On 24 May 2019, the European Securities and Markets Authority (ESMA) published a consultation paper proposing amendments to the main indices and recognised exchanges under the Capital Requirements Regulation (CRR).
Article 197(8) of the CRR mandates ESMA to draft implementing technical standards (ITS) establishing the criteria to identify which are the main indices and recognised exchanges for the purposes of eligible collateral under the CRR. ITS 2016/1646 provides a list of such main indices and recognised exchanges.
ESMA has published a consultation paper which contains proposals to update ITS 2016/1646. Such update proposes a new methodology for the selection of indices and an update of the list of recognised exchanges, to account for those venues that have changed their denomination or are no more operational.
ESMA has identified banks as the stakeholders impacted by the changes. Under the CRR banks can use equities or convertible bonds that are included in a main index and equities or convertible bonds not included in a main index but traded on a recognised exchange as credit risk mitigation techniques to alleviate their capital requirements. The changes in the list of main indices might entail that banks will need to modify their holdings accordingly or, alternatively, hold more capital to fulfil capital requirements. Additionally, the changes envisaged in the list of recognised exchanges, and especially the possible exclusion of UK venues when Brexit will take place, might impact banks using equities or convertible bonds not included in a main index but traded on a recognised exchange as eligible collateral, if such instruments are traded only on UK venues.
The deadline for responding to the consultation paper is 5 July 2019. On the basis of the responses received to the consultation paper, ESMA will finalise a draft ITS amending ITS 2016/1646 and submit a final report to the European Commission for endorsement.