Platts Kingsman EU Sugar Seminar MiFID II & MAR: what does increased international regulatory scrutiny mean for sugar?

Transcription

1 Platts Kingsman EU Sugar Seminar MiFID II & MAR: what does increased international regulatory scrutiny mean for sugar? Norton Rose Fulbright LLP Geneva, 11 April 2016

2 Contents 1. Political context 2. New market abuse regime 3. MiFID II and commodities 4. Implications for sugar market 5. Questions and comments 2

3 1. Political context Context remains challenging Activist-driven political focus on commodity markets Commodities as key theme for MiFIDII/R and MAR Expiry of CRR Commodity Dealer regime Commodity benchmarks and proposed Benchmarks Regulation Visible response to FICC markets scandals Fair and Effective Markets Review New MAR regime and commodity derivative markets focus Activist demands v EU v competing jurisdictions Amendments to Financial Market Infrastructure Ordinance MiFID2/R equivalence uncertain Defeat of JuSo proposal may not be end to activist campaigns 3

4 2. New market abuse regime MAR/CSMAD State of play What is it? Scope Market Abuse Regulation (do-over) New Criminal Sanctions Directive Financial instruments Spot commodity contracts Commodity and financial benchmarks Jurisdiction All market participants (regardless of establishment, regulatory status) Penalties Applies Administrative and criminal sanctions (max 4 years imprisonment) 03 July 4

5 2. New market abuse regime Prohibitions 1. Insider dealing State of play 2. Unlawful disclosure of inside information 3. Market manipulation II / sugar Manipulation Requirements Information is precise, non-public, relates to derivative or spot contract + Information would likely have significant effect on prices if disclosed + Information expected/required to be made public (5 alternatives) (a) Order/transaction/behaviour that: i. Gives (likely to) false/misleading signal on supply or demand; or ii. Secures (likely to) price at abnormal/artificial level; (b) Fictitious device / deception / contrivance; (c) Disseminating information through media resulting in (i) or (ii); and (d) Transmitting/providing false/misleading information to benchmark. Issuers, trading venues, PPA/ETs, offerors, EAMPs, employers etc. 5

6 3. MiFID II and commodities MiFIDII/R State of play What is it? Scope Recast of MiFID legislation New regulation Investment activities and services Investment firms and banks Market operators and other market infrastructure Commodity market participants (including emissions markets) Jurisdiction All persons undertaking investment activities or providing investment services in the EU Applies 03 January 2018 * 6

7 3. MiFID II and commodities Exemptions State of play Article 2 MiFID II exemptions narrowed - Ancillary Activity only exemption specific to commodity derivatives - Exclusions and prescriptive requirements of implementing measures Position limits Forwards Block trades Limits for all on-venue commodity derivatives and EEOTCs - Spot month and all other months limits - Range of 5% to 35% of deliverable supply or open interest - Aggregation to ultimate parent and limited netting sets - Hedging exemption available but only for non-financial entities - Position reporting Changes to MiFID II Annex I Section C6 and C7 - Forwards executed on organised trading facilities (OTFs) - Forwards priced on futures contracts w/in ambit of C7? MiFIR pre-trade transparency requirements 7

8 4. Implications for sugar market 1. More investigations, enforcement actions Regulators see abuse prevalent in softs markets MAR: strict liability provisions make it easier to investigate, bring enforcement actions Pressure on national regulators in EU to make cases in commodities 2. Reduced volumes in key EU futures contracts AA exemption limits non-hedge positions, investment services to customers Result: physical traders in EU, elsewhere will limit positions Regulatory capital rules suggest banks, investment firms unlikely take larger positions MiFID II rules may incentivise trading on third country markets 3. Increasing cost of risk management Fewer providers of hedging services, clearing services Less liquidity for block trades, EFRPs Higher compliance costs generally 8

9 5. Questions and comments Conor Foley Head, Government Relations and Public Policy Norton Rose Fulbright LLP T: M: E: 9

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