board

for harmonised templates and definitions to facilitate the monitoring of asset

encumbrance across EU institutions. The confirmed implementation dates

are 30 June 2014 for institutions with assets above €30 billion (so first

reporting will be due in August 2014) and 31 December 2014 for all the

others. The asset encumbrance reporting requirements add additional

complexity to the level of reporting in relation to COREP, FINREP, large

exposures, leverage ratio and liquidity.

European Financial Supervision

ESMA has published a letter regarding its views on the operation of the

European System of Financial Supervision (ESFS) and sets out its proposals

for improvement. It asks the Commission to take its views into account in

the review of the ESFS that the Commission is currently undertaking.

ESMA's proposals include: (i) as timing for level 2 work deserves more

consideration when level 1 initiatives are being developed, a timetable

should be prepared, together with advice on which level 2 measures are

most critical to the operation of the level 1 initiative; (ii) the introduction of

new tools for providing temporary relief, as recent legislative acts have

introduced several provisions, such as clearing obligations, publication of

post-trade information, and reporting to trade repositories, which need to be

applied simultaneously across markets. Neither ESMA nor the national

competent authorities have the power to modify or suspend these obligations

to reflect, for example, a swift change in market circumstances; (iii) ESAs

should be provided with a stronger mandate and adequate resources to allow

for the collection of information and the development of a comprehensive IT

function to ensure that there is further harmonisation of available

information across regulatory authorities; and (iv) the Commission should

consider increasing the funding ESMA receives from entities that require

ESMA's intervention.

CFTC swap execution facility rules

The recent swap execution facility rules brought in by the CFTC have

seemingly slowed down the movement of the FX trading market towards

multi-dealer platforms. The rules call for certain FX exchange trading

instruments, such as non-deliverable forwards, to be executed under SEF

rules, but uncertainty as regards complying with the rules and how the new

environment will affect the market has caused the movement to multi-dealer

platforms to stall. The platforms, as regulated by the CFTC, launched at the

beginning of October, but users will not be mandated to trade on-SEF until

mid-February at the earliest. Market participants have apparently asked the

CFTC to issue further guidance regarding the functionality of the swaps

market post SEF-implementation, but the last formal guidance was

published prior to the October deadline.

Cummings

Tel: + 44 20 7585 1406

Mob: + 44 7734 057 327

www.cummingslaw.com

15 November 2013