Nearly 1,600 delegates attended this year’s International Derivatives Expo in London, a record number for this event. The conference, which is organised jointly by FIA Europe and FIA included keynote presentations from high-profile speakers and panel sessions covering the latest industry issues. In addition, more than 44 companies displayed their products and services in the exhibit hall which maintained a constant stream of traffic due to its helpful demos and abundant examples of industry innovations. Finally, a huge thank you to all our sponsors for all their support, helping to make IDX a top industry event!
Here are some of the highlights from the conference programme:
CFTC Chairman Tim Massad commented on the equivalence debate between the EU and the U.S., restating the intention to conclude negotiations “by the summer”. Massad stated that the latest talks with the EU’s Commissioner Hill were productive and that some issues were resolved, in particular the terms of substituted compliance in the application of U.S. law to European clearinghouses that must register with the U.S. Other issues being discussed have been narrowed and will be addressed in a “data-driven way” – in particular margin methodology with respect to futures.
Massad also covered areas where he saw potential for future scrutiny such as the agreement among international regulators on a work plan to examine further key issues regarding the resiliency of CCPs. He pointed out that the CFTC will propose some changes to its swap reporting rules for cleared swaps designed to clarify reporting obligations and improve the quality and usability of data. He raised the issue of margin for uncleared swaps and highlighted the need for uncleared margin rules of different jurisdictions to be as consistent as possible.
ESMA Executive Director Verena Ross covered developments under EMIR and MiFID II in her address to IDX. In relation to EMIR, ESMA is working on the review of reporting to trade repositories building since the start of TR reporting in February 2014. ESMA expects to submit draft technical standards to the European Commission after this summer which should become applicable in the second half of 2016. In addition, ESMA continues working on the clearing obligation and “expects the clearing obligation to be implemented in Europe in the coming months”.
Regarding MiFID, Ross confirmed the change in timeline for ESMA’s work – an early legal review of technical standards will take place over the course of the summer and ESMA expects to submit its draft technical standards for formal adoption by the Commission at the end of September 2015. On the transparency provisions, ESMA has conducted an extensive data analysis and is considering the feedback received to its pubic consultations.
On position limits, Ross clarified that spot month and other months position limits will apply to all commodity derivative contracts traded on an EU trading venue. ESMA must craft a methodology which works for very liquid and illiquid contracts; provides a consistent approach to avoid arbitrage opportunities; and ensures limits are low enough to avoid squeezes without killing off contracts with only two or three participants.
On the trading obligation Ross revealed that ESMA finds it necessary to adjust the timeline as it will not have data available to check how liquid the relevant derivative classes are post-imposition of the clearing obligation and will not be able to assess the arrival of the new organised trading facilities.
European Commission Keynote
In his keynote address Patrick Pearson, the head of the Financial Markets Infrastructure Unit within the EC’s Financial Markets Directorate, underlined the importance of global coordination of rules and the necessity of deferring to each other’s regimes as when implementing G20 reforms. He also highlighted that “margins matter to the EU” in the context of EU-U.S. equivalence for CCPs. Both the EU and the CFTC are therefore working together to try and educate and learn from each other on how they are calculated and what are the consequences of any differences. Pearson went on to outline the different issues that are in play for the upcoming proposal on recovery and resolution of CCPs for which he is responsible. He commented that the central debate in Brussels at the moment is ‘loss allocation’ and all the difficulties that lay in each of the potential solutions. He insisted that competent authorities need a toolbox at their disposal in case a CCP defaults as each crisis is idiosyncratic. He was also adamant that getting public statements from central banks that will stand behind CCP in a crisis is ‘going too far’ and undesirable. He took the opportunity to encourage other jurisdictions to assess whether they ‘got it right’ as the Commission is doing right now by undertaking a review of the EMIR rules.
Speaking before a standing-room only crowd, top exchange officials from CME Group, Eurex, Hong Kong Exchanges and Clearing, Intercontinental Exchange, Nasdaq and Singapore Exchange offered their views on a broad range of industry issues in a fast-moving discussion ably moderated by Mark Ibbotson of G.H. Financials. The exchange leaders expressed optimism about the prospects for growth from Asia and commented on the significance of the HKEX Stock Connect as a bridge between China and international markets. On the other hand, they reiterated their concerns about the negative impact of new regulations in the mature markets of the West and warned about the potential for the dislocation of markets if margin requirements and other critically important rules are not harmonized.
While the new European proposal on benchmarks is still to be finalised, speakers agreed that the regulation is necessary but should not constitute entry barriers nor disadvantage organisations providing benchmarks in the EU. In this regard, all participants recalled that transparency and proportionality should play a key role in benchmarks access.
Panel members highlighted some of the challenges facing their firms, from having to assess early on whether they are likely to continue qualifying from a MiFID exemption, the lack of data for calculating market size for the purposes of the ancillary activity exemption, and the difficulties of the position limits regime.
A heated session was held on the open access provisions in MiFIR as participants disagreed on the need for such measures, implications for CCP risk management and authorisation as well as the likely take up of the rules.