The European Securities and Markets Authority (ESMA) has published a speech given by its chairman, Steven Maijoor, in which he considers two major reforms that are currently taking place in EU financial markets – over-the-counter (OTC) derivatives markets reform and benchmark reform.

In relation to OTC derivatives markets reform, points of interest include:

  • reform of the OTC derivatives markets is generally complete. The technical standards under the European Markets Infrastructure Regulation (EMIR) have been finalised and the corresponding obligations have entered into force;
  • ESMA’s focus has moved to ensuring supervisory convergence to ensure that there is consistent application of the requirements;
  • ESMA is currently running its second set of central counterparty (CCP) stress tests, through a renewed framework. It is also initiating work for its third annual peer review of national regulators’ supervisory practices of CCPs;
  • the forthcoming EMIR review must be ambitious to ensure that the legislation’s intended objectives are achieved even more effectively and efficiently. In terms of trade repositories (TR) and trade reporting, ESMA must be seen as a credible supervisor and its sanctioning powers need to be strengthened as well as the level of fines it can levy on TRs; and
  • ESMA has identified a wide range of aspects which should be considered in the context of the EMIR review to improve the regulatory framework. Such aspects include, introducing a mechanism which allows suspension of the clearing obligation, to respond to changing market conditions. The application of EMIR to non-financial counterparties should also be reviewed so that it captures only the most significant ones while reducing the compliance burdens for smaller non-financial counterparties.

In relation to benchmark reform, points of interest include:

  • the European Money Markets Institute, which administers EURIBOR, is currently testing its new transaction based methodology and a transition to “EURIBOR+” is expected to start soon. For the current EURIBOR and EURIBOR+ it is essential that a sufficient number of banks contribute data to ensure that it accurately measures the market. ESMA continues to be very concerned by continuously decreasing panels;
  • the European Commission has so far only designated EURIBOR as a critical benchmark under the Benchmarks Regulation and consequently a college for the supervision of EURIBOR was set up in September;
  • the Benchmarks Regulation requires ESMA to draft technical standards to ensure that it is applied coherently across the EU. These standards include further specifying benchmark integrity and reliability requirements in relation to governance, input data and the methodology used as well as on benchmarks’ transparency. ESMA will deliver the technical standards to the European Commission by 1 April 2017; and

At the end of his speech Mr Maijoor discusses how the above EU regulatory reforms interact with third country markets and participants. In particular Mr Maijoor briefly covers some of the concerns ESMA raised on the equivalence process in its 2015 report on the EMIR review. To conclude, Mr Maijoor states that the EU should consider redesigning the equivalence approach taking into account the concerns raised in its 2015 report on the EMIR review.

View ESMA Chair speech on reforms to OTC derivatives markets and benchmarks, 24 January 2017