Jonathan Jachym, Executive Director, Government Relations
US and EU Derivatives Regulatory Reform Update LBMA/LPPM Precious Metals Conference Rome 1 October 2013
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• Regulatory Landscape • Global overview and update
• EU legislative and regulatory structure
• Key EU legislative files
• Updates on US and EU Derivatives Regulation • Clearing
• Reporting
• Trading
• Commodity Derivatives: Key Regulatory Drivers
Presentation Overview
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Implementing the G20 Mandates
Margin/CCP Regulation
CPSS - IOSCO
Capital: BCBS
Legislative:
US Congress
Regulatory
ESMA, EBA
Legislative
European Commission, Council
of Ministers and European Parliament
Legislative Regulatory
Member States
Legislative
Regulatory
EU
Regional & National
Lawmakers & Regulators
US
Japan, Hong Kong,
Singapore, Australia
Regulatory
Fed, SEC, CFTC
Market Regulation IOSCO
Financial Stability Board International Standard Setters
Level 2 Regulatory
Implementation
Level 1 Legislative Phase
Multiple initiatives at
international standards level
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EU Legislative and Regulatory Structure
PARLIAMENT
Directly elected 766 member
legislature.
Approves and revises laws but
no legislative initiative.)
COUNCIL
EU heads of state plus
Commission/Council Pres.
Approves and revises laws.
Strategic and political
leadership.
EUROPEAN
COMMISSION
Executive body. Proposes
and implements legislation.
Germany BaFIN
Bundesbank
France AMF
Banque de France
UK FCA
Bank of England
Level 1
Legislative
Institutions
(Brussels)
Level 2
European
Supervisory Authorities (ESAs)
National
Competent Authorities
(NCAs)
ESMA (Paris)
Securities and markets regulator with
rulebook for the single market
EBA (London)
Prudential banking authority –
contributes to convergence and
single rulebook
28
Member
State
NCAs
Italy Consob
Banca d’Italia
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Transaction Tax
(EU-11 FTT)
Trading Requirements
(MiFID II / MiFIR)
Benchmarks
Capital Requirements
(CRD IV / CRR)
Market Abuse
(MAD / MAR)
Central Securities Depository
(CSDR)
Hedge Funds (AIFMD)
Clearing
& Reporting
(EMIR)
Key EU Legislative Files
• Legislative 2013 / 2014 • Effective 2014 / 2015 (tentative)
• OTC Trade Execution (OTF) • Open Access • HFT Regulation • Position Limits
• Legislative 2013 • Regulatory 2014/2015 • Effective 2016
• Regulation of Indices • Legislative 2013/14 • Regulatory 2015 • Effective 2016
• Basel III • Legislative 2011 – 2013 • Regulatory 2013 / 2014 • Effective 2014 / 2015
• Market Abuse Rules • Legislative 2012 / 2013 • Regulatory 2014 • Effective 2015
•Regulatory Treatment of ETDs •Third-Country CCP Recognition & CCP Authorization •Trade Repository Regulation
• Legislative 2011 / 2012 • Regulatory 2012 / 2013 • Effective 2013 /2014
EU Financial
Services
Reform
• Central Securities Depository/Custodian Regulation • Legislative 2013 • Effective 2014
• Hedge Fund/Alternative Investment Fund Directive • Effective 2013
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12 Feb (earliest)
Reporting begins for all asset classes
10 April
Reporting All Asset Classes Begins – certain
exemptions for non-financials
OTC Reporting – Projected Implementation in US and EU
7 Nov (earliest)
TRs Approved
15 March
RTS Entered into Force
2013 2014
US
EU
Q1 Q2 Q3 Q4 Q1
ESMA has 40 days after receipt of application to make decision
Registration takes effect on 5th working day following approval
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Q2/Q3
Scope Proposed
15 March
EU Rules Enter in Force
2013 2014
11 March
Mandatory Clearing
Category 1 Entities
10 June
Mandatory Clearing
Category 2 Entities
US
EU
9 Sept
Mandatory Clearing
Category 3 Entities
Q4 / Q1
CCPs Authorised
Q1
Start of official ESMA
assessment of classes of
derivatives
Mandatory Clearing – Projected Implementation
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2015
Q4 2014 / Q1 2015
Mandatory
Clearing Begins
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Interest Rates Fixed-to-Floating Basis Swap Forward Rate
Agreement Overnight Index
Credit NA Untraunched
Indices iTraxx
CFTC Proposes IRS and CDS Products for Clearing Mandate
Mandatory Clearing Determinations Made for IRS & CDS
CFTC requested information from clearing houses (DCOs) for mandatory clearing determination for certain OTC products
Category 2
• All other financial entities
Category 3
• Accounts managed by 3rd party investment managers
• ERISA Pension Funds
Category 1
• Swap Dealers
• Major Swap Participants
• Active Funds*
90-dayProduct Review Period
30-D
ay P
ub
lic C
om
me
nt
Peri
od
Q1 2012 & Q2 2012
Mandatory Clearing for Specified Products Begins – 11 March 2013
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct 20
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* CFTC has defined “active funds” as private funds (as defined under the Investment Advisors Act) trading 200+ swaps per month for the preceding 12 months
June 10 September 9
US - Clearing Implementation Timing
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Non-cleared OTC
Cleared OTC Exchange
Traded Timing
Capital Implementation of Basel III Standards
10-Day
5-Day
5-Day
Interim standards effective; national legislation finalized and effective 1 Jan 2014 (US and EU)
Margin
10-Day
Implementation of BCBS-IOSCO Standards for Non-
Centrally Cleared Derivatives
US: 5-Day
(CFTC)
EU: 5-Day (EMIR)
US: 1-Day (CFTC)
EU: 2-Day
(EMIR)
Margin for non-cleared will be phased in from 2015; margin for cleared products is finalized and effective
Comparative View: Capital & Margin*
*All capital and margin figures are minimum levels subject to higher requirements based on risk profile of
the client and/or product prescribed by regulators, CCPs, or clearing members
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EMIR for non-financial counterparties (NFC)
The clearing threshold:
• “Breach one, clear all”
• HEDGING transactions do not count
towards the threshold
Contract
Threshold
(gross
notional)
% of
market
Credit €1 billion 4.2
Equity €1 billion 1.1
Int. Rates €3 billion 82.9
FX €3 billion 11.4
Comm. €3 billion .4
NFCs must… - Monitor gross notional position of
consolidated group & report if crosses
threshold
- Dispute resolution and portfolio
reconciliation
- Portfolio compression if 500+ non-
cleared OTC with single counterparty
- Exempt from margin for non-centrally
cleared trades
NFC+ must also…
- Report exposures (both mark to market
and collateral value)
- Margin (initial and variation margin with
daily valuation)
- Shorter timely confirmation period
- More frequent portfolio reconciliation
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2013 2015 2014 2012
MiFID II & MiFIR Level 1 Process Regulatory Technical Standards
• Open Access to CCPs & Trading Venues
• Position Limits/Position Management
• Regulation of Algorithmic Trading/HFT
• Market Structure for Trading Venues (RM, MTF, OTF)
• Authorization and Recognition of EU and Third-country Trading Venues
EU Trading and Market Structure Review & Timeline (MiFIDII & MiFIR)
Implementation
Q1 2016
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