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

UK to form free trade zone within the EU?

The Chancellor has said that Britain should try to form a free trade zone within the EU to speed up completion of the single market. Mr Osborne expressed frustration at the slow pace of EU reform and suggested that the principles of enhanced cooperation be used i.e. like-minded EU Member States should be able to create a free trade agreement in the same way as 11 Member States have signed up for the proposed financial transaction tax.

AIFMD: FCA update on application process

The FCA has published information about the application process on its AIFMD webpage. The new section explains that when a prospective AIFM applies to the FCA for authorisation or a VoP, a "triage team" will decide whether that application contains enough information to be assigned to a case officer. The FCA carries out this analysis as quickly as possible, but it is expecting to receive a high volume of AIFM applications in January 2014, so the assessment could take longer than expected. If an application is deemed to be incomplete, the FCA will notify the firm and ask the firm to send the necessary information. The statutory timeframe for determinations will only start once an application is complete.

MiFID II

The European Parliament has published a press release announcing that informal political agreement in trialogue has been reached on the proposed MiFID II Directive and the proposed Markets in Financial Instruments Regulation (MiFIR). The press release highlights the agreements reached on the following issues: market structure, investor protection, commodities (in particular, the power of competent authorities to limit the size of a net position that a person may hold in commodity derivatives), high-frequency algorithmic trading in financial instruments and the use of an "EU passport" by third countries whose rules are equivalent to those of MiFID II. The EU plans to implement MiFID II by the end of 2016.

Eurex plans penalties

Deutsche Borse’s Eurex derivatives market is planning to impose financial penalties on certain high-speed trading practices, amidst German and EU attempts to curb computerised transactions. Eurex has said that it will start charging those that submit an unusually high number of orders in relation to closed transactions, which places a burden on the infrastructure of exchanges and brokerages. It is believed that the plans are targeting high-speed traders flooding the market with bids and offers in an attempt to find counterparties. Eurex will also penalise those firms that exceed a daily maximum of transactions. Germany is moving to implement stricter rules on high-frequency trading ahead of EU rules that will also step up oversight.

ISDA cancels Euro Libor interest rate ISDA has cancelled the ISDAfix Euro Libor rate, as Citigroup has decided to stop submitting data for setting the benchmark. Without Citigroup, there are not enough contributors and, as participation is voluntary, ISDA has been forced to suspend the rate. The cancellation comes amid ongoing investigations into the manipulation of benchmarks worldwide. Regulators are concentrating on rates that are based on self-reported data by banks, rather than being automatically calculated from actual trades. Some of ISDA’s own bank-reported ISDAfix rates are also under investigation for potential manipulation.

Capital Requirements Regulation: own funds

Further to the implementing Regulation relating to the disclosure of own funds requirements under the Capital Requirements Regulation (CRR) adopted by the European Commission last week, draft RTS have been set out in a cover note published this week. The RTS cover a number of areas, including: common equity tier 1 capital, additional tier 1 capital, deductions from common equity tier 1 capital and from own funds in general, transitional grandfathering provisions for own funds and specification of the concept of gain on sale. The EBA published a final draft version of these RTS in July 2013.

EMIR reporting deadline

According to reports, industry participants trading in the EU are struggling to meet the EMIR reporting deadline due to the huge operational challenges and a squeezed timetable for compliance. Operators of trade repositories to which the deals will be reported say that many market participants have yet to begin testing their systems, although there has been a surge in applications for LEIs. It is believed that corporates and non-financial entities are less likely to be ready than those financial firms representing the largest share of trade reporting volumes.

Basel III proposals endorsed

The BIS has announced that the Basel Committee on Banking Supervision (BCBS) has endorsed a number of Basel III proposals. These proposals relate to completion of post-crisis regulatory reforms and include: (i) a common definition of the leverage ratio; (ii) changes to the net stable funding ratio (NSFR); (iii) minimum requirements for liquidity-related disclosures; and (iv) the strategic priorities of the BCBS for the next two years. A common definition of the leverage ratio has been formulated to overcome differences in national accounting frameworks which had prevented ready comparison and the ratio has been adjusted following warnings that the rule could penalise low-risk financial activities and curtail lending. The LCR-related disclosure requirements are intended to improve the transparency of regulatory liquidity requirements and enhance market discipline; the liquidity rules was also modified to make it easier to count a certain type of central bank loan against regulatory standards.

First Renminbi ETF listed on LSE

A new qualified fund has been launched on the London Stock Exchange enabling investors to invest directly in the Chinese equity markets in Renminbi (RNB). CSOP Asset Management, a Chinese firm based in Hong Kong, and Source, a UK firm based in London, are launching the fund, which will be the first RNB qualified foreign institutional investor (RQFII) exchange traded fund (ETF) listed in London. The Hong Kong and UK RQFII schemes permit financial institutions to use offshore RNB to invest in the Chinese mainland equity markets (that is, investments in shares, bonds and money market instruments). This development follows steps taken by the Chinese and UK governments to develop the offshore RNB market in London. The fund will be available to retail and institutional investors across the EU.

Benchmark Regulation

The ECB has published an opinion on the EC’s proposed Benchmark Regulation in response to requests to do so from the EU and European Parliament. ECB expresses its support for the proposed Regulation, but states that, despite progress in strengthening the governance process and restoring credibility, further steps need to be taken. The ECB also strongly encourages market participants to be actively involved in the rate design process to ensure that the resulting rate meets the market's needs. Amongst others, specific observations on the legislative proposal cover the following areas: scope of the proposed Regulation, the definition of "interbank interest rate benchmark”, sectoral requirements, critical benchmarks and mandatory contribution, supervisory co-operation and use of benchmarks provided by third country administrators. The ECB's detailed drafting proposals are set out in an Annex to the opinion.

Cummings

Tel: + 44 20 7585 1406

Mob: + 44 7734 057 327

www.cummingslaw.com 17 January 2014