As a result of the financial crisis in 2008, the G20’s Financial Stability Board (FSB) established a coordination framework in October 2011 for monitoring and reporting on the implementation of G20 financial reforms. The framework envisaged, inter alia, standard-setting bodies taking on the responsibility for monitoring and reporting on national implementation progress in their respective areas. Two recent reports on the progress of the implementation of the new global and regional regulatory frameworks shows that the authorities are determined to continue and to ‘get it right’ in the long run.

PFMIs framework progress assessment

The Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) have just published their Level 1 assessment of the world’s economies progress in implementing for the Principles for financial market infrastructures (PFMIs)  which was required by the .

Level 1 assessments are based on self-assessments by individual jurisdictions on how they have adopted the 24 Principles for FMIs and four of the five Responsibilities for authorities within the regulatory and oversight framework that applies to FMIs.

The CPSS believe that, “The update report shows that significant progress has been made by the 28 participating jurisdictions since the initial Level 1 report in August 2013. The report also reveals that progress in implementing the PFMIs continues to vary according to the type of financial market infrastructure (FMI). Overall there is encouraging progress across all FMI types, with implementation well advanced for central counterparties (CCPs), trade repositories (TRs) and payment systems (PS) but less advanced for central securities depositories (CSDs) and securities settlement systems (SSS). In particular, implementation measures applicable to payment systems have shown the most progress since the initial Level 1 assessment.”  (Additional updates to the Level 1 report are planned on a periodic basis.)

In parallel with the Level 1 assessments, CPSS and IOSCO are moving to the second level of the implementation monitoring for the PFMIs (Level 2 assessments). In the initial round of the Level 2 assessments, CPSS and IOSCO will conduct a detailed evaluation and a peer-review assessment regarding whether the adopted measures are complete and consistent with the principles for CCPs and TRs in the European Union, Japan and the United States. Other jurisdictions and other categories of FMI will be covered in subsequent rounds. Results from the first round of Level 2 assessments are expected to be published in the fourth quarter of 2014.

Authorities will keep going

The report states that: “Full, timely and consistent implementation of the PFMIs is fundamental to ensuring the safety, soundness and efficiency of FMIs and for supporting the resilience of the global financial system. In addition, the PFMIs play an important part in the G20's mandate that all over-the-counter (OTC) derivatives should be reported to trade repositories and all standardised OTC derivatives should be centrally cleared. Global central clearing requirements reinforce the importance of strong safeguards and consistent oversight of derivatives CCPs in particular. CPSS and IOSCO members are committed to adopting the principles and responsibilities contained in the PFMIs in line with the expectations of the G20 and the Financial Stability Board (FSB).”

MiFID II consultation and corporate treasury concerns

The European securities watchdog ESMA have released their technical standards for the revised financial markets directive Mi- FID/MiFIR. Although most of the changes mainly affect financial institutions, corporate treasures will face some new regulations as well, particularly with respect to derivatives and commodities trading. For instance, one reform proposal stipulates that companies will have to trade their derivatives through platforms regulated by MiFID and make the resulting market data publicly available if they cross the clearing threshold set up under EMIR. This causing concerns with corporate treasurers as many of them don’t want to make their hedges public.

Electronic trading platforms such as 360T and FXall, which are popular with corporate treasurers, will likely be classified as Organised Trading Facility (OTF) or as Multilateral Trading

ESMA wants to force companies to publicise derivatives positions that are four times higher than the deliverable supply in the same commodity derivative, which is also raising concerns over:

• the calculation method which adds the gross long or short volume because it can quickly drive derivatives holding over the threshold in illiquid and tight markets, rather than the net position
• derivatives used to hedge an underlying transaction do not count towards the threshold, it is as yet unclear how ESMA will define the term “hedge”
• how will ESMA enforce position limits on commodity derivatives if a market failure looms?

ESMA will hold three public hearings about secondary markets, investor protection and commodity derivatives issues on Monday 7 and Tuesday 8 July. Market participants can comment on the ESMA draft until 1 August 2014.