European Swaps Regulation - Key Historical Events

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The financial crisis in 2008 exposed important shortcomings in financial supervision around the world. Because of this, the European Union began to examine their current financial regulatory systems, and decided that their current system of nationally-based supervisory models were insufficient in providing proper oversight. As of Jan. 1, 2011, the European Securities and Markets Authority was established in order to provide cooperation, coordination, and consistent application of regulatory oversight among European countries.[1] It replaced the Committee of European Securities Regulators (CESR), which did not have the power to create broad regulations that covered all of the European Union member states. Financial regulation before ESMA was done on a national basis.

Key Historical Events

  • September 2, 1998: The Basel Committee on Banking Supervision and the Technical Committee of the International Organization of Securities Commissions (IOSCO) release a revision of the supervisory information framework for the derivatives activities of banks and securities firms which was originally published in May 1995[2]
  • October 16, 2003: The International Organization of Securities Commissions (IOSCO) released the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (IOSCO MOU), the first global information-sharing arrangement among securities regulators, which calls for international cooperation in combating violations of securities and derivatives laws[3]
  • March 4, 2009: The European Commission calls on EU leaders to further step up coordinated European action to fight the economic crisis, and unveils a comprehensive reform of the financial system based on the de Larosière report[4]
  • May 5, 2009: The International Organization of Securities Commissions published 'Unregulated Financial Markets and Products – Consultation Report', which contains interim recommendations for regulatory action in the market for credit default swaps[5]
  • July 3, 2009: The European Commission adopts a communication, outlining proposed tools for regulating the over the counter (OTC) derivatives markets, including: standardization, central data repositories, central Counter-party (CCP) clearing, and trade execution on public trading venues[6]
  • July 20, 2009: The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) have set up a working group to review the application of central counterparty clearing for OTC derivatives[7]
  • July 31, 2009: Credit default swaps (CDS) relating to European entities, and indices based on these entities start clearing through central counterparties regulated in the EU beginning today[8]
  • September 4, 2009: The International Organization of Securities Commissions (IOSCO) published 'Unregulated Financial Markets and Products – Final Report', which recommends regulatory actions to assist financial market regulators in introducing greater transparency and oversight with respect to securitization and credit default swaps (CDS) markets[9]
  • October 20, 2009: The EU has announces its proposals to regulate the market for derivatives, and will introduce the legislation in 2010; the commission says it will work with G20 nations to ensure coherence in global policy in clamping down on unregulated derivatives trading[10]
  • January 13, 2010: Michel Barnier, commissioner-designate of Internal Market and Services holds a hearing for the European Parliament on the need to give fresh impetus to the internal market and improve regulation of the financial services industry[11]
  • January 26, 2010: The European Association of Central Counterparty Clearing Houses (EACH) publishes CCP risk management recommendations (2009); the document can be found HERE[12]
  • January 29, 2010: CESR publishes a consultation paper on guidance how to report transactions on OTC derivative instruments; the consultations seeks views by market participants on the proposed guidance by CESR[13]
  • February 24, 2010: Werner Langen MEP, publishes a draft report on over-the-counter derivatives reforms to be considered by the European Parliament’s Economic and Monetary Affairs Committee in its decision on how the European derivatives markets should be regulated going forward[14]
  • March 9, 2010: The Economic Affairs Committee of the European Parliament holds a meeting on the first draft of a resolution on policy measures aimed at ensuring safer derivatives markets; MEPs placed a strong emphasis on how to deal with credit default swaps (CDS). The draft can be found HERE[15]
  • March 16, 2010: CFTC's chairman Gary Gensler speaks at a meeting of the European Parliament's economics committee in Brussels, Belgium on credit default swaps (CDS) and how to regulate them. A transcript of his speech cane be found HERE[16]
  • April 13, 2010: CESR begins overhauling the Markets in Financial Instruments Directive (MiFID) - a European Union law providing harmonized regulation for investment services across the 30 member states of the European Economic Area - by consulting on policy options[17]
  • April 27, 2010: The European Parliament's economic and monetary affairs committee met with specialists from the world of derivatives trading to discuss the steps ahead for better regulation, where they discussed the need to replace over-the-counter dealing with central clearing, so that the price and volume of traded derivatives would be clearer to supervisors and regulators. The video of the meeting can be found HERE[18]
  • May 10, 2010: The economic and monetary affairs committee votes to create three new tightly-integrated supervisory bodies based in Frankfurt that will replace the looser network of supervisors in various European cities originally proposed in order to regulate the EU's financial markets. These proposed authorities are the European Banking Authority (EBA), European Insurance Authority (EIOPA), and European Securities and Markets authority (ESMA)[19]
  • May 12, 2010: The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) issued two consultative reports containing proposals aimed at strengthening the OTC derivatives market[20]
  • June 14, 2010: The European Commission launches a public consultation on derivatives and market infrastructures, which will be open until July 10, 2010, and is the final step before the Commission proposes legislative proposals in September[21]
  • June 15, 2010: The economic and monetary affairs committee approves new rules on derivatives trading, designed to ensure that as many derivatives as possible are traded through open channels that are subject to standards, and also suggested ways to regulate who may trade in credit default swaps and to reduce the regulatory burden on corporate end-users of derivatives[22]
  • June 15, 2010: Werner Langen, MEP of the European Parliament calls for strict legislation and supervision of risk-based derivatives, saying: "What we need is more transparency in the derivatives markets"[23]
  • July 7, 2010: The European Parliament, in an overwhelming majority, votes to back the sweeping reform of the EU's financial regulatory system, with the adoption of amendments to the legislation that will create three European supervisory authorities charged with controlling practices in the banking, securities and markets, and insurance sectors respectively, though they deferred the final vote on the legislative resolution, leaving the door open for a few more weeks for an agreement to be reached at first reading with the Council after the summer break[24]
  • August 2, 2010: The Committee of European Securities Regulators announces a series of proposed measures for developing pan-European access to financial information disclosed by listed entities, and asks for feedback to their proposals through September 24. The consultation letter can be found HERE[25]
  • September 15, 2010: The European Commission proposes new regulations aimed at bringing more safety and more transparency to the over-the-counter (OTC) derivatives market, these proposals include: information on OTC derivative contracts should be reported to trade repositories and be accessible to supervisory authorities, more information should be made available to all market participants, and standard OTC derivative contracts should be cleared through central counterparties (CCPs)[26]
  • September 22, 2010: The European Parliament gave the final seal of approval to a package of reforms that will create three European supervisory authorities (ESAs): the European Banking Authority (EBA), European Insurance Authority (EIOPA), and European Securities and Markets authority (ESMA), these ESAs will have powers that will stretch much further than the advisory nature of the current system and they will also have the potential to gain further competences, thanks to a strong review clause[27]
  • October 15, 2010: The Technical Committee of the International Organization of Securities Commissions (IOSCO) has formed a Task Force on OTC Derivatives Regulation (Task Force) in order to coordinate securities and futures regulators’ efforts to work together in the development of supervisory and oversight structures related to over-the-counter (OTC) derivatives markets[28]
  • November 16, 2010: The Securities and Exchange Commission (SEC) and the Committee of European Securities Regulators (CESR) met to discuss regulatory reform efforts in the United States and the European Union, in an attempt to design wide-ranging regulatory reforms on a global level; topics include OTC derivatives regulation and credit rating agency oversight[29]
  • December 8, 2010: The European Commission launches a consultation on the review of the Markets in Financial Instruments Directive (MiFID) which has been in force since November of 2007, in order to address shortcomings in the framework. The deadline for replies is February 2, 2011[30]
  • January 1, 2011: The European Securities and Markets authority (ESMA) is created; it replaces the Committee of European Securities Regulators (CESR) and launches its website: www.esma.europa.eu
  • January 3, 2011: European Securities and Markets Authority (ESMA) publishes 'frequently asked questions - a guide to understanding ESMA'.[31] The document can be found HERE
  • January 13, 2011: The European Commission released a consultation paper regarding Emil and the post-clearing area of settlement, and aims specifically to target the activities of central securities depositories (CSDs); the European Commission plans to introduce a new pan-European supervisory structure for CSDs, instead of its current national-level regulatory structure which has 33 different CSDs across Europe[32]
  • January 18, 2011: The European Central Bank (ECB) warned that it needs greater involvement in developing regulation regarding OTC derivatives trading; Jean Claude Trichet, ECB's president said that the ECB "should be involved in a host of decision-making processes that have largely been assigned to the European Securities and Markets Authority"[33]
  • June 25, 2012: ESMA publishes consultation - draft technical standards for EMIR.
  • September 27, 2012:ESMA publishes final report on draft technical standards for EMIR. The draft has been submitted to the European Commission, who will decide to amend or adopt the standards by the end of 2012.[34]

References

  1. Regulation establishing ESMA. ESMA. Retrieved on January 5, 2011.
  2. Supervisory Information Framework for Derivatives and Trading Activities. IOSCO. Retrieved on January 6, 2011.
  3. IOSCO Strengthens International Cooperation to Fight Illegal Securities and Derivatives Activities. IOSCO. Retrieved on January 6, 2011.
  4. Commission calls on EU leaders to stay united against the crisis, move fast on financial market reform and show global leadership at G20. Europa. Retrieved on January 6, 2011.
  5. IOSCO publishes interim recommendations on unregulated financial markets and products. IOSCO. Retrieved on January 6, 2011.
  6. Financial services: Commission outlines ways to strengthen the safety of derivatives markets. Europa. Retrieved on January 6, 2011.
  7. CPSS-IOSCO working group on the review of the recommendations for central counterparties. IOSCO. Retrieved on January 6, 2011.
  8. Major step towards financial stability: European market for credit default swaps becomes safer. Europa. Retrieved on January 6, 2011.
  9. IOSCO issues final regulatory recommendations on securitization and CDS market. IOSCO. Retrieved on January 6, 2011.
  10. Financial services: Commission sets out future actions to strengthen the safety of derivatives markets. Europa. Retrieved on January 6, 2011.
  11. Michel BARNIER European Parliament Hearing Report. New Europe. Retrieved on January 5, 2011.
  12. EACH Publishes CCP Risk Management Recommendations. A-Team Group. Retrieved on January 5, 2011.
  13. Consultation on guidance to report transactions on OTC derivative instruments. CESR. Retrieved on January 5, 2011.
  14. Draft report on OTC derivatives market reforms. Commodities Now. Retrieved on January 5, 2011.
  15. Regulating the derivatives markets. European Parliament. Retrieved on January 5, 2011.
  16. CFTC Chairman Gensler to Meet With Regulators to Discuss Critical Issues Related to Financial Regulatory Reform during Visits to Brussels and London. CFTC. Retrieved on January 5, 2011.
  17. CESR begins the process to overhaul MiFID by consulting on policy options. CESR. Retrieved on January 5, 2011.
  18. OTT over OTC?. eureporter. Retrieved on January 5, 2011.
  19. MEPs vote to beef up financial supervisory package. European Parliament. Retrieved on January 5, 2011.
  20. IOSCO and CPSS consult on policy guidance for central counterparties and trade repositories in the OTC derivatives market. IOSCO. Retrieved on January 6, 2011.
  21. Consultation on Derivatives and Market Infrastructures - FAQ. Europa. Retrieved on January 5, 2011.
  22. Daylight and rules for the derivatives market. Alibaba.com. Retrieved on January 5, 2011.
  23. Derivatives: European Parliament calls for EU regulation. Werner Langen MEP. EPP Group. Retrieved on January 5, 2011.
  24. MEPs back root-and-branch reform of financial supervision. European Parliament. Retrieved on January 5, 2011.
  25. CESR Announces Next Steps On European Access To Financial Information Disclosed By Listed Companies. mondovisione. Retrieved on January 5, 2011.
  26. Making derivatives markets in Europe safer and more transparent. Europa. Retrieved on January 5, 2011.
  27. Parliament gives green light to new financial supervision architecture. European Parliament. Retrieved on January 5, 2011.
  28. IOSCO forms Task Force on OTC Derivatives Regulation. IOSCO. Retrieved on January 6, 2011.
  29. SEC and CESR Members announce efforts to continue close cooperation as national securities regulators implement new regulatory reform initiatives. CESR. Retrieved on January 6, 2011.
  30. Financial services: improving European rules for a more robust framework for all financial actors and instruments. Europa. Retrieved on January 6, 2011.
  31. ESMA publishes Frequently asked questions - a guide to understanding ESMA. ESMA. Retrieved on January 6, 2011.
  32. EC launches post-trade consultation. Financial News. Retrieved on January 18, 2011.
  33. ECB flexes muscles in Brussels clearing reform. Financial Times.com. Retrieved on January 18, 2011.
  34. ESMA defines standards for derivatives and CCPs. ESMA. Retrieved on October 4, 2012.

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