Regional Legal and Regulatory Issues
March 2014
Agenda
EU's too big to fail initiatives
 Agenda and status
 Extra-territoriality impact
 CRD IV
OTC Reforms in Europe
 Status / upcoming
 Extra-territoriality of EMIR
 Documentation Projects
Hong Kong – Securities and Futures
Amendment Bill
 Status of HK OTC Derivatives Reforms
Margin for uncleared swaps
EU Resolution Directive
 Status
 Bail in
Hong Kong Resolution Proposals
Consultation Process
Regional Legal and Regulatory Issues
Clifford Chance
2
Agenda (continued)
EU securities depository directive
EU shadow bank reforms update
EU MiFID2/MiFIR
AsiaPac OTC reform






Regional Legal and Regulatory Issues
Hong Kong
Australia
China
Japan
Korea
Singapore
Clifford Chance
3
Ending Too Big to Fail – the Global Plan
1
2
3
Reducing probability
of distress
Reducing adverse
consequences of
distress
Reducing transmission
of distress
 Basel III capital rules and
stress tests
 Capital surcharge for
globally systemically
important banks
 Controlling size of banks
 Improved supervision
Regional Legal and Regulatory Issues
 Recovery and resolution
planning
 Structural changes to
banks
 New resolution powers
as alternative to
conventional insolvency
process
 Deposit guarantee
reforms
 Basel III charges on
intra-system exposures
 Derivatives reforms
(central clearing and
collateral)
 Robust financial market
infrastructure
Clifford Chance
4
Overview of CRD IV
CRD
Passporting
CRR
Basel III
Remuneration
Regional Legal and Regulatory Issues
Governance
Clifford Chance
5
CRD IV Timeline
CRD IV package
(Regulation (CRR) and
Directive (CRD)) published
in the Official Journal on 27
June 2013
27 June
2013
28 June
2013
CRR entered into
force on 28 June
2013 and will apply
from 1 January 2014
CRD entered into force on 17 July 2013
and needs to be implemented by EU
member states (with the exception of new
rules regarding capital buffers which come
into effect on 1 January 2016) by 31
December 2013
17 July
2013
Firms to report from
1 January 2014 on
Leverage Ratio,
Liquidity Coverage
Ratio and Net Stable
Funding Ratio
1 January
2014
2015 – 2018
Liquidity coverage
ratio to be phased
in between
2015-2018
Net Stable Funding
Ratio to be
introduced from
2018
2018
Leverage ratio to be
introduced from
2018
NB: Any frontrunners?
Regional Legal and Regulatory Issues
Clifford Chance
6
Status of EMIR
Clifford Chance
7
Timeline for European OTC Derivatives Reform
EMIR
(August 2012)
Q3
Q4
Q1
AIFMD
(July 2013)
Q2
2012
Q3
Q4
Q3
Q4
CRD IV / CRR
(1 Jan 2014)
Margin requirements for
uncleared swaps (from
2015)
Q1
Q4
2013
Q1
Q2
Short Selling
Regulation
(November 2012)
Regional Legal and Regulatory Issues
Q3
Q2
Q3
Q1
2014
Q4
Q1
FTT
(2014?)
Q2
Q3
Q2
Q3
MiFID2 / MiFIR
Q4
Q1
2015
Q4
Q1
Q2
Q3
Proposed
regulation on
CSDs (2015)
Q2
Q3
Q4
2016
Q4
Q1
Q2
Q3
Q4
MAD 2
(expected to be applied at
the same time as MiFID2)
Clifford Chance
8
EMIR Timeline
EMIR regulates OTC derivatives, CCPs and trade repositories and came into force on 16
August 2012. However, many obligations require secondary legislation in order to become
effective. The first of these obligations became effective in March 2013 and September 2013.

15 March 2013
NFC+ notification, timely confirmation, daily valuation

15 September
2013
Portfolio reconciliation, compression, dispute resolution

12 February
2014
Mandatory Reporting Obligation
Summer 2014?
Mandatory Clearing Obligation
Expected
December 2015
Margin requirements for uncleared OTC derivatives
Regional Legal and Regulatory Issues
Clifford Chance
9
EMIR FAQs for Asia Based Market Participants
Risk Mitigation
Reporting
My bank / client wants me to
sign up to the ISDA EMIR
Protocols. What do these
documents do?
Do I, and if so, where do I
have to report?
Branches
Is there any difference if I
face a non-EU branch or an
APAC subsidiary or an EU
bank?
What are my global
confidentiality, data privacy
and other regulatory issues?
Clearing
Why is my counterparty
asking me what my status is
under EMIR?
What is Article 25 and how
does it impact on clearing of
all derivatives overseas?
Regional Legal and Regulatory Issues
EMIR FAQs
for APAC
Non-EU trades
Neither my counterparty nor
I are EU entities. Can EMIR
still apply?
Clifford Chance
10
EMIR Obligations for Different Entities
Obligation
FCs
NFC+s
NFC-s
TCEs
Clearing



*
Reporting



*
Confirmations



*
Portfolio Reconciliation, Portfolio
Compression and Dispute Resolution



*
Daily Valuation



*
Margining



*
Capital



*
Risk Mitigation:
* On 17 July 2013, ESMA published a consultation paper on the draft RTS on contracts having a direct, substantial and foreseeable effect within the Union and non-evasion of provisions
of EMIR (i.e. application of EMIR to non-EU trades). The draft TRS is due to be delivered by ESMA on 15 November 2013.
Regional Legal and Regulatory Issues
Clifford Chance
11
EMIR – Risk Mitigation
Timely confirmation†
Portfolio reconciliation†
Portfolio compression
Appropriate procedures and
arrangements for confirmation
Counterparties must agree portfolio
reconciliation arrangements
 Via electronic means where
available
Covering key trade terms and
mandatory valuations
Financial counterparties and nonfinancial counterparties with portfolio
≥ 500 trades
 As soon as possible, by T+1 (or
T+2 for trades with non-financial
counterparties)
Deadlines phased in by counterparty
and asset class in stages from 15
March 2013 to 31 August 2014
Financial counterparties to have
procedures to report to regulator
monthly number of trades
unconfirmed for > 5 business days
Frequency varies by counterparty
type and portfolio size: daily,
weekly, quarterly, annually
Must address portfolio reconciliation
opportunities on six monthly basis
**Dispute
resolution†
Counterparties must agree detailed
procedures and processes for:
Daily valuation
Financial counterparties and nonfinancial counterparties over
clearing threshold must carry out
daily mark to market/model
valuations of transactions
 Identification, recording,
monitoring of disputes
 Timely resolution of disputes
Financial counterparties to report to
regulator disputes > €15m
outstanding for ≥ 15 business days
† Applicable even if only have one swap with counterparty. No de minimis exemption
* * On 12 August 2013 the U.K. regulation (the Financial Conduct Authority “FCA”) published a webpage about notifications and exemptions under EMIR. The webpage explains that the
FCA are developing a web portal for notifications and exemptions required to ensure EMIR compliance.
Regional Legal and Regulatory Issues
Clifford Chance
12
Regulatory Technical
Standards on Extraterritoriality
On 13 February 2014, the European Commission
adopted the RTS on contracts having a “direct,
substantial and foreseeable effect within the EU and
on non-evasion of provisions of EMIR and nonevasion”.
These RTS address EMIR Article 4(4) (in relation to
the clearing obligation) and Article 11(14)(e) (in
relation to the risk mitigation obligations). The draft
RTS covers:
 OTC derivative contracts entered into between two
counterparties established in third countries
 What would be considered to be “direct, substantial
and foreseeable effect” within the EU
 When it is necessary to apply the provisions of EMIR
in order to prevent evasion
The provisions in these RTS will become effective
six months after the RTS comes into force.
Regional Legal and Regulatory Issues
Clifford Chance
13
“Direct, Substantial and Foreseeable Effect within the EU”
Under the RTS:
Equivalent third countries
 Article 13 relief will apply to transactions between two third country entities where at least one counterparty is
established in the equivalent third country
 “the provisions of EMIR can be disapplied” vs “counterparties shall be deemed to have fulfilled the obligations”
Which contracts would have a “direct, substantial and foreseeable effect”?
 Guaranteed OTC derivative contracts
– Guaranteed by an EU financial counterparty – direct effect
– Amount of guarantee exceeds two cumulative thresholds – substantial effect
– ESMA considers that the proposed tests above are sufficiently clear that counterparties can predict which
contracts will be within scope – foreseeable
 EU branches of non-EU entities
– Contracts concluded with another EU branch of a non-EU entity (but not with an EU entity or non-EU entity) –
direct effect
– Contracts concluded with another EU branch of a non-EU entity from a non-equivalent jurisdiction – substantial
effect
– Counterparties can predict which contracts will be within scope – foreseeable
Regional Legal and Regulatory Issues
Clifford Chance
14
ESMA’s 2013 Equivalence Assessments
Clifford Chance
EMIR – Status of Equivalence Assessments
On 3 September 2013, ESMA delivered its first technical advice to the Commission on the equivalence of six
jurisdictions (US, Japan, Australia, Hong Kong, Singapore, Switzerland) for the purposes of EMIR. Further
reports were published by ESMA on 2 October 2013.
CCPs
Trade repositories
Article 13 EMIR
US
Conditional equivalence
Conditional equivalence
Partial/conditional equivalence
Japan
Conditional equivalence
Postponed
Not yet equivalent for risk mitigation.
Conditional equivalence for clearing.
Australia
Equivalence except ASX
equities clearing
Equivalence
Not yet equivalent for risk mitigation.
Conditional equivalence for clearing.
Hong Kong
Conditional equivalence
Premature to give advice
due to absence of rules
Premature to give advice due to absence of
rules
Singapore
Conditional equivalence
Conditional equivalence
Not planned
Switzerland
Equivalence
Not planned
Premature to give advice due to absence of
rules
Canada
Not planned
Not planned
Not yet equivalent
India
Conditional equivalence
Not planned
Not planned
South Korea
Conditional equivalence
Not planned
Not planned
Rest of world
Not planned
Not planned
Not planned
Regional Legal and Regulatory Issues
Clifford Chance
16
ISDA EMIR Protocols / Documents
Clifford Chance
EMIR – ISDA Protocols / Documents
 Multilateral contractual
amendment mechanism
 Market participants can adhere to
an ISDA Protocol (even if they are
not an ISDA member)
 Ongoing discussions with
counterparties in APAC
Regional Legal and Regulatory Issues
Pros
Cons
No requirement
to negotiate
Inflexible
Market standard
solution
Restrictions on
withdrawal
Efficient
Public
Clifford Chance
18
EMIR – ISDA Protocols / Documents (continued)
Standard
Amendment
Agreement for
Timely
Confirmations
(March 2013)
ISDA EMIR
Documents
2013 EMIR
Portfolio Rec,
Dispute Res
and Disclosure
Protocol (July
2013)
Regional Legal and Regulatory Issues
2013 EMIR
NFC
Representation
Protocol (March
2013)
Clifford Chance
19
EMIR – ISDA Standard Amendment Agreement for Timely
Confirmations
What aspect of
EMIR does it
address?
■ Article 11(1)(a) –
“the timely
confirmation…of
the terms of the
relevant OTC
derivative contract”
Regional Legal and Regulatory Issues
What does this
document amend?
■ It adds additional
provisions to the
Schedule of your
ISDA Master
Agreement with
your counterparty
What obligation(s)
does this document
create?
■ Each “Relevant
Confirmation
Transaction”
needs to be
confirmed by the
“Timely
Confirmation
Deadline”
What elections do I
need to make?
■ “Documenting
Party” vs
“Receiving Party”
■ Negative
affirmation
What should I be
aware of?
■ Changing from
Event of Default to
Additional
Termination Event
Clifford Chance
20
EMIR – ISDA 2013 EMIR NFC Representation Protocol
What aspect of
EMIR does it
address?
■ Your classification
as a NFC+ or
NFC- under EMIR
Why is it important
to distinguish
between NFC+ and
NFC-?
■ Clearing
■ Timing of
confirmations
■ Frequency of
portfolio
reconciliation
■ Daily valuation
What obligation(s)
does this document
create?
■ A representation of
your status
■ Delivery of
“change of status”
notices
What elections do I
need to make?
■ NFC+ vs NFC- vs
No representation
■ Notice delivery
method
What should I be
aware of?
■ Consequence of
breach of NFC
representation
■ Balancing
Payments
NB: AS AT 7 JANUARY 2014, THERE ARE 1,316 ADHERING PARTIES
Regional Legal and Regulatory Issues
Clifford Chance
21
EMIR – ISDA 2013 EMIR Portfolio Reconciliation, Dispute
Resolution and Disclosure Protocol
What aspect of EMIR does
it address?
What obligation(s) does
this document create?
■ Article 11(1)(b) –
“formalised processes…to
reconcile portfolios” and
“to identify disputes
between parties…and
resolve them”
■ Article 9 – “details of any
derivative
contract…reported to a
trade repository”
■ “Portfolio Data Sending
Entity” – provide portfolio
data
■ “Portfolio Data Receiving
Entity” – perform data
reconciliation
■ Resolution of disputes
■ Confidentiality waiver
What elections do I need to
make?
■ “Portfolio Data Sending
Entity” vs “Portfolio Data
Receiving Entity”
■ Business Day election
What should I be aware of?
■ No Event of Default or
Termination Event
■ Two Portfolio Data
Receiving Entities
■ Dispute Notice
■ Limitations of
confidentiality waiver
NB: as at 7 January 2014, there are 8,416 adhering parties
NB: ISDA Standard Amendment Agreement – 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Form
Regional Legal and Regulatory Issues
Clifford Chance
22
Status of HK OTC Derivatives Reforms
Clifford Chance
Possible Implementation Timeline for HK Reforms
Phase 1: Interim
reporting
requirement
announced
Q3
Q4
Q1
Backloading for
interim reporting to
begin August
Q2
2012
Q3
Q3
Mandatory interim
reporting began on
9 December
Q4
Q1
Earliest start date for
mandatory reporting and
clearing in Hong Kong?
Q2
2013
Q4
Q1
 HKMA/SFC publish joint
consultation conclusions*
 HKMA/SFC publish
supplemental consultation**
on scope of new regulated
activities (Types 11 + 12) +
SIP
Q2
Q3
Q4
Q1
2014
Q3
Q4
Securities and
Futures
(Amendment) Bill
published.
First reading at
Legco on 10 July
2013
Q1
Q2
OTC Clear has RCH
status
2015
Q3
Q4
Q1
Drafting subsidiary
legislation and public
consultation
expected
Mandatory clearing
* Joint consultation conclusions on the proposed regulatory regime for OTC derivatives market in Hong Kong.
** Supplemental consultation on the OTC derivatives regime for Hong Kong – proposed scope of new/expanded regulatory activities and regulatory oversight of systemically important
players.
Regional Legal and Regulatory Issues
Clifford Chance
24
BCBS-IOSCO Final Policy Framework for Margin
Requirements for Uncleared Derivatives
Clifford Chance
Introduction
BCBS-IOSCO have published a final policy framework setting minimum
standards for margin requirements for uncleared derivatives

“Margin requirements for non-centrally cleared derivatives” (September 2013) published by the Basel Committee on Banking
Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO)

Follows first and second consultation documents published by BSBS-IOSCO in July 2012 and September 2013 (the second
consultation document included the results of a quantitative impact.study)

Response to G20 Cannes November 2011 declaration calling for BCBS-IOSCO to develop standards on margin for uncleared
derivatives
BCBS-IOSCO to create monitoring group to work during 2014

Monitoring group will evaluate the standards, focusing on relation and consistency of standards with other initiatives including:
changes to trading book and counterparty credit risk. potential minimum haircuts for repos/reverse repos, implementation of the
liquidity coverage ratio and capital requirements for central cleared derivatives

Further analysis of costs and benefits and overall efficiency and appropriateness of regime, including macroeconomic impact

Possible areas for review include:
–
Possible alignment of the model and standardised schedule approaches for calculating initial margin;
–
Guidance on validation and backtesting of models for margining;
–
Risks of not subjecting the fixed physically settled FX transactions associated with the exchange of principal of crosscurrency swaps to the initial margin requirements (and possible adjustments to this exception)
Likely next steps

EU: ESAs to consult on regulatory technical standards setting margin requirements for financial counterparties and non-financial
counterparties over the clearing threshold under EMIR for endorsement by the Commission

US: CFTC, SEC and prudential regulators continue to consider margin requirements under the Dodd-Frank Act for swap dealers
and major swap participants
Regional Legal and Regulatory Issues
Clifford Chance
26
BCBS-IOSCO Final Margin Framework:
Universal Two-way Margin System
Zero threshold for
variation margin*
Maximum €50 million
threshold for initial
margin*
Covered entities
Covered transactions
■ All covered entities engaging in uncleared derivatives must exchange on a bilateral basis full amount of variation
margin (i.e. zero threshold) on a regular basis (e.g.daily)
■ Start date 1 December 2015
■ All covered entities engaging in uncleared derivatives must exchange on a bilateral basis initial margin with a
threshold not to exceed €50 million
■ Threshold applies at level of consolidated group to which the threshold is being extended and is based on all
uncleared derivatives between the two groups (groups choose how to allocate among group entities)
■ Start date 1 December 2015, but phased in over period to 1 December 2019 starting with largest users
■ At the end of phase-in, a consolidated group will have to have a minimum level of OTC derivatives business (at least
€8 billion total gross notional value) in order to be subject to initial margin requirements
■
■
■
■
All financial entities and systemically important non-financial entities (defined by national rules)
Excluding sovereigns, central banks, multilateral development banks and BIS
National discretion to exclude inter-affiliate transactions
Foreign branches of banks subject to home or host state rules. Group home state supervisor may choose to
recognise .margin regime applicable to foreign subsidiaries if equivalent
■ All non-centrally cleared derivatives entered into between covered entities
■ Exclude physically settled FX forwards and swaps but these are included in calculating trigger levels for phase in of
initial margin requirements and national discretion for supervisory guidance/rules on variation margin
■ Initial margin for cross-currency swaps do not apply to the fixed physically settled exchange of FX principal
*Margin transfers can be subject to a minimum transfer amount not exceeding €500,000
Regional Legal and Regulatory Issues
Clifford Chance
27
Main Changes from Second Consultation
The revised framework makes a number of significant changes to the proposals in the
second consultation document including:
1
The framework sets a revised start date for the new regime (1 December 2015, instead of 1 January 2015)
2
Exemption for physically settled FX forwards and swaps (but national regulators may implement variation margin standards by supervisory guidance
or national regulation) but these transactions count towards thresholds determining application of initial margin requirements
3
Initial margin requirements for cross-currency swaps do not apply to the fixed physically settled FX transactions associated with exchange of principal
of cross currency swaps (but other cash flows must be subject to initial margin requirements)
4
The requirements will cover transactions indirectly cleared through a CCP and intermediated through a broker unless the non-member customer is
subject to the CCP’s margin requirements or provides margin consistent with the CCP’s margin requirements
5
De minimise minimum transfer amounts for margin transfers must not exceed €500,000 (previously €100,000)
6
Managed funds to be considered separate entities outside consolidated group for the purposes of the €50 million initial margin threshold which applies
to groups on a consolidated basis. National discretion to exclude public sector entities from margin regime
7
Firms may only rehypothecate or reuse buy-side customer (and not sell-side) initial margin for the purposes of hedging the firm’s exposures to
customers and subject to conditions that protect the customer’s rights to the collateral (and ensure only one-time reuse of collateral)
8
Branches of legal entities may be subject to the margin rules of the entity’s home state or the requirements of the host country
Regional Legal and Regulatory Issues
Clifford Chance
28
Objectives of Margin
1
2
3
Objectives of margin requirements for non-centrally cleared derivatives:

Reduction of systemic risk: reduce contagion and spillover effects from counterparty default plus broader macro-prudential benefits
of reducing pro-cyclality and limiting build-up of uncollateralised exposures

Promotion of central clearing: margin requirements should reflect higher risk of uncleared trades

International consistency: needed to avoid undermining effectiveness of national regimes and competitive disparities
Proposals favour margining over capital:

Margin is “defaulter-pay” on a counterparty default, where capital is “survivor-pay”.

Margin is more targeted and dynamic taking into account risks of losses from a particular portfolio and is adjusted over time, where
capital is shared collectively and is more likely to be depleted and is less easy to adjust (also capital requirements are not designed
to be sufficient for the default of a particular counterparty, rather reflect a probability of default).

Therefore, margin offers enhanced protection against counterparty default if accessible at time of need and capable of being
liquidated quickly.

But potential benefits must be weighed against the liquidity impact resulting from counterparties’ need to provide liquid, high quality
collateral, including the impact on market functioning from aggregate demands for that collateral.
Revised proposals aim to take account of potential impact on liquidity by:

Allowing use of margin thresholds;

Eligibility of a broad range of eligible collateral;

Phasing–in the requirements over the period to 2019.
Regional Legal and Regulatory Issues
Clifford Chance
29
Results of Quantitative Impact Study
QIS based on data from 39 institutions


including 19 large internationally active dealers
QIS firms have €216 trillion of non-centrally cleared derivatives, representing 75% of global total
Central clearing mandate will reduce gross notionals of uncleared derivatives by 46%

Interest rate/equity derivatives expected to have biggest decline (53%, 56%) compared to FX/other asset classes (13%, 21%)
Currently, QIS firms only hold €100bn initial margin against uncleared derivatives

Represents 0.03% of gross notional exposure. Initial margin requirements are currently negotiated individually and market practice
varies
Proposals would result in QIS firms holding €558bn initial margin against uncleared
derivatives (if extrapolated to whole global market would require €0.7 trillion initial margin)



Estimates assume the reduction in portfolios resulting from mandatory clearing and reflect impact of €50m proposed threshold
With zero threshold, required margin would increase to €1.3 trillion (or €1.7 trillion for whole global market)
Figures assume use of models to calculate margin: under standardised margin schedule figures could be between 6 and 11 times higher
Bilateral initial margin requirements significantly higher than those required for central
clearing


Bilateral requirements average about 0.5% of gross notional, compared to 0.1% for centrally cleared transactions (i.e. 5 times)
Main reason for higher requirements is lack of multilateral netting that is achieved by central clearing
Requirements represent 8% of QIS firms’ available unencumbered margin eligible assets

But this figure increases to 86% of available liquid assets if standardised margin schedule used
Note: All figures are estimates and approximate.
Regional Legal and Regulatory Issues
Clifford Chance
30
BCBS-IOSCO Key Principles
1. Appropriate margining practices should be in place with respect to all derivatives transactions that are not cleared
by CCPs.
2. All financial firms and systemically important non-financial entities (“covered entities”) that engage in noncentrally
cleared derivatives must exchange initial and variation margin as appropriate to the counterparty risks posed by
such transactions.
3. The methodologies for calculating initial and variation margin that serve as the baseline for margin collected from a
counterparty should (i) be consistent across entities covered by the requirements and reflect the potential future
exposure (initial margin) and current exposure (variation margin) associated with the portfolio of non-centrally
cleared derivatives in question and (ii) ensure that all counterparty risk exposures are fully covered with a high
degree of confidence.
4. To ensure that assets collected as collateral for initial and variation margin purposes can be liquidated in a
reasonable amount of time to generate proceeds that could sufficiently protect collecting entities covered by the
requirements from losses on non-centrally cleared derivatives in the event of a counterparty default, these assets
should be highly liquid and should, after accounting for an appropriate haircut, be able to hold their value in a time
of financial stress.
5. Initial margin should be exchanged by both parties, without netting of amounts collected by each party (ie on a
gross basis), and held in such a way as to ensure that (i) the margin collected is immediately available to the
collecting party in the event of the counterparty’s default; and (ii) the collected margin must be subject to
arrangements that fully protect the posting party to the extent possible under applicable law in the event that the
collecting party enters bankruptcy.
6. Transactions between a firm and its affiliates should be subject to appropriate regulation in a manner consistent
with each jurisdiction’s legal and regulatory framework.
7. Regulatory regimes should interact so as to result in sufficiently consistent and non-duplicative regulatory margin
requirements for non-centrally cleared derivatives across jurisdictions.
8. Margin requirements should be phased in over an appropriate period of time to ensure that the transition costs
associated with the new framework can be appropriately managed. Regulators should undertake a coordinated
review of the margin standards once the requirements are in place and functioning to assess the overall efficacy
of the standards and to ensure harmonisation across national jurisdictions as well as across related regulatory
initiatives.
Regional Legal and Regulatory Issues
Clifford Chance
31
Universal Two-way Margin System
Zero threshold for
variation margin
Maximum €50 million
threshold for initial margin
■ All covered entities engaging in uncleared derivatives must exchange on a bilateral basis full amount of variation
margin (i.e. zero threshold) on a regular basis (e.g.daily)
■ All covered entities engaging in uncleared derivatives must exchange on a bilateral basis initial margin with a
threshold not to exceed €50 million
■ Threshold applies at level of consolidated group to which the threshold is being extended and is based on all
uncleared derivatives between the two groups
■ Up to each group how to allocate the threshold between different entities in the group
■ At the end of phase-in, a consolidated group will have to have a minimum level of OTC derivatives business (at least
€8 billion total gross notional value) in order to be subject to initial margin requirements
Minimum transfer
amount
■ Margin transfers can be subject to a minimum transfer amount not exceeding €100,000
Dispute resolution
■ Parties should have rigorous and robust dispute resolution procedures
*Margin transfers can be subject to a minimum transfer amount not exceeding €500,000
Regional Legal and Regulatory Issues
Clifford Chance
32
Margin Amounts and Methodologies
Initial Margin







Designed to reflect potential future exposure of a transaction
Required amount of initial margin may be calculated by reference to either (i) a quantitative portfolio margin model or (ii) a standardised margin
schedule
Quantitative portfolio margin model
– Models must be approved by the appropriate supervisory authority and be subject to an appropriate governance process
– For purposes of informing the initial margin baseline, the potential future exposure of a non-centrally-cleared derivative should reflect an
extreme but plausible estimate of an increase in the value of the instrument that is consistent with a one-tailed 99 percent confidence interval
over a 10-day horizon, based on historical data that incorporates a period of significant financial stress
– Subject to approval by the relevant supervisory authority, netting may be performed within well-defined asset classes (such as currency/rates,
equity, credit and commodities), subject to being covered by an enforceable netting agreement, but not across such asset classes
Standardised margin schedule
Initial margin calculated as a percentage (2% – 15% depending on asset class) of notional exposure
Allowed to reduce the gross notional initial margin for derivatives subject to enforceable netting using the net-to-gross ratio used for regulatory
capital purposes
Can exclude transactions which do not give rise to any counterparty risk (e.g. sold options)
Variation Margin


For the purpose of informing the variation margin baseline, the full net current exposure of the non-centrally-cleared derivative must be used
Netting may be performed across all non-centrally-cleared derivatives under the same netting agreement
National Supervisory Discretion


BCBS-IOSCO recognise that national supervisors may wish to alter margin requirements to achieve macroprudential outcomes, such as
preventing build up of leverage and balance sheet expansion
Considering possible macroprudential add-on or buffer on top of baseline or minimum requirements
Regional Legal and Regulatory Issues
Clifford Chance
33
Phase-in of Requirements
Variation Margin

Requirement to exchange variation margin between covered entities
applies from 1 December 2015
Initial Margin








Aim is to ensure that larger and most systemically risky firms are subject to
initial margin requirement at an earlier stage
Requirement to exchange two-way initial margin with a threshold of up to
€50 million staged phased in from 1 December 2015 to 1 December 2019
In each year, covered entities will be subject to requirement if total gross
notional value of uncleared derivatives of their consolidated group is over
the specified trigger level
From 1 December 2019 a permanent exclusion from requirement applies
for covered entities if gross notional value of uncleared derivatives of their
consolidated group is below trigger level of €8 billion
Trigger levels calculated by averaging month-end positions of the
consolidated group for June, July, August preceding relevant 1 December
A covered entity subject to the initial margin requirement is only required to
exchange initial margin with other covered entities also subject to that
requirement
Regulators to work to ensure sufficient transparency as to which entities are
and are not subject to the requirement
Comments sought on whether phase-in is appropriate
From
1 December:
Trigger level for
consolidated groups
2015
€3 trillion
2016
€2.25 trillion
2017
€1.5 trillion
2018
€0.75 trillion
2019 onwards
€8 billion
Note: based on total gross notional value of uncleared derivatives of the
consolidated group (including FX forwards and swaps).
Rules Apply Prospectively

Margin requirements apply to new transactions entered into after specified
dates (and may also apply if existing transactions amended to extend the
contract for the purpose of avoiding margin requirements)
Regional Legal and Regulatory Issues
Clifford Chance
34
EU Resolution Planning
Clifford Chance
The EU Status of Implementation
of RRD/CMD
 Bank Recovery and Resolution Directive (RRD)
– Crisis Management Directive (CMD)
 Parameters agreed 27 June 2013 by ECOFIN
 Final compromise text published 19 December 2013
 National legislation by year end
 Member state compliance by 1 January 2015
 Bail in provisions by 2018
Regional Legal and Regulatory Issues
Clifford Chance
36
Objectives and Principles
Objectives (avoid destruction of value, minimise cost of resolution)
 Ensure continuity of critical functions
 Avoid significant adverse effects on financial stability
 Protect public funds
 Protect depositors and investors
Objectives
 Protect client funds and assets
Principles
Principles
 Shareholders bear first losses
 Creditors bear losses after shareholders in order of priority of claims
 Senior management is generally replaced
 Former members of management shall provide necessary assistance
 Senior management are made liable for their individual responsibility
 Except where otherwise provided, creditors of same class treated equitably
 No creditor incurs greater loss than in insolvency proceedings
Regional Legal and Regulatory Issues
Clifford Chance
37
Key Elements of Directive
 Harmonised objectives and triggers
 Common set of resolution tools
(sale, bridge bank, asset
separation, bail-in)
1
 Recovery and resolution planning
 Resolvability assessments
 Regulators’ powers to address or
remove impediments to resolvability
 European system of financing
arrangements
 Intra-group financial support
agreements
3
Early intervention
2
 Triggered by failure/likely failure to meet
authorisation conditions
 Regulators’ powers to direct remedial action
 Power to appoint special manager
Regional Legal and Regulatory Issues
Clifford Chance
38
Resolution Tools
Sale of business
 Transfer of shares or
all/ part of assets/
liabilities to purchaser
on commercial terms
Bridge institution
 Transfer of all/ part of
assets/ liabilities to a
bridge institution
 Bridge controlled by
public authorities, aim
to sell within two years
Asset separation
 Transfer of all/ part of
assets/ liabilities to
asset management
vehicles(s) controlled
by public authorities
 Aim to maximise value
by sale or ensure
orderly wind down
Bail-in
 Power to write-down
eligible liabilities (or
convert to shares) to
(re)capitalise an
institution or bridge
institution
 Mandatory write down
of capital instruments
 Can only be used with
other tools
Additional tools and powers at Member State discretion:
If do not obstruct effective group resolution and consistent with resolution
objectives/principles
Regional Legal and Regulatory Issues
Clifford Chance
39
Bail-in of Loss Absorbing Capital
 Lessen likelihood of tax payer intervention
Aim of Bail in
proposal
 Exercise of statutory power, not a contractual trigger
Contrast with
contingent
capital: Co
Co’s
 Co Co’s have clear objective triggers
 Bail in relies on Regulator’s discretion
 Co Cos based on going concern trigger
 Bail in based on resolution authorities determination of non-viability
No absolute
requirement
to issue
“bail-in
bonds”
Regional Legal and Regulatory Issues
 LAC requirement may be fully met with Tier 1 and Tier 2
 National resolution authorities to set requirements
Update on Bank Capital
Clifford Chance
40
Triggers for Tier 1 Capital
 Article 51 states that a trigger event occurs when the Common Equity Tier 1 capital ratio of the
institution falls below a minimum of 5.125%
 Terms of instrument may specify a higher level or one or more additional triggers
 Recent example of BBVA banks set out the following 4 trigger events
– The CET ratio is less than 5.125%
– The Capital Principal Ratio is less than 7%
– The EBA CT 1 Ratio is less than 7%
– The Tier 1 ratio is less than 6% and the Bank/Group has reported losses for last 4 quarters with
result that capital and reserves have been reduced by 1/3rd more.
 Also BBVA had a non-viability trigger
 Now seeing non-viability in Asia deals
– Who is determining?
– How is it being determined?
Regional Legal and Regulatory Issues
Clifford Chance
41
Hong Kong Consultation on Resolution
 Joint consultation by Financial Services and the Treasury Bureau, the Hong Kong Monetary Authority,
the Securities and Futures Commission and the Insurance Authority
 Two-stage consultation process
 Responses by 6 April 2014 for first stage
 Broad issues to determined
– Resolution authority?
– Home/host/branches
– Scope and balance of requirements for Hong Kong
– FMIs
– Bail-in provision
– Pre-emption, stays and early termination
Regional Legal and Regulatory Issues
Clifford Chance
42
EU Central Securities Depositories (CSD) Reform
Common status:
EU presidency annoucement in December 2013
 Preliminary political agreement with EU parliament
 Full text for agreement in 2014
 Implementation 2015
 Timed with Target 2-securities initiatives
Scope and impact
 Improve settlement of securities
 Trading under MiFID2 (OTFs etc)
 Avoid settlement fails
 Regulation of CSDs
 Common EU approach for authorisation and supervision
Regional Legal and Regulatory Issues
Clifford Chance
43
EU Central Securities Depositories (CSD) Reform (continued)
Regulation of CSDs
 competent authority and regulation
 Supervision and organisational requirements
 Conduct
 Management of legal, operational and other risks
 Capital requirements
Conflict of laws
 Will it improve legal certainty issues?
 Will they be included?
Regional Legal and Regulatory Issues
Clifford Chance
44
EU Central Securities Depositories (CSD) Reform (continued)
On-going Access
 With securities issuers
 Between depositories
 With other FMIs
Restrictions from carrying out other businesses?
Cross-border impact
 Passporting
 Recognition of 3rd countries
 Registration
 Transition timeline
Regional Legal and Regulatory Issues
Clifford Chance
45
EU – Regulation of Shadow Banking
 A key focus of G20 and policy
makers globally post financial
crisis
 Securities financing integral to
shadow banking debate
 SFTs – perceived risks
–
–
–
–
Regional Legal and Regulatory Issues
‘run risk’ due to procyclical
nature of SFTs
high levels of (sometimes
hidden) leverage
rehypothecation concerns –
who owns collateral when a
counterparty defaults?
Contagion risk - high degree of
connectedness between
banking and shadow banking
sectors
Clifford Chance
46
Financial Stability Board
Shadow Banking Policy for SFTs
 Two ‘workstreams’ focusing on SFTs: WS3 and WS5
 WS5 proposals – to make the securities financing markets more
robust e.g. enhanced transparency, improvements to market
structure etc.
 WS5 consulting on minimum standards for haircut methodologies and
numerical haircut floors
 WS3 (‘other shadow banking entities’) focus on risky activities,
– primarily short term funding e.g. SFTs
– policy tools – imposing bank like regulatory capital requirements
(liquidity buffers, leverage limits, large exposures limits,
restrictions on types of liabilities held)
 Implementation date unknown – will depend on national
implementation
Regional Legal and Regulatory Issues
Clifford Chance
47
EU Regulation on Reporting and Transparency
of SFTs
 29 January 2014 – Commission proposed regulation on reporting
transparency of securities financing transactions
 Scope
– Parties to securities financing transactions or financing structures
with equivalent economic effect
– UCITS managers and investment companies
– AIFMs
– Parties to rehypothecation arrangements
 Implementation – unknown at present
Regional Legal and Regulatory Issues
Clifford Chance
48
EU Regulation on Reporting and Transparency
of SFTs – Key Features
 All SFTs to be reported to a central repository
 Detailed reporting on SFT activity by investment funds (including
UCITS and AIFs)
 Prior risk disclosure and express written consent required before any
rehypothecation of assets
Regional Legal and Regulatory Issues
Clifford Chance
49
MiFID2 / MiFIR
Regional Legal and Regulatory Issues
Clifford Chance
50
Why the New Legislation?
MiFID2 / MiFIR
Implementation of
G20 agenda
Enhancing the
single rulebook
Scheduled review of
2003 MiFID1
Response to market
developments
Regional Legal and Regulatory Issues
Clifford Chance
51
Wide Ranging Changes to Existing Rules
Market
structure
Algorithmic
trading
Third country
Platform trading
obligation
Markets
rules
Commodity
derivatives
Other
changes
Governance
Pre- and
post-trade
transparency
Data service
providers
Transaction
reporting
Regional Legal and Regulatory Issues
Product
intervention
Extended
business
conduct
Clifford Chance
52
Level 1
Delegated/implementing acts (regulations or directives):
 Drafted and adopted by Commission following advice from ESMA
Regulatory/implementing technical standards (regulations):
 Drafted by ESMA and endorsed by the Commission
Level 3
Recast Markets in Financial Instruments Directive
(MiFID2)
 Scope: instruments, services, exemptions
 Authorisation, controllers, governance,
passporting, branches of third country firms
 Organisational and conduct of business rules
 Obligations of MTFs, OTFs, regulated markets
 Commodity derivatives position limits,
management, reporting
 Data reporting services providers
 Regulatory powers
 Reviews, reports
Level 2
Structure of the Legislation
Markets in Financial Instruments Regulation
(MiFIR)
 Definitions
 Pre- and post-trade transparency and waivers
 Platform trading obligations for shares and OTC
derivatives
 Transaction reporting
 Clearing of derivatives on regulated markets
 Access issues
 Cross-border business by third country firms
 Product/practices intervention powers
 ESMA position management powers
ESMA guidelines and ESMA/Commission FAQs
National implementation:
 Primary or secondary legislation, regulatory rules
 Penalty regimes
Regional Legal and Regulatory Issues
Clifford Chance
53
MiFID2/MiFIR: Expected Timeline
24 months
Publication in
Official Journal and
in force
Q1
Q2
Q3
Consultation on
national
implementation
Q4
2014
Q1
6 months
Q1
Q2
Q3
National
transposition
deadline
Q4
2015
Q2
Q3
Q4
Q1
ESMA consults on
advice/RTS/ITS
12 months
Regional Legal and Regulatory Issues
Q1
Q2
Q3
New rules
begin to apply
Q4
2016
Q2
Q3
Q4
ESMA delivers
draft RTS/ITS to
Commission
6 months
Q1
Q1
Q2
Q3
Q4
2017
Q2
Q3
Q4
Q1
Q1
Q2
2018
Q2
Q3
Q4
Q1
Q2
Notes:
 Legislation in force 20 days after publication in Official Journal
 Commission may request ESMA to provide advice on delegated
acts in advance of draft RTS/ITS
 Very limited transitional provisions
 Market Abuse Regulation (MAR) expected to be published at
same time and to apply from 24 months after it comes into force
Clifford Chance
54
Implementation Challenges
Strategy
Clients
Non-EU
impact
Systems
Documentation
and compliance
Regional Legal and Regulatory Issues
Clifford Chance
55
MiFID2 – Market Structure
Clifford Chance
Market Structure
Key changes:

New trading venue –
OTFs

SIs wider in scope

Trading pushed on
venue or SI

MiFID1
MiFID2
Multilateral*
Multilateral*
Regulated Markets (RMs)
Regulated Markets (RMs)
Multilateral Trading Facilities
(MTFs)
Multilateral Trading Facilities
(MTFs)
Align RM and MTFs
Bilateral
Systematic
internalisers (SIs)
Organised Trading Facilities
(OTFs)
Bilateral
Systematic
internalisers (SIs)
OTC
OTC
* “trading venues”
Regional Legal and Regulatory Issues
Clifford Chance
57
Key Definitions
Multilateral
Bilateral
RMs and MTFs
SIs
 a multilateral system... which brings together
… multiple third-party buying and selling
interests in financial instruments – in the
system and in accordance with nondiscretionary rules – in a way that results in a
contract
 an investment firm which, on an organised,
frequent and systematic basis, deals on own
account by executing client orders outside a
regulated market or an MTF or an OTF
(note likely change to implementing acts)
OTFs (new)
 no definition in compromise text
OTC transactions
 any system or facility, which is not a regulated
market or MTF, ... in which multiple third-party
buying and selling interests in financial
instruments are able to interact in the system
in a way that results in a contract
Multilateral system
 any system or facility in which multiple third
parties buying and selling trading interests in
financial instruments are able to interact
Regional Legal and Regulatory Issues
Clifford Chance
58
Market Structure Under MiFID2
RMs
MTFs
OTFs1
SIs
OTC
Exchange
Exchange or Firm
Exchange or Firm
Firm
Firm
Non-discretion’y
execution
Yes
Yes
No
Where quotes
binding
No
Conduct of
business rules
No
No
Yes
Yes
Yes
Operator can use
own capital
No
No
No
Yes
Yes
Access to facilities
Transparent, nondiscriminatory
rules, objective
criteria
Transparent , nondiscriminatory
rules, objective
criteria
Transparent, nondiscriminatory
rules, objective
criteria
Commercial policy
(in objective, nondiscriminatory way)
Commercial policy
Admission to
trading
Clear, transparent
rules (+ other
criteria)
Transparent rules
(+ adequate PAI2)
Transparent rules
(+ adequate PAI2)
N/A
N/A
Resilience, circuit
breakers, tick size
Yes
Yes
Yes
No
No
Surveillance
required (MAR)
Yes
Yes
Yes
No
No
Operator
1. Non-equities only; 2. Publicly available information
Regional Legal and Regulatory Issues
Clifford Chance
59
Market Structure Under MiFID2 (continued)
RMs
MTFs
OTFs1
SIs
OTC
Pre-trade
transparency
Yes (incl. nonequities)
Yes (incl. nonequities)
Yes
Yes (incl. nonequities)
No
Pre-trade waiver
available
Yes (incl. nonequities)
Yes (incl. nonequities)
Yes
No
N/a
Post trade
transparency
Yes (incl. nonequities)
Yes (incl. nonequities)
Yes
Yes (incl. nonequities)
Yes (incl. nonequities)
Publish execut’n
quality data
Yes
Yes
Yes
Yes
No
Eligible OTC
derivs platform
Yes
Yes
Yes
No
No
Authorities can
suspend trading
Yes
Yes
Yes
Yes
Yes
Record orders
Yes
Yes
Yes
No
No
1. Non-equities only
Regional Legal and Regulatory Issues
Clifford Chance
60
Fixed Income and Derivatives Markets Transparency
Clifford Chance
Transparency Rules for Non-equities
Bonds and structured products
Scope
Emission allowances
Derivatives traded on a trading venue
Firms, SIs, OTFs, MTFs, RMs.
Pre-trade waivers
Post-trade deferral
Key
variables
Exemptions
Liquidity definition (Art 2 (7a) MiFIR)
ESMA RTS to calibrate waiver and deferral regimes
Regional Legal and Regulatory Issues
Clifford Chance
62
Transparency Rules for Non-equities (continued)
(Trading Venues pre-trade) Articles 7 and 8 of MiFIR
Obligations (Art. 7)
 All RMs, MTFs, OTFs to publish bid/offer and
depth of trading interest
 Applies to actionable indications of interest
 Continuous basis during normal trading hours
 Give access to publication arrangements on
reasonable commercial terms and nondiscriminatory basis to firms subject to Art. 17
Waivers (Art. 8)
 Granted by NCAs following ESMA opinion
 1. Orders large in scale relative to normal
market size
 2. Indications of interest in RFQ and voice
trading systems above a specific size that
would expose liquidity providers to undue risk
 3. Derivatives not subject to trading obligation /
other instruments without liquid market.
 NCA can temporarily suspend the Art. 7
obligation if liquidity drops (3 month rolling
period)
 ESMA RTS to cover variables (size and
liquidity thresholds)
Regional Legal and Regulatory Issues
Clifford Chance
63
Transparency Rules for Non-equities (continued)
(Trading Venues post-trade) Articles 9 and 10 of MiFIR
Obligation (Art. 9)
Deferral (Art. 10)
 Publish price, volume and time of trade
 Granted by NCAs following ESMA opinion
 As close to real-time as reasonably possible
 1. Orders large in scale relative to normal
market size
 Give access to publication arrangements on
reasonable commercial terms and nondiscriminatory basis to firms subject to Art. 20
 2. No liquid market
 3. Size of trade would expose liquidity
providers to undue risk
 Limited publication during deferral period /
volume omission during extended deferral
period possible
 NCA can temporarily suspend the Art. 9
obligation if liquidity drops (3 month rolling
period)
 ESMA RTS to specify what data to be
published and conditions/criteria for deferral
Regional Legal and Regulatory Issues
Clifford Chance
64
Transparency Rules for Non-equities (continued)
(OTC and SIs pre-trade and post-trade) Articles 17 and 20 of MiFIR
Pre-trade
 SIs must publish firm quotes for liquid
instruments and make those quotes available
to other clients.
 Undertaking to transact with other clients to
whom quote made available where trade
below a specified size.
 SIs can set non-discriminatory limits on
number of transactions per quote.
 No Art. 17 obligation if trade above specified
size threshold (Art. 8 threshold)
Regional Legal and Regulatory Issues
Post-trade
 SIs must publish volume and price of trades at
time concluded via APA
 Scope and time limits for deferral (and
temporary suspension of obligation) analogous
to Art. 9 and 10 (deferred publication, limited
publication, volume omission, etc.)
 ESMA RTS will specify disclosable data and
application of the obligation in securities
financing context
Clifford Chance
65
Derivatives Execution and High Frequency Trading
Clifford Chance
Derivatives – Mandatory Trading Obligation
OTC derivative subject to the clearing
obligation under EMIR
Not an intragroup
transaction under
Article 3 EMIR
Not subject to
transitional provisions
under Article 89 EMIR
In order to become subject to mandatory
trading, derivatives must be:
 Admitted to trading on at least one
relevant trading venue;

Declared subject to mandatory venue
trading obligation
Must be traded only on:
Regulated
market
MTF
Regional Legal and Regulatory Issues
OTF
Sufficiently liquid
ESMA to take into account anticipated
impact on liquidity of relevant derivatives
and commercial activities of end users
ESMA also to consider whether
derivatives only sufficiently liquid in
transactions below a certain size
Equivalent
third country
market
Clifford Chance
67
Mandatory Trading Process
“Bottom up” process
“Top down” process
 Class of OTC derivatives is declared
subject to mandatory clearing under EMIR
 Where a class of OTC derivatives has not
been declared subject to mandatory trading
 ESMA consults on whether to impose
mandatory trading on that class or a subset
of that class
 ESMA shall regularly monitor activity in
those derivatives to identify cases where
this may pose systemic risk and to prevent
regulatory arbitrage
 ESMA proposes draft regulatory technical
standards (RTS) to Commission within
fixed period after adoption of RTS on
clearing under EMIR
 Mandatory trading may be phased-in for
some counterparty types
Regional Legal and Regulatory Issues
 ESMA shall, on its own initiative, identify
and notify to the Commission derivatives
that should be subject to the trading
obligation but which no CCP is authorised
to clear under EMIR or which are not
admitted to trading.
Clifford Chance
68
Derivatives – Mandatory Trading Obligation (2)
OTC derivative subject to the clearing
obligation under EMIR
Not an intragroup
transaction under
Article 3 EMIR
Not subject to
transitional provisions
under Article 89 EMIR
Declared subject to mandatory venue
trading obligation
Must be traded only on:
Regulated
market
MTF
Regional Legal and Regulatory Issues
OTF
Equivalent
third country
market
 Effective equivalent recognition for EU
trading venues in relation to
derivatives;
 Commission decision that there are
equivalent legally binding
requirements:
– Authorisation and supervision;
– Venue has clear and transparent
rules on admission to trading;
– Issuers are subject to periodic
information requirements;
– Market abuse rules
 Commission decision only for
purposes of determining eligibility as a
trading venue for these purposes, and
may be limited to a category or
categories of trading venues.
Clifford Chance
69
Who is Subject to Mandatory Trading?
EU Non-EU
FC or
NFC+
OTC derivative
FC = financial counterparty
NFC+ = non-financial
counterparty over the EMIR
clearing threshold
TCE = non-EU entity which
would have been subject to the
trading obligation if established
in the EU
Third country financial institution
= non-EU entity authorised to
carry on any of the activities
listed in BCD, MiFID 2, Solvency
II, UCITS, IORPs, AIFMD
Only if transaction has a
direct, substantial and
foreseeable effect in the EU or
if necessary or appropriate to
prevent evasion
FC or
NFC+
FC or
NFC+
OTC derivative
Third
country
financial
institution
or
TCE
TCE
Where possible and
appropriate, ESMA’s technical
standards shall be identical to
those under EMIR
OTC derivative
TCE
Note: Exemption for duplicative or conflicting obligations.
Treatment of entities exempt under Article 1(4) or 1(5) EMIR?
Regional Legal and Regulatory Issues
Clifford Chance
70
Algorithmic Trading
What is
algorithmic
trading?
Algorithmic trading
High frequency algorithmic trading techniques
Direct electronic access (DMA / sponsored access)
Systems and controls, business continuity
Notify competent authorities (competent authorities may request further details)
Record keeping obligations
Liquidity provision obligation where market making
Obligations
on investment
firms
Effective systems and controls regarding DMA / sponsored access
Interaction
with MAR /
MAD2
Definition of “algorithmic trading” cross refers to MiFID
Market manipulation definition now expressly refers to
algorithmic or high frequency trading strategies
Regional Legal and Regulatory Issues
Clifford Chance
71
Conduct of Business – Third Country Firms
Clifford Chance
Branch Regime
(Articles 41-46 MiFID2)
Scope
■ Member states may require TCFs to establish branches when providing services to
retail or elective professionals
■ Alternatively, member states can allow such services to continue to be provided on
the basis of existing member state rules
■ If a branch is required, member states must impose:
Practical
Impact
–
criteria for authorisation
–
Compliance with MiFID conduct of business rules
Criteria for
authorisation
■ Some member states may require branches for retail and elective professional
services
■ Current UK position – preserving the status quo?
Regional Legal and Regulatory Issues
Clifford Chance
73
Cross-border Regime
(Articles 36-45 MiFIR)
Registration
with ESMA
■ TCF must register with ESMA to provide services on a cross-border basis
■ OR if TCF has established a MiFID2 branch, it can provide services to eligible
counterparties and per se professionals across member states on the basis of the
rules applicable to that branch (subject to equivalence decision – see below)
■ Limited to services to eligible counterparties and per se professionals
■ Registration by ESMA is contingent on equivalence decision
Equivalence
■ Reciprocity by third country also required
Effect of
equivalence
decision
■ Member state rules will continue to apply for three years after an equivalence decision
has been reached
■ After three years, ESMA-registered TCFs can provide services to eligible
counterparties and per se professionals throughout member states on the basis of
their home state rules
Regional Legal and Regulatory Issues
Clifford Chance
74
APAC OTC Reform status slides [to be included in March
set]
Regional Legal and Regulatory Issues
Clifford Chance
75
Contact
Paget Dare Bryan
Partner
T: +852 2826 2459
E: paget.darebryan
@cliffordchance.com
Regional Legal and Regulatory Issues
Clifford Chance
76
Worldwide contact information
36* offices in 26 countries
Abu Dhabi
Clifford Chance
9th Floor
Al Sila Tower
Sowwah Square
PO Box 26492
Abu Dhabi
United Arab Emirates
Tel +971 (0)2 613 2300
Fax +971 (0)2 613 2400
Bucharest
Clifford Chance Badea
Excelsior Center
28-30 Academiei Street
12th Floor, Sector 1
Bucharest, 010016
Romania
Tel +40 21 66 66 100
Fax +40 21 66 66 111
Hong Kong
Clifford Chance
28th Floor
Jardine House
One Connaught Place
Hong Kong
Tel +852 2825 8888
Fax +852 2825 8800
Madrid
Clifford Chance
Paseo de la Castellana 110
28046 Madrid
Spain
Tel +34 91 590 75 00
Fax +34 91 590 75 75
Perth
Clifford Chance
Level 7, 190 St Georges Terrace
Perth, WA 6000
Australia
Tel +618 9262 5555
Fax +618 9262 5522
Shanghai
Clifford Chance
40th Floor
Bund Centre
222 Yan An East Road
Shanghai 200002
China
Tel +86 21 2320 7288
Fax +86 21 2320 7256
Amsterdam
Clifford Chance
Droogbak 1A
1013 GE Amsterdam
PO Box 251
1000 AG Amsterdam
The Netherlands
Tel +31 20 7119 000
Fax +31 20 7119 999
Casablanca
Clifford Chance
169, boulevard Hassan 1er
Casablanca 20000
Morocco
Tel +212 520 132 080
Fax +212 520 132 079
Istanbul
Clifford Chance
Kanyon Ofis Binasi Kat 10
Büyükdere Cad. No. 185
34394 Levent
Istanbul
Turkey
Tel +90 212 339 0001
Fax +90 212 339 0098
Milan
Clifford Chance
Piazzetta M.Bossi, 3
20121 Milan
Italy
Tel +39 02 806 341
Fax +39 02 806 34200
Prague
Clifford Chance
Jungmannova Plaza
Jungmannova 24
110 00 Prague 1
Czech Republic
Tel +420 222 555 222
Fax +420 222 555 000
Singapore
Clifford Chance
12 Marina Boulevard
25th Floor Tower 3
Marina Bay Financial Centre
Singapore 018982
Tel +65 6410 2200
Fax +65 6410 2288
Bangkok
Clifford Chance
Sindhorn Building Tower 3
21st Floor
130-132 Wireless Road
Pathumwan
Bangkok 10330
Thailand
Tel +66 2 401 8800
Fax +66 2 401 8801
Doha
Clifford Chance
QFC Branch
Suite B, 30th floor
Tornado Tower
Al Funduq Street
West Bay PO Box 32110
Doha
State of Qatar
Tel +974 4491 7040
Fax +974 4491 7050
Jakarta**
Linda Widyati & Partners
DBS Bank Tower
Ciputra World One 28th Floor
Jl. Prof. Dr. Satrio Kav 3-5
Jakarta 12940
Indonesia
Tel +62 21 2988 8300
Fax +62 21 2988 8310
Moscow
Clifford Chance
Ul. Gasheka 6
125047 Moscow
Russian Federation
Tel +7 495 258 5050
Fax +7 495 258 5051
Riyadh
Clifford Chance
Building 15, The Business Gate
King Khaled International Airport Road
Cordoba District, Riyadh
P.O. Box: 90239, Riyadh 11613,
Kingdom of Saudi Arabia
Tel +966 11 481 9700
Fax +966 11 481 9701
Sydney
Clifford Chance
Level 16
No. 1 O'Connell Street
Sydney NSW 2000
Australia
Tel +612 8922 8000
Fax +612 8922 8088
Barcelona
Clifford Chance
Av. Diagonal 682
08034 Barcelona
Spain
Tel +34 93 344 22 00
Fax +34 93 344 22 22
Dubai
Clifford Chance
Building 6, Level 2
The Gate Precinct
Dubai International Financial Centre
PO Box 9380
Dubai
United Arab Emirates
Tel +971 4 362 0444
Fax +971 4 362 0445
Kyiv
Clifford Chance
75 Zhylyanska Street
01032 Kyiv
Ukraine
Tel +380 44 390 5885
Fax +380 44 390 5886
Munich
Clifford Chance
Theresienstraße 4-6
80333 Munich
Germany
Tel +49 89 216 32-0
Fax +49 89 216 32-8600
Rome
Clifford Chance
Via Di Villa Sacchetti, 11
00197 Rome
Italy
Tel +39 06 422 911
Fax +39 06 422 91200
Tokyo
Clifford Chance
Akasaka Tameike Tower, 7th Floor
17-7 Akasaka 2-Chome
Minato-ku, Tokyo 107-0052
Japan
Tel +81 3 5561 6600
Fax +81 3 5561 6699
Beijing
Clifford Chance
33/F, China World Office 1
No. 1 Jianguomenwai Dajie
Chaoyang District
Beijing 100004
China
Tel +86 10 6535 2288
Fax +86 10 6505 9028
Düsseldorf
Clifford Chance
Königsallee 59
40215 Düsseldorf
Germany
Tel +49 211 43 55-0
Fax +49 211 43 55-5600
London
Clifford Chance
10 Upper Bank Street
London, E14 5JJ
United Kingdom
Tel +44 20 7006 1000
Fax +44 20 7006 5555
New York
Clifford Chance
31 West 52nd Street
New York, NY 10019-6131
USA
Tel +1 212 878 8000
Fax +1 212 878 8375
São Paulo
Clifford Chance
Rua Funchal 418 15th Floor
04551-060 São Paulo SP
Brazil
Tel +55 11 3019 6000
Fax +55 11 3019 6001
Warsaw
Clifford Chance
Norway House
ul. Lwowska 19
00-660 Warszawa
Poland
Tel +48 22 627 11 77
Fax +48 22 627 14 66
Brussels
Clifford Chance
Avenue Louise 65 Box 2
1050 Brussels
Belgium
Tel +32 2 533 5911
Fax +32 2 533 5959
Frankfurt
Clifford Chance
Mainzer Landstraße 46
60325 Frankfurt am Main
Germany
Tel +49 69 71 99-01
Fax +49 69 71 99-4000
Luxembourg
Clifford Chance
10 boulevard G.D. Charlotte
B.P. 1147
L-1011 Luxembourg
Grand-Duché de Luxembourg
Tel +352 48 50 50 1
Fax +352 48 13 85
Paris
Clifford Chance
9 Place Vendôme
CS 50018
75038 Paris Cedex 01
France
Tel +33 1 44 05 52 52
Fax +33 1 44 05 52 00
Seoul
Clifford Chance
21st Floor, Ferrum Tower
19, Eulji-ro 5-gil
Jung-gu, Seoul 100-210
Korea
Tel +82 2 6353 8100
Fax +82 2 6353 8101
Washington, D.C.
Clifford Chance
2001 K Street NW
Washington, DC 20006 - 1001
USA
Tel +1 202 912 5000
Fax +1 202 912 6000
* Clifford Chance’s offices include a second office in London at 4 Coleman Street, London EC2R 5JJ.
** Linda Widyati & Partners in association with Clifford Chance.
77
Clifford Chance, 28th Floor, Jardine House, One Connaught Place, Hong Kong
© Clifford Chance 2013
Clifford Chance
HKG-1-1030861-v1