Taxonomy: EU Commission publishes FAQ to clarify the content of the disclosures delegated regulation under Article 8
The EU Commission published on 6 October 2022 the updated FAQs to clarify the content of the Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021 (the “Disclosures Delegated Regulation”) under Article 8 of Regulation (EU) 2020/852 of 18 June 2020 (the “Taxonomy Regulation”) to assist with its implementation. Article 8 of the Taxonomy Regulation applies to undertakings which are subject to an obligation to publish non-financial information according to Article 19a or Article 29a of Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, as amended (the “Directive 2013/34”). Therefore, large undertakings which are public-interest entities exceeding on their balance sheet dates the criterion of the average number of 500 employees during the financial year should pay attention to the updated FAQs. Idem for the public-interest entities, which are parent undertakings of a large group exceeding on its balance sheet dates, on a consolidated basis, the criterion of the average number of 500 employees during the financial year. The terms large undertakings and public-interest entities are defined in Directive 2013/34.
The prior version of the updated FAQs dated January 2022 contained 22 frequently asked questions on how financial and non-financial undertakings should report taxonomy-eligible economic activities and assets under the Disclosures Delegated Regulation. The Disclosures Delegated Regulation contains disclosure provisions for non-financial undertakings, assets managers, credit institutions, investment firms, insurance and reinsurance undertakings, as well as disclosure rules common to all financial undertakings and disclosure rules common to all financial undertakings and non-financial undertakings concerning the implementation of Article 8 of Taxonomy Regulation.
The 33 frequently asked questions are separated into the following 9 points:
- General FAQs;
- Non-financial undertakings;
- Financial undertakings;
- Asset managers
- Insurers;
- Credit institutions;
- Debt market;
- Interaction with other regulations;
The EU Commission clarifies the following points in the updated FAQs:
- How is “Taxonomy-eligible economic activity” defined;
- How may asset managers weigh their holdings in a portfolio to report Taxonomy-eligible assets?;
- How to identify Taxonomy-eligible activities of which activity descriptions contain qualifiers, such as ‘low carbon’ and ‘climate-related perils?;
- How should a credit institution with a Markets in Financial Instruments Directive (MiFID) investment firm license report its Taxonomy-eligible economic activities?;
- How to assess and report the Taxonomy-eligibility of a debt asset such as a bond or loan?;
- Can green debt instruments from non-EU entities be reported as Taxonomy-eligible?;
- Can green sovereign debt be reported as Taxonomy-eligible?;
- What activities should an insurer and a reinsurer consider when reporting their underwriting activities in the context of Taxonomy-eligibility reporting?; and
- How does the Disclosures Delegated Regulation interact with the proposed requirements on corporate sustainability reporting (‘the CSRD proposal’)?
The updated FAQ is available here.
Don’t hesitate to contact our banking, finance and capital markets team if you need further information.
Update of the law of 5 August 2005 on financial collateral arrangements
Introduction
The law of 5 August 2005 on financial collateral arrangements, as amended from time to time (the “Collateral Law”), has been updated by the Luxembourg Parliament on 7 July 2022 with some precisions and amendments according to the Luxembourg market practice and a creditor-friendly approach. The revised Collateral Law entered into force on 20 July 2022. Most modifications to the Collateral Law follow the current market practice.
Find below some explanations relating to the updated Collateral Law and the set-up of security interests.
Q.1 What are the new definitions?
Some definitions of the Collateral Law have been updated. The definition of “enforcement event” has been amended with reference to “whatsoever”. Indeed, “enforcement event means an event of default or any other event whatsoever as agreed between the parties on the occurrence of which,” […], “the collateral taker is entitled to realise or appropriate financial collateral” […]. The addition of the word “whatsoever” is an emphasis from the Luxembourg Parliament on the contractual freedom for the parties concerning the determination of events which may lead to the triggering of the collateral without the “relevant financial obligations” having to be due. In this regard, the following paragraph (article 11 (5)) has been added:
“Where the relevant financial obligations are not due at the time the pledge is realised following an event agreed between parties as constituting an enforcement event, the proceeds of the realisation shall be, unless otherwise agreed, applied to satisfy the relevant financial obligations”. Thereby, the parties may contractually agree otherwise.
Moreover, now, “a payment institution or an electronic money institution” is a financial institution according to article 1 12) (c) of the updated Collateral Law. Such a financial institution is part of the list of financial sector professionals (article 1 12)) of the revised Collateral Law. Therefore, the scope of financial institutions entitled to be the fiduciary in a transfer of title to collateral for security purposes, by way of fiduciary transfer, is clarified and extended to payment institutions and money institutions.
The definition of trading venue has been added. It is “a regulated market, a Multilateral Trading Facility or an Organised Trading Facility”. This is a welcomed precision as a trading venue may be used to assign or cause a pledged collateral to be assigned and to appropriate pledged financial instruments or have pledged financial instruments appropriated by a third party.
Q.2 How have the means of enforcement been modernised?
Firstly, shares or debt securities admitted to trading on a trading venue, as defined above, may be sold on such a trading venue at the market price as enforcement into such pledged financial instruments. The Collateral Law only referred to an unclear “sale over a stock exchange”.
Secondly, if the pledged financial instruments are units or shares of an undertaking for collective investment (a “UCI”), they may be appropriated by either the pledgee or a third party at the market price or “at the price of the last net asset value (the “NAV”) published by or for this UCI, provided that the last publication of such NAV does not exceed one year.
Thirdly, if an enforcement event occurs, the pledgee may request the redemption of the pledged units or shares of a UCI at the redemption price pursuant to the instruments of incorporation of the UCI. This may be useful if the pledge cannot be enforced with appropriation or private sale.
Fourthly, if an enforcement event occurs, the pledgee may “exercise all the rights arising under the pledged insurance contract, including, in the case of a life insurance contract or a capital redemption operation, the right to surrender, or request the insurance undertaking to pay any sums due pursuant to the insurance contract”.
These precisions and additions in relation to the means of enforcement provide clarity and specific enforcement methods concerning units or shares of UCIs and insurance contracts.
Q.3 What are the amendments relating to public auction?
The Luxembourg Stock Exchange is no longer imposed in the public auction regime. Indeed, the pledgee can appoint a sworn notary or bailiff to manage the public auction. The new public auction regime also applies when the parties do not refer to another public auction regime. Before the update of the Collateral Law, the Luxembourg Stock Exchange had to intervene unless otherwise agreed. Now, detailed terms and conditions of the public auction are set out in the updated Collateral Law. The enforcement with the Luxembourg Stock Exchange was obsolete and based on the law of 1 June 1929 on pledging of transferable securities. Although the use of public auction was rarely used in practice, the updated public auction regime is more agile.
Q.4 Does sequestration apply to collateral financial arrangements and netting agreements?
No, sequestration measures do not apply to collateral arrangements governed by the updated Collateral Law, and therefore their enforcement is not impeded by such sequestration measures (article 19 (b)). Attachment, whether civil, criminal or judicial, and penal confiscation may also not be relied upon to hamper the enforcement of collateral financial arrangements and netting agreements, but it was already the case in the Collateral Law.
Furthermore, Part V: Netting and insolvency proceedings of the Collateral Law has been amended (articles 18, 19, and 21 of the Collateral Law) to precise that insolvency remoteness applies to national and foreign law insolvency proceedings concerning set-off arrangements and security interests.
Q.5 Does the Collateral Law prejudice the application of Regulation (EU) 2021/23 of 16 December 2020 on a framework for the recovery and resolution of central counterparties (the “Recovery and Resolution Regulation”)?
No, the Collateral Law has been amended with several references to the Recovery and Resolution Regulation in article 2-1 of the updated Collateral Law to clarify that it does not prejudice the application of this regulation. Thus, the revised Collateral Law “shall apply without prejudice to […] Regulation (EU) 2021/23 of the European Parliament and of the Council of 16 December 2020 on a framework for the recovery and resolution of central counterparties and amending Regulations (EU) No 1095/2010, (EU) No 648/2012, (EU) No 600/2014, (EU) No 806/2014 and (EU) 2015/2365 and Directives 2002/47/EC, 2004/25/EC, 2007/36/EC, 2014/59/EU and (EU) 2017/1132”.
Q.6 Are there any relevant changes relating to fungible precious metals?
Yes, the amendment of the Grand-Ducal Regulation of 18 December 1981 on fungible deposits of precious metals (the “amended Grand-Ducal Regulation”) provides legal certainty and effectiveness regarding pledges over fungible precious metals. Indeed, article 6 of the amended Grand-Ducal Regulation provides the application of the updated Collateral Law to pledges over fungible precious metals (i.e. gold, silver, and platinum) unless there is a specifically applicable regime or the nature of the precious metals does not entitle it.
Conclusion
The Collateral Law update confirms Luxembourg’s creditor-friendly approach, with an emphasis on contractual flexibility regarding the financial collateral law arrangements. The amended Collateral Law is now in line with Luxembourg’s market trends and practices.
Get in touch with our banking and finance team for any further questions.
LuxSE Euro MTF FastLane admission procedure
The Luxembourg Stock Exchange (the “LuxSE”) has launched a new procedure concerning the listing of certain securities on the Euro MTF by updating the Rules & Regulations of the LuxSE (the “Rules & Regulations”) on 10 October 2022 (the “FastLane Admission”). Certain types of securities issued by In-Scope Issuers, as defined below, may be fully exempted from the need to provide a prospectus approved by the LuxSE under the Luxembourg law of 16 July 2019 on prospectuses for securities, as amended. The FastLane Admission process complements the other exemptions from the publication of a prospectus, among other things, item 203.3 of the Rules & Regulations. The FastLane Admission further improves the competitiveness of the LuxSE, particularly in relation to debt securities issued by issuers whose shares are admitted to trading on an EU-regulated market or equivalent.
1. Scope
Indeed, the procedure of FastLane Admission is detailed in Chapter 4: Admission to trading without the approval of a prospectus of Part 2 of the Rules & Regulations. The FastLane Admission concerns the following type of issuers and securities:
- Non-equity securities and equity convertible bonds issued by issuers whose shares are admitted to trading on an EU-regulated market or equivalent;
- Non-equity securities issued or guaranteed by states (Member States excluded), their regional or local authorities;
- Non-equity securities issued by or guaranteed by Member States’ regional or local authorities;
- Non-equity securities issued by multilateral institutions which are not public international bodies, as defined in the Rules and Regulations, and of which at least one OECD Member State is a member;
- Securities issued by central banks; and
- Securities issued by associations with legal status or non-profit-making bodies, recognized by a Member State or an OECD Member State, in order to obtain the means necessary to achieve their non-profit-making objectives. (Each being referred to as an “In-Scope Issuer”, altogether being the “In-Scope Issuers”)
2. Admission Document and FastLane Admission procedure
The In-Scope Issuers shall publish an admission document, being any disclosure document that at least contains the terms and conditions of the securities for which admission to trading on the Euro MTF is sought and is prepared in a searchable, electronic format (the “Admission Document”). The draft of the Admission Document shall be submitted at least three business days before the expected listing date. At the latest at the beginning of the admission to trading of the securities, the final version of the Admission Document must be submitted by the In-Scope Issuer for publication on the LuxSE’s website.
The LuxSE does not approve the Admission Document, but the In-Scope Issuer may opt for the approval of the prospectus voluntarily.
Furthermore, the In-Scope Issuer shall fill out an application form which mentions the public sources for information about the In-Scope Issuer and the securities.
Attention should be put on the fact that when deemed necessary, the LuxSE may require submission of any other document for the examination of the request for admission to trading, according to the particular conditions and nature of the operation and the financial position of the Issuer or guarantor.
Finally, the admission to trading of its securities based on the FastLane Admission does not exempt the In-Scope Issuer from complying with all applicable ongoing disclosure obligations, such as the Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse, as amended from time to time (commonly referred to as the Market Abuse Regulation).
Please feel free to contact our capital markets team in case you have any questions relating to admission to listing on LuxSE.
Proposed changes to enhance clarity and flexibility of Luxembourg securitisation law
Luxembourg’s securitisation legislation of March 22, 2004 is currently in the process of being amended. Bill no. 7825, submitted to the Chamber of Deputies on May 21, 2021, has been drawn up to reflect increased international competition in the securitisation market. Significant planned changes to the 2004 law include a more precise supervisory scope for the Commission de Surveillance du Secteur Financier (CSSF), granting of securities in favour of indirect creditors, and authorisation for active management of assets held by a securitisation vehicle.
Extension of financing means to include loans
The bill permits securitisation undertakings to be financed through the issue of financial instruments and any form of borrowing. The definition of transferable securities – valeurs mobilières – in the previous version of the Law, which was considered as too vague is now replaced with “financial instruments”.
According to Article 1 of the law of August 5 2005 on financial collateral arrangements, this has the broadest possible meaning including:
- Any securities such as options, warrants or futures conferring the right to acquire shares, bonds or other securities by subscription, purchase or exchange.
- Any other “instruments evidencing ownership rights, claim rights or securities”, indicating that any securitisation undertaking may finance a securitisation transaction with loans or promissory notes. A new paragraph will be inserted in the definition section of the law, which will be henceforth read: “if a securitisation undertaking is financed, totally or partially, by contracting loans…”
Grant of securities and guarantees to any party to a securitisation transaction
Under the draft legislation, a securitisation vehicle may grant security interests or guarantees over the securitised assets or risks in favour of any party involved in the transaction, including entities that are not direct creditors of and/or investors in the securitisation vehicle. Under the original law, security interests and guarantees over securitised assets could be granted only to investors or direct creditors of the securitisation undertaking.
Active management of certain categories of securitised assets / Collateralised loan obligation (CLO) structures
Pools of securitised assets comprising debt securities, claims or debt instruments may be actively managed as long as the securitisation entity is not financed by financial instruments offered to the public.
In practice, this would authorise actively managed collateralised loan obligation structures.
Clarifying the scope of CSSF supervision
The 2004 law does not define or clarify the concepts “issue to the public” and “issue on a continuous basis”. The bill states that financial instruments are issued on a continuous basis by a securitisation undertaking if it conducts more than three issues of financial instruments in a year.
Financial instruments are deemed to be offered to the public if three conditions are met: the financial instruments are not offered to professional clients as defined by the law of April 5, 1993 on the financial sector; the nominal amount of the financial instrument is less than €100,000; and it is not distributed via a private placement.
Broadening of legal forms
The law currently allows a securitisation entity to be established in the form of a public limited liability company, private limited company, corporate partnership limited by shares, or co-operative company organised as a public limited liability company.
Under the proposed revision, a securitisation entity will also be able to take the form of a general corporate partnership/unlimited company (société en nom collectif), a common limited partnership (société en commandite simple), a special limited partnership (société en commandite spéciale) or a simplified limited company (société par actions simplifiée).
Indirect acquisition of assets
The bill allows the securitisation undertaking to acquire assets indirectly to assume risks as part of a securitisation transaction. Acquisition through a wholly-owned and newly-formed vehicle would in the future be permitted.
Clarification of subordination rules
The default waterfall of payments provided by the draft legislation, unless a derogation is agreed contractually, is as follows:
- The units of a securitisation fund are subordinated to other financial instruments issued by the securitisation fund and to loans contracted by it.
- The shares or interest units of a securitisation company are subordinated to other financial instruments issued by the securitisation company and to loans contracted by it.
- The shares or interest units of a securitisation company are subordinated to profit shares (parts bénéficiaires) issued by the securitisation company.
- The profit shares issued by a securitisation company are subordinated to the debt instruments issued and loans contracted by the securitisation company.
- Non-fixed yield debt instruments issued by a securitisation vehicle are subordinated to fixed-yield debt instruments issued by the securitisation entity.
Rules governing treatment of compartments
Article 11 of the bill provides an important clarification of the accounting treatment of compartments of a securitisation company financed by equity instruments. In future the balance sheet and profit and loss accounts may be prepared at the level of the compartment and approved only by its investors, if this option is included in the articles of association of the securitisation company. Similarly, profit and other distributable reserves may be calculated for each compartment based on its balance sheet and profit and loss accounts, without considering the overall financial situation of the securitisation vehicle.
Conclusion
The bill is more than welcome for the Luxembourg financial community since its sole aim is to enhance the attractiveness and flexibility of the country’s regulatory regime governing securitisation undertakings.
The below table compares the main changes between the current securitisation regime and the draft amendments of the bill submitted to the Luxembourg parliament on May 21, 2021.
| Current Regime | Draft amendments | |
|---|---|---|
| Borrowing | Not mentioned. However, the CSSF says in its FAQ on securitisation that borrowing can be used only on an ancillary basis and/or in cases where a credit line is temporarily necessary in view of the type of securitisation. | Article 1 of the bill: The concept of borrowing, regardless of its accounting treatment, includes any form of indebtedness giving rise to a repayment obligation on the part of the securitisation undertaking |
| Structure | Article 4 (1) of the 2004 law: Private limited liability company (S.àr.l.) Public limited company (S.A.) Corporate partnership limited by shares (SCA) Co-operative company organised as a public limited liability company. | Article 2 of the bill: Private limited liability company (S.àr.l.) Public limited company (S.A.) Corporate partnership limited by shares (SCA) Public limited company, or co-operative company organised as a public limited company. General corporate partnership/unlimited company (société en nom collectif) Common limited partnership (SCS) Special limited partnership (SCSp) Simplified limited company (société par actions simplifiée) |
| Public offering | Article 19 of the 2004 law: Securitisation undertakings that issue securities to the public on a continuous basis ("authorised securitisation undertakings") must be authorised by the CSSF to exercise their activities, plus CSSF guidelines | Article 7 (2) of the bill: The issuance of financial instruments offered to the public is: 1. not intended for professional clients within the meaning of Article 1,5 of the amended law of April 5, 1993 on the financial sector; 2. denomination is less than €100,000; and 3. not distributed through a private placement. |
| Securities or guarantees in context of securitisation | The securitised assets may be used as security or collateral only for the benefit of investors. | Article 13 of the bill: Allows the creation of security interests or guarantees in favour of any third party involved in the securitisation transaction to secure commitments entered into through the securitisation transaction. |
| Active management of assets | Not allowed | Article 14 of the bill: A securitisation undertaking may securitise a pool of actively-managed risks providing that the instruments issued to finance the acquisition of the pool of risks are not offered to the public. |
For more information, please get in touch with our banking, finance and capital markets team.
Fintech in Luxembourg | Registration process for virtual asset service providers (VASP)
Luxembourg’s Financial Sector Supervisory Authority (CSSF) has stated on April 9 on virtual assets, virtual asset service providers and the related registration process.
Under the law of March 25, 2020, amending the legislation of November 12, 2004, on efforts to combat money laundering and financing of terrorism, the CSSF has been designated as the supervisory authority for virtual assets and virtual asset service providers as defined by Article 1(20c) of the legislation. The CSSF’s role for service providers domiciled in Luxembourg is limited to registration, supervision and enforcement for AML/CFT purposes only.
Under articles 1(20c) and 7-1(1) of the AML/CFT law, entities that are established or provide services in Luxembourg must register with the CSSF if they are providing one or more of the following services on behalf of their clients or for their own account:
• Exchange between virtual assets and fiat currencies.
• Exchange between one or more types of virtual assets.
• Transfer of virtual assets.
• Safekeeping and/or administration of virtual assets or instruments providing control over virtual assets, including custodian wallet services.
• Participation in and provision of financial services relating to an issuer’s offer or sale of virtual assets.
As a result, any entity already licensed or registered by a regulatory authority, primarily licensed financial institutions that already offer virtual asset services as of March 30, 2020, must fulfil three criteria. They must notify the CSSF promptly by e-mail, submit an application to the CSSF to be registered as a virtual asset service provider at the latest by May 30, and comply with the professional obligations and conditions set out in the AML/CFT law as of March 30.
Any entity already licensed or registered by a regulatory authority and primarily licensed financial institutions that intend to offer any virtual asset services starting from March 30 must register in advance as a virtual asset service provider as a VASP and comply with the professional obligations and conditions set out in the AML/CFT legislation.
The statement also notes that the registration requirement for applicants that are established or provide services in Luxembourg does not affect any other licensing, registration or other requirements in Luxembourg, other European or non-EU countries for other activities they may undertake.
The fact that the CSSF registers a virtual asset service provider may not, under any circumstances, be described as any kind of positive endorsement by the regulator of the quality of services it offers. Registration, submission of an application or the fact of CSSF AML/CFT oversight may not be mentioned or used in advertising or any business solicitation.
The AML/CFT legislation of November 12, 2004, and the revision of March 25, 2020, can be found here.
How to apply as a virtual asset service provider (VSAP)?
The link to apply for registration as a virtual asset service provider can be found here and the CSSF statement of April 9, 2020, by clicking here
COVID-19: Postponement of SFTR reporting
In the light of the exceptional circumstances of the Covid-19 pandemic, on March 19 the European Securities and Markets Authority issued a public statement regarding application of Regulation (EU) 2015/2365 on transparency of securities financing transactions (SFTR) and clarified it on March 26.
Taking into account the current difficulties for the financial industry in complying with the SFTR due to the impacts of the coronavirus, ESMA has invited national regulators not to prioritise enforcement of the reporting obligation under the SFTR regarding securities financing transactions concluded between April 13 and July 13, 2020, initially scheduled to begin on April 13.
Instead, in general ESMA recommends that regulators should apply a risk-based approach in exercising their supervisory powers in a proportionate manner.
ESMA also considers that it is not necessary to register any trade repository before April 13 and instead expects that repositories will be registered ahead of the next reporting deadline on July 13.
On April 9, Luxembourg’s Financial Sector Supervisory Authority published a circular regarding CSSF Circular 20/739, also dated April 9, on application of the ESMA guidelines on reporting under articles 4 and 12 of the SFTR, noting that it has integrated the guidelines into its administrative practice and regulatory approach, in furtherance of the goal to promote supervisory convergence throughout the EU.
The circular applies to all entities subject to supervision by the CSSF as well as to non-financial counterparties as defined by Article 3(4) of the SFTR that enter into a securities financing transaction as defined by Article 3(11) of the regulation.
The SFTR provides for a phased-in introduction of the reporting obligation, depending on the nature of the entities concerned. Since certain of the starting dates fall on a non-working day in Luxembourg, reporting will effectively begin on the following dates:
1. Tuesday, April 14, 2020 for entities referred to under Article 33(2)(a)(i) of the SFTR;
2. Monday, July 13, 2020 for entities referred to under Article 33(2)(a)(ii);
3. Monday, October 12, 2020 for entities referred to under Article 33(2)(a)(iii); and
4. Monday, January 11, 2021 for entities referred to under Article 33(2)(a)(iv).
Under Article 4(1), the counterparties should comply with the reporting obligation no later than the working day following the conclusion, modification or termination of the transaction.
However, the circular notes that implementation of securities financing transaction reporting is greatly affected by the Covid-19 pandemic, and entities in question may face serious difficulties in finalising implementation of the reporting requirements and completing the necessary technical preparations before April 14.
The CSSF has therefore decided that it will not prioritise supervisory action regarding counterparties, entities responsible for reporting and investment firms over their reporting obligations under the SFTR or MiFIR, regarding transactions concluded between April 13 and July 13, 2020, and transactions subject to backloading under the SFTR.
The CSSF will monitor the progress of implementation by market participants and expects them to be sufficiently prepared ahead of the next deadline of the reporting regime, July 13, in order to start reporting as of this date.
The ESMA statement of March 26 can be viewed at https://www.esma.europa.eu/sites/default/files/library/esma80-191-995_public_statement.pdf.
CSSF Circular 20/739 is available at http://www.cssf.lu/fileadmin/files/Lois_reglements/Circulaires/Hors_blanchiment_terrorisme/cssf20_739eng.pdf.
Prospectus regulation: ESMA publishes list of thresholds below which an EU prospectus is not required
On 8 February 2019, ESMA published thresholds below which an offer of securities to the public does not need a prospectus in the various Member States of the European Union (EU). ESMA’s document contains information provided by national competent authorities setting out:
- A short description of the national thresholds below which no prospectus is required;
- A summary of any national rules which apply to offers below that threshold; and
- Hyperlinks to the relevant national legislation and rules.
It should be reminded that Article 1(3) of the Regulation (EU) 2017/1129 (the Prospectus Regulation) establishes that the Prospectus Regulation does not apply to an offer of securities to the public with a total consideration in the EU of less than 1 million Euro calculated over a period of 12 months. This implies that the obligation to publish a prospectus does not apply to offers below this threshold. According to Article 3(2) of the Prospectus Regulation, Member States may decide to exempt offers of securities to the public from the obligation to publish a prospectus provided that 1) such offers are not subject to notification in accordance with Article 25 of the Prospectus Regulation, and 2) the total consideration of each such offer in the EU is less than a monetary amount calculated over a period of 12 months which shall not exceed 8 million Euro.
From a Luxembourg perspective the thresholds below which an offer of securities to the public does not need a prospectus is 5 million EUR. For offers between 1.5 and 5 million Euro, the issuer must publish a simplified prospectus in accordance with the Law of 10 July 2005 on prospectuses for securities.
https://www.esma.europa.eu/press-news/esma-news/esma-publishes-list-thresholds-below-which-eu-prospectus-not-required
ESMA updates Q&A on MiFID II and MiFIR market structure and transparency issues
The European Securities and Markets Authority published on November 14, 2018 a new version of its Questions and Answers on MiFID II and MiFIR rules regarding market structures. New versions of ESMA’s Q&A on MiFID II and MiFIR transparency requirements were published on November 11 and again on January 4.
The aim of the Q&A documents is to promote common supervisory approaches and practices in the application of the revised Markets in Financial Instruments Directive (2017/65/EU) and the accompanying Markets in Financial Instruments Regulation (600/2014).
The new versions of the Q&As provides clarification on areas including making data available free of charge 15 minutes after publication; obligations applicable to systematic internalisers in instruments that are not traded on a trading venue; definition of request-for-quote systems; pre-trade transparency in RFQ systems; the concept of comparable size in market-making agreements and voluntary provision of liquidity; and the rules governing parameters for equity market transparency calculations or thresholds for pre-trade and post-trade transparency for a bond in the absence of indications from ESMA or national regulators.
The Q&A on MiFID I and MiFIR market structures issues is available in English at https://www.esma.europa.eu/sites/default/files/library/esma70-872942901-38_qas_markets_structures_issues.pdf, and the updated Q&A on transparency topics at https://www.esma.europa.eu/sites/default/files/library/esma70-872942901-35_qas_transparency_issues.pdf
ESMA updates Q&A on the short-selling regulation
The European Securities and Markets Authority published on November 14, 2018 an updated version of its Questions and Answers on the Regulation on Short Selling and Certain Aspects of Credit Default Swaps, in order to promote common supervisory approaches and practices in the application of the regulation.
The new version of the Q&A updates question 4.10 regarding determination of the relevant competent authority for the financial instruments mentioned in point v) of Article 2(1)(j) of the regulation (in particular for shares) following the entry into force of MiFID II and MiFIR. This is no longer governed by Commission Regulation 1287/2006 but Commission Delegated Regulation (EU) 2017/590 on the reporting of transactions to competent authorities.
ESMA also clarifies in the Q&A that it is not the intention of Regulatory Technical Standard 8 (Commission Delegated Regulation (EU) 2017/578 specifying the requirements on market-making agreements and schemes) to prevent market-makers that comply with the requirement to post live two-way quotes of comparable size from adding further liquidity on either side of the order book on a voluntary basis.
The updated Q&A on the Short-Selling Regulation is available in English at https://www.esma.europa.eu/sites/default/files/library/esma70-145-408_qa_on_ssr.pdf
ESMA says supervisors should not prioritise action on derivative counterparties left in regulatory limbo
The European Securities and Markets Authority published on October 31, 2018 a statement regarding clearing and trading obligations stemming from the planned expiry on December 21 of an exemption from central clearing requirements for transactions involving certain types of derivative and counterparty under the European Market Infrastructure Regulation.
Henceforth the derogation from the clearing obligation for certain intra-group transactions concluded with a non-EU group entity, as well as the phase-in for counterparties in Category 4, in EMIR, broadly NFCs+, no longer applies for interest rate derivative classes denominated in the G4 currencies – US dollar, euro, yen and sterling – subject to the clearing obligation.
NFCs+ are non-financial counterparties with outstanding derivative transactions with a gross notional value exceeding €1 billion for credit and equity derivatives or €3 billion for interest rate, currency and commodity transactions.
EMIR provides an exemption regime for OTC derivative contracts concluded between counterparties within the EU and in a third country belonging to the same group subject to certain conditions, including an equivalence decision under Article 13(2) regarding the jurisdiction of the third-country counterparty.
In the absence of such equivalence decisions, ESMA carried out a review of the Commission delegated regulations on the clearing obligation and drew up draft amendments extending the exemption until December 21, 2020, which were submitted to the European Commission on September 27 last year. However, with the amendments not having been adopted by the exemption expiry date, the clearing obligation duly came into force on December 21, 2018.
Regarding the Category 4 phase-in, the Commission’s proposed amendments to EMIR (known as EMIR Refit) published on May 4, 2017 envisage that NFCs+ would be subject to the clearing obligation only for asset classes where their level of activity is above the clearing threshold.
Although this position has been supported by the European Parliament and the European Council, negotiations between the EU institutions on the EMIR Refit legislation is still ongoing, meaning that affected counterparties are now required to have arrangements in place to start clearing transactions, even though they may not have to do so in the future when the amendments come into force.
In addition, the expiry of the exemptions for both categories of counterparties mean that they also become subject to the obligation to trade on regulated markets, multilateral or organised trading facilities, or equivalent third-country trading venues.
ESMA notes that from a legal perspective, neither ESMA nor national regulatory authorities have the power to disapply directly applicable EU legislation nor to delay the onset of obligations; any change to the application of the rules must be carried out through EU legislation.
However, in view of the potential difficulties for counterparties affected by the failure to adopted amended rules before the expire date for the exemptions for intra-group transactions and NFCs+ that are not above the clearing threshold, ESMA says national regulators should not make their compliance or otherwise a priority and in general should exercise their risk-based supervisory powers in their day-to-day enforcement of the applicable legislation a proportionate manner.
The full text of ESMA’s statement is available in English at https://www.esma.europa.eu/sites/default/files/library/esma70-151-1773_public_statement_on_co_and_to_for_intragroup_as_well_as_cat_4.pdf
