Market participants are facing a tough compliance schedule in the coming months as numerous new regulations come into force globally.
After the long summer break, firms will have to start busily preparing themselves for new rules on settlement, derivatives and trade reporting.
The first major deadline in the post-summer period is the introduction of a shortened settlement cycle across Europe on 6 October as part of the Central Securities Depository Regulation (CSDR).
Settlement must now be completed on T+2 instead of T+3 as in common in many markets. While most on the buy-side have welcomed the change, as it will cut their counterparty risk, losing out on a whole day to resolve any potential disputes or problems with settlement is likely to post its own challenges. Additionally, on 8 October back-office staff will be faced with having to deal with settlement volumes for two days of trading as a result of the change.
Though CSDR doesn’t mandate the change until January 2015, 25 European markets have agreed to move to T+2 on 6 October, with Bosnia & Herzegovina migrating on 1 January. After that, the only major market on a T+3 cycle will be Spain, which due to peculiarities with its settlement system will not fully move to T+2 until Q4 2015.
European derivatives regulation has already begun implementation, and one major deadline already passed last month. On 12 August, as well as having to report OTC derivatives transactions, firms must now also report valuations on their positions and collateral, adding an additional burden to the process.
Other aspects of the European market infrastructure regulation are expected to be consulted on shortly, with the clearing obligation set to be a major focus.
Rules requiring the margining of uncleared OTC derivatives are set to apply from 1 December this year, and the clearing obligation will be phased in over three years from December.
In addition, rules regarding cross-border OTC derivatives trades and substituted compliance for central counterparties (CCPs) clearing OTC derivatives, have still to be agreed. Industry bodies such as the FIA have highlighted their concerns over a lack of progress in this area, which has become more urgent as the clearing obligation approaches.
The new US Commodity Futures Trading Commission chairman, Timothy Massad, has said he is committed to finding a solution to cross-border derivatives rules with the European Commission. However, this could also be held up due to new Commissioner appointments, which will see the current commissioner for internal market and services, Michel Barnier, step down at the end of October. His replacement is set to be announced imminently which may mean some progress on these issues can be agreed in the near future.
Finally, the European Securities and Markets Authority (ESMA) closed its first consultation on MiFID II at the beginning of August. It is currently combing through thousands of responses to over 500 questions asked during the process with the aim of publishing its draft regulatory technical standards at the end of the year, which will kick off another round of consultation on the proposed rules.