European Union: Governance & Securities Law Focus: Europe Edition, October 2013

In this newsletter, we provide a snapshot of the principal European, US and selected global governance and securities law developments of interest to European corporates and financial institutions.

The previous quarter's Governance & Securities Law Focus newsletter is available here.


Opinion on ESMA's Powers under the Short Selling Regulation

On 12 September 2013 Advocate-general Jääskinen delivered his opinion in the case of the UK v. the Council of the European Union and European Parliament in which the UK contests the validity of Article 28 of the Short Selling Regulation. Article 28 gives the European Securities and Markets Authority ("ESMA") the power to require disclosure of short positions or to ban short selling of certain financial instruments in emergency situations. The Advocate-general considers that Article 28 should be annulled because Article 114 of the European Treaty is not the correct legal basis for conferring such powers on ESMA. The opinion of an advocate-general is not legally binding on the court. The judges will now consider all of the evidence as well as the opinion before giving judgment.

The opinion is available at:∂=1&cid=6255244

Reporting under EMIR Delayed

ESMA announced, on 13 September 2013, that registration of the first trade repository under the European Market Infrastructure Regulation ("EMIR") is not expected before 7 November 2013. Reporting under EMIR can only begin once a trade repository has been registered. Reporting is therefore not expected to begin until February 2014. In addition, the first central counterparty ("CCP") authorisation is not likely to occur before 15 October 2013. CCPs already clearing in Europe had until 15 September 2013 to submit their applications to ESMA for authorisation or recognition.

Separately, ESMA has requested the European Commission to allow a later start date for reporting of exchange traded derivatives ("ETDs") to trade repositories under EMIR. ESMA considers that without further guidance being issued on the reporting of ETDs, there is a risk that ETD reporting would not be consistent. To allow time for such guidance to be prepared and implemented, ESMA proposes to amend the existing technical standards by inserting a reporting start date of 1 January 2015.

ESMA's letter to the European Commission is available at:

ESMA Publishes Third Country Advice on Equivalence

ESMA published, on 3 September and 2 October 2013, technical advice to the European Commission on the equivalence of the derivative rules in the US, Canada, Japan, Australia, Hong Kong, Singapore, Switzerland, South Korea and India to the rules under EMIR. The scope of the advice covers requirements for CCPs and trade repositories, requirements for the clearing obligation, reporting obligation, non-financial counterparties, and risk mitigation techniques for uncleared trades. The European Commission is responsible for adopting implementing acts on equivalence for each jurisdiction.

The technical advice is available at:

ESMA Consults on the Clearing Obligation

On 12 July 2013, ESMA published a discussion paper on the clearing obligation under EMIR. The paper is a preliminary consultation paper to obtain views on the preparation by ESMA of draft regulatory technical standards ("RTS") on the clearing obligation and, in particular, to assist ESMA to develop its approach to determining which classes of OTC derivatives need to be centrally cleared and the phase-in periods for the counterparties concerned. The paper sets out ESMA's proposed approach to determining: (i) the characteristics of OTC derivatives that should be centrally cleared; (ii) the dates from which the clearing obligation would take effect; and (iii) the minimum remaining maturity of OTC derivative contracts referred to under EMIR. ESMA will consult on specific draft RTS once CCPs are authorised or recognised to clear each class of derivatives (the earliest date for such authorisation / recognition is 15 September 2013). A template for responses to the consultation is available, which respondents should use, if possible, although ESMA will accept responses in other formats.

The consultation closed on 12 September 2013. The discussion paper is available at:

European Commission Adopts Two Delegated Regulations under EMIR

On 12 July 2013, the European Commission adopted (i) a delegated regulation specifying the fees to be charged to trade repositories by ESMA; and (ii) a delegated regulation to include the central banks and debt management offices of Japan and the United States in the list of exempted entities under Article 1(4) of EMIR. Both regulations will enter into force 20 days after their publication in the European Official Journal. In relation to the second regulation, the European Commission states that it will continue to monitor the finalisation of OTC derivatives rules in other G20 jurisdictions and will exempt, if necessary, the central banks and debt management offices of other countries with the adoption of further similar delegated acts.

The delegated regulation specifying the fees to be charged is available at:

The delegated regulation to include the central banks and debt management offices of Japan and the United States is available at:

ESMA Consults on Draft RTS for Derivatives with Extraterritorial Effect under EMIR

On 17 July 2013, ESMA opened its consultation for draft RTS under EMIR on contracts having a direct, substantial and foreseeable effect within the European Union and non-evasion of the provisions of EMIR. The consultation clarifies the position on the application of EMIR central clearing or risk mitigation obligations to OTC derivatives contracts between non-EU counterparties which have a direct, substantial and foreseeable effect within the EU.

The obligations would apply only when (i) both counterparties to a transaction are established outside the EU; and (ii) the rules in both jurisdictions are not considered to be equivalent to EMIR; and either (a) one of the counterparties is guaranteed (above certain thresholds) by an EU financial counterparty; or (b) both counterparties execute the transaction via their EU branches. There are also anti-evasion provisions requiring business substance and economic justification for the use of non-EU counterparties to the transaction.

The European Commission has extended the deadline for ESMA to submit to the Commission the draft RTS on the cross-border application of EMIR from 25 September to 15 November. The extension has been given to allow ESMA sufficient time to analyse the responses to its consultation.

The consultation paper is available at:

Our client note on this advice is available at: d6af-4e31-9c53-921470cc7441/ESMA-Consults-on-Extraterritoriality-FIA-080513.pdf

RTS on CCP Colleges Published

The secondary legislation under EMIR setting out the operational organisation and governance of supervisory colleges that must be set up to consider the application of a CCP for authorisation was published in the European Official Journal (Commission Delegated Regulation (EU) No 876/2013 of 28 May 2013 supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council with regard to regulatory technical standards on colleges for central counterparties, "Delegated Regulation"). The Delegated Regulation came into force on 3 October 2013.

The Delegated Regulation is available at:

ESMA Publishes Updated FAQs on the Implementation of EMIR

On 5 August 2013, ESMA updated the FAQs on the implementation of EMIR. New questions included in the update relate to funds as counterparties to a derivative contract, back-to-back client contracts, the status of third country entities, portfolio reconciliation, dispute resolution requirements, the role of chief risk officer, chief compliance officer and chief technology officer in CCPs and allocation of resources by CCPs. Other issues covered in the update cover the calculation of the clearing threshold, timely confirmations, intragroup transactions in relation to Commission equivalence decisions, the hedging definition and segregation and portability.

The updated FAQs are available at:

European Commission Publishes Further Proposals to Fight against Fraud

On 17 July 2013, the European Commission published two legislative proposals to further strengthen the EU's fight against fraud:

  • a proposal on the establishment of the European Public Prosecutor's Office, which aims to strengthen the procedural framework to deal with offences affecting the EU's financial interests, covering the status and structure of the new EU office with investigation and prosecution functions, rules and procedures governing investigations, prosecutions and trial proceedings, judicial review and data protection; and
  • a proposal on the European Union Agency for Criminal Justice Cooperation (or Eurojust) which aims to improve the operation and efficiency of the agency, which was first established in 2002 and which facilitates coordination and cooperation between Member State investigative and prosecutorial authorities. These proposals link to the European Commission's legislative proposal on the fight against fraud for the financial interests of the EU by means of criminal law, published in July 2012, which sets out harmonised criminal law provisions for preventing and fighting fraud. All three proposals are now subject to the EU legislative process.

The proposals are available at:; and

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