Asset Management Regulatory Roundup - August 2017, Issue 4

August 23, 2017

A compact summary of the most recent regulatory developments relevant to the UK asset management industry. This issue includes details on MiFID II: Client classification of local authorities, FCA paper on dark trading, the FCA publication of Q&As on MiFID II commodity derivatives, the recent ESMA update to guidelines on transaction reporting, order record keeping and clock synchronisation and MiFIR: treatment of package orders.



CLIENT CLASSIFICATION: local authorities 

Local authorities and local authority pension schemes will automatically be classified as retail clients under the Markets in Financial Instruments Directive (MiFID II). They may, however, opt up to elective professional client status if firms are satisfied that they meet the requirements of the FCA’s lighter opt-up tests (which were set out in the FCA’s MiFID II policy document published last month). The Local Government Association, along with industry bodies, has developed a template set of opt-up documentation which deals with the qualitative assessment part of the process (there is also a quantitative assessment). 

The FCA’s lighter opt-up tests are welcomed by the industry as they will enable local authorities to access a wider pool of assets. 

Firms do not need to wait until 3 January 2018 to carry out this opt-up process. 

Read scheme opt-up information. 

Read the FCA policy document. 


FCA paper on dark trading 

The FCA has published an occasional paper on the aggregate market quality implications of dark trading. Occasional papers contribute to the debate on specific issues relating to the FCA’s work but do not necessarily represent its official position. 

One of the key findings is that there is no negative effect of dark trading on market liquidity until its value as a proportion of total trading value exceeds 15 percent. The suggestion is therefore that the envisaged 8 percent cap under MiFID II is likely to be too low if the focus is on market quality. 

Read the FCA occasional paper. 


FCA publishes Q&As on MiFID II commodity derivatives 

The FCA has published a set of Q&As on position limits and position reporting for commodity derivatives under MiFID II. These Q&As are intended to assist relevant firms with their preparations for MiFID II implementation and they reflect the FCA’s policy statement, PS17/14, from July 2017. 

Read the Q&As. 


ESMA updates guidelines on transaction reporting, order record keeping and clock synchronisation 

The European Securities and Markets Authority (ESMA) has issued minor, non-substantive, amendments to its Guidelines on transaction reporting, order record keeping and clock synchronisation under MiFID II. 

National competent authorities must notify ESMA whether they comply or intend to comply with the Guidelines, with reasons for non-compliance, within two months of publication of the guidelines in the official languages of the EU. 

Read the updated guidelines. 

Access the track changes version here. 


MiFIR: treatment of package orders 

The European Commission has published the draft text of a Delegated Regulation supplementing the Markets in Financial Instruments Regulation (MiFIR) with regard to the treatment of package orders (i.e., interlinked financial transactions comprising various instruments which firms execute jointly in order to reduce transaction costs and for risk management purposes). 

MiFIR provides for a waiver from pre-trade and post-trade transparency requirements for packaged orders where certain conditions apply. However, use of that waiver is more limited when the package order is considered liquid. 

The Delegated Regulation sets out the general methodology for establishing for which package orders there is a liquid market as a whole, and specifies the conditions under which a package order can fulfil the asset-specific criteria, particularly for interest rate derivatives, equity derivatives, credit derivatives and commodity derivatives. 

Provided there is no objection by the Council of the EU and the European Parliament, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU (OJ). It will apply from 3 January 2018. 

Read the draft text.

Subscribe to Dechert Updates