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Welcome to Euro Shorts, a short briefing on some of the week’s developments in the financial services industry in Europe.

If you would like to discuss any of the points we raise below, please contact me or one of our other lawyers.


Claire Cummings

020 7585 1406


ESMA consults on changes to tick size regime under MiFID II

ESMA has recently published a consultation paper on amendments to the tick size regime under the MiFID II Directive. Delegated Regulation (EU) 2017/588 (RTS 11) calibrates the minimum tick size applicable to shares and depositary receipts to the average daily number of transactions (ADNT) on the most liquid market in the EU. ESMA recognises that this metric may not be well suited to instruments where the main pool of liquidity is located outside the EU (third-country instruments) as in these cases the mandatory tick size may be calculated based only on a subset of the overall trading activity. This means that EU trading venues might be subject to minimum tick sizes that are larger than those applicable on non-EU venues, which would put them at a competitive disadvantage. This might result in less liquidity being available on EU trading venues, which can be detrimental for investors trading on those venues as well as for orderly trading on EU markets. ESMA is therefore consulting on amendments to RTS 11 to ensure that the tick sizes applicable to third-country instruments are adequate and appropriately calibrated.

The consultation closes on 7 September 2018. ESMA will then finalise its proposed amendments to RTS 11 and submit a final report to the European Commission for endorsement.


CMA publishes response to consultation on modernising consumer markets

On 17 July 2018, the Competition and Markets Authority (CMA) published its response to the Department for Business, Energy and Industrial Strategy (BEIS) Green Paper on a range of issues in relation to modernising consumer markets.

The CMA welcomed the review of competition and consumer regulation, and noted that digital markets, data and vulnerable consumers are all current CMA priorities. In particular, the CMA notes that competition and consumer benefits can be driven by improving transparency and market switching, helping vulnerable consumers become active elements of competition and reducing any so-called "poverty premium", and considering how data portability can be used to help improve switching and market innovation. The CMA also agreed with proposals to introduce fines for breach of consumer law and to establish a strong national body or bodies with responsibility for improving the co-ordination of enforcement undertaken by Trading Standards. As to consumer-to-consumer transactions and encouraging alternative dispute resolution, the CMA put forward several proposals for consideration.

The CMA considered that further reforms to the competition framework could help continue to strengthen and streamline the enforcement process.


Payment obligation was dependent on seller's performance (Court of Appeal)

The Court of Appeal has held that a payment obligation in a share purchase agreement was dependent on the transfer of shares to the purchaser rather than, as the seller contended, an independent obligation (that is, where each party is obliged to perform its duties, whether or not the other party has performed its obligations). Consequently, the seller was not entitled to serve a statutory demand as an initial step in bankruptcy proceedings when the purchaser defaulted, as the liability was not for a liquidated sum. The Court of Appeal reviewed the leading authorities on the distinction between dependent and independent contractual performances before noting that this turned on the interpretation of the contract. He considered that the irresistible inference from the drafting was that the parties' respective obligations were dependent obligations and that neither party was entitled to enforce the performance of the other's except against a performance of their own. Therefore, when the purchaser breached the contract by failing to make the payment, he did not become a debtor for the price. The seller's remedy lay in damages or specific performance. The case also illustrates how the structuring of the payment obligation can impact on the available remedies when the payer defaults.

Case: Doherty v Fannigan Holdings Ltd [2018] EWCA Civ 1615 (12 July 2018) (Sir Colin Rimer, Coulson and Patten LJJ).


New Prospectus Regulation: ESMA final report on draft regulatory technical standards

ESMA recently published its final report on the draft regulatory technical standards under the new Prospectus Regulation. The main changes to the draft RTS that ESMA published for consultation in December 2017 include:

  1. removing the restriction on the number of voluntary additional line items or alternative performance measures (APMs) that can be included in the key financial information in the summary;

  2. clarifying in which circumstances the requirements relating to advertisements apply to written advertisements;

  3. clarifying that where the issuer is under an obligation to include its outstanding profit forecast or otherwise includes a profit forecast in the prospectus, it should also produce a supplement when it withdraws a published profit forecast; and

  4. new articles setting out the technical arrangements for the notification portal to be used for passporting prospectuses.

The draft RTS have been sent to the European Commission for endorsement.


New Prospectus Regulation: ESMA consultation on draft technical advice on minimum information content for prospectus exemption

On 13 July 2018, ESMA published a consultation paper seeking views on its draft technical advice on the minimum information required for a document that is made available to the public under the prospectus exemption.

Under the new Prospectus Regulation (Regulation 2017/1129), issuers may offer or admit securities connected with a takeover, merger or division without publishing a prospectus, provided that a document is made available to investors describing the transaction and its impact on the issuer.

The minimum content requirements of such document are to be set out in delegated legislation and, accordingly, ESMA is consulting on its draft technical advice regarding the minimum information content of such document.

The consultation closes on 5 October 2018 and the final report will be published by 31 March 2019.


New Prospectus Regulation: ESMA consultation on guidelines on risk factors

On 13 July 2018, ESMA published a consultation paper seeking views on its draft guidelines on risk factors under the new Prospectus Regulation. The regulation provides that the risk factors featured in a prospectus should be limited to those risks that are specific to the issuer or the securities and material for taking an informed investment decision.

ESMA states that competent authorities should incorporate the guidelines into their national legal or supervisory frameworks as appropriate and should consider them when carrying out their scrutiny of a prospectus in accordance with Article 20 of the regulation. ESMA also believes that in order to expedite the scrutiny and approval process of prospectuses, the persons responsible for a prospectus should consider these draft guidelines when carrying out their own assessment of the risk factors to be included. The consultation closes on 5 October 2018.


ISDA® publishes Initial Margin Self-Disclosure Letter

On 11 July 2018, ISDA® published a standard form Initial Margin Self-Disclosure Letter for use by market participants that are subject to regulatory margin requirements for uncleared derivatives.

The letter is designed to help market participants plan for initial margin requirements by providing notice to counterparties of their targeted initial margin phase-in dates. The letter can also be used to notify counterparties that an entity does not anticipate being in scope for initial margin requirements.


FSB consults on effects of reforms on infrastructure finance

On 18 July 2018, the FSB published a consultation report on the evaluation of the effects of financial regulatory reforms on infrastructure finance. The consultation forms part of a broader FSB examination of the effects of reforms on financial intermediation. The FSB's conclusions include the following:

  1. recent financial regulation has not had a significant negative effect on the overall availability of infrastructure finance, with macro-economic financial conditions and government policies remaining the primary drivers;

  2. the overall amount of infrastructure finance has increased, following a brief dip in the wake of the global financial crisis;

  3. infrastructure lending spreads have fallen in years and loan maturities provided by bank lenders have shortened during this period; and

  4. new financing models and market participants have led to greater diversity in the sources of infrastructure finance, particularly in the later operational stage of projects.

The FSB further found that the search for higher yields and a reduction in available public funding have played a role in the increased amount of infrastructure finance; whereas political, currency and tax issues continued to present the greatest concerns to providers of cross-border infrastructure finance. Comments can be made on the consultation until 22 August 2018. The FSB intends to publish the final report at the end of November 2018.


ESMA draft technical standards on the Securitisation Regulation's STS notification requirements

On 16 July 2018, ESMA issued a press release announcing the publication of draft technical standards under the Securitisation Regulation. The Securitisation Regulation lays down common rules on securitisation and creates a European framework for simple, transparent and standardised (STS) securitisation. It requires certain information to be reported about securitisations to repositories. In addition, securitisations seeking STS status must fulfil additional criteria and notify ESMA of their fulfilment of these criteria. The regulation includes a number of mandates for ESMA to draft technical standards on these provisions. The published standards comprise:

  1. Draft Regulatory Technical Standards (RTS) specifying the information that the originator, sponsor and special purpose vehicle are required to provide to ESMA in compliance with the STS notification obligations;

  2. Draft Implementing Technical Standards (ITS) establishing the templates to be used when providing the requisite notification on STS status. There are different templates for asset backed commercial paper (ABCP) securitisations, ABCP programmes and for non-ABCP transactions; and

  3. Draft RTS specifying the application requirements for third party entities seeking to be authorised as providers of STS verification services.

ESMA consulted on these standards in December 2017.


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25 05 2019

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