13 December 2019

ESMA publishes responses received to its consultation on the MAR review

Spanish Banking Association

Spanish Banking Association believes that the FX spot should NOT be included within the scope of MAR, considering the following reasons:

First of all, the FX Spot is already covered in the FX Global Code, which is broadly followed by the financial industry, although it is a best practice. Thus, the inclusion of the FX Spot in MAR would not reduce the risk of market abuse in relation to FX Spot transactions, because the most relevant market players are already adhered to the FX Global Code. Thus, its inclusion under MAR will create an overlap with the FX Global Code.

On the other hand,  AEB members have included FX Spot transactions in their Market Abuse Program, so that this type of transactions are monitored through the trade surveillance, communication surveillance or in the training initiatives on market abuse.

In addition, consideration must be given to the practical difficulties and high costs that this could entail as they are not subject to the MiFID/MiFIR regulations either (they are not subject to the maintenance and reporting obligations set out in Articles 25 and 26 MiFIR).

Supervision, control and traceability are key aspects to ensure that these contracts are correctly monitored. NCAs should work hand in hand with interbank counterparties in order to gather as much information as possible under standard reports and MiFID II should also be adapted to take FX Spot contracts into consideration.

Taking into account how regulation has been applied to the financial industry, one of the key aspects, is the cost for including those contracts into MAR regulation, related to reporting, commitment of resources and technology investments.

Additionally, the diversity of market participants make this task especially sensible in order to avoid discriminatory decisions among them.

Full Spanish Banking Association

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AMAFI

Scope of MAR

AMAFI considers that it is not necessary to extend the scope of MAR to FX contracts and rather suggest a wider enforcement of the FX Global Code of Conduct.

AMAFI would favour better alignment with BMR.

BBPs

AMAFI supports ESMA proposals for simplification of the reporting and transparency obligations of BBPs.

AMAFI would suggest that similar reflections be conducted on stabilisation programs to simplify the reporting obligations as well.

Definition of Inside Information

AMAFI does not think that the current definition should be amended, even more with respect to front running or pre hedging points.

For commodities derivatives, except for a missing reference to REMIT, no change is needed within MAR current regime of inside information.

Market Soundings

AMAFI fully agrees with the need to amend current definition on markets soundings and made several suggestions in what ways and why (including a proposed amendment of Article 11) in its detailed answer below.

Most important issues to tackle are clarifying the disapplication of the regime for EuroPPs and early look meetings as well as further alleviation of the requirements where there is no inside information. 

Full AMAFI response

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AIMA

The Associations support the objectives that underlie the Market Abuse Regulation (“MAR”) framework and the need for transparency in the financial services sector. We appreciate ESMA’s willingness to consider possible enhancements to the existing regulatory framework and are pleased that ESMA is taking this opportunity to go further than the European Commission’s mandate with a view to considering a broader range of issues where it might be possible to address and clarify deficiencies in the existing framework.

In this submission AIMA makes the following points:

AIMA does not believe that a change in the scope of MAR would be the most effective way to address potential issues in the foreign exchange spot (“spot FX”) market. Given the complexities of potentially including spot FX within the scope of MAR, as ESMA identifies in the CP, AIMA suggests that this topic should be considered separately to the ongoing review of MAR.

AIMA is concerned that the definition of inside information is, at present, not applied in a consistent manner by all market participants. In our members’ experience, issuers and brokers tend to interpret it in a narrow way, particularly in regard to broker pre-hedging and the non-disclosure of inside information. It suggests that ESMA should seek to promote more consistent application of the existing definition through the adoption of Level 3 material, and clarify that the definition, under Article 7(1)(a) of MAR, includes requests for quotes (“RFQs”) and non-actionable indications of interest.

AIMA notes the valuable CESR guidance published in 2007 regarding the application of the concept of inside information and would encourage ESMA to re-endorse the CESR position, given the period of time that has elapsed since its publication.

It would welcome further clarity regarding whether the fact of information being subject to a non-disclosure agreement (“NDA”) would likely indicate that the information is sufficiently precise and/or price sensitive for the purposes of meeting the criteria for inside information under MAR. AIMA would also welcome clarification of ESMA’s expectations with regards to the treatment by the issuer of such information.

AIMA recommends that ESMA provides greater clarity as to what constitutes inside information that requires disclosure and iterates that issuers should not attempt to narrowly define such information to avoid having to rely on Article 17 of MAR.

AIMA supports the inclusion of a requirement in MAR for issuers to have systems and controls for identifying, handling and disclosing inside information. AIMA believes that this would make internal identification and evaluation processes more robust, reducing the risk that disclosable inside information is overlooked and not published to the market. In the interests of consistency between jurisdictions, we suggest that an EU equivalent of the U.S. Electronic Data Gathering, Analysis and Retrieval (“EDGAR”)  system would be beneficial.

Full AIMA response

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ESBG

ESBG shares ESMA’s view concerning the arguments listed in points 15-23 of the Consultation Paper. The extension of the MAR scope to spot FX contracts would definitely require enormous developments on the IT infrastructure side. 

As per the Global Index of Public Registers (the "Global Index") more than 970 entities are already committed to comply with the FX Global Code. The review of the Global Index is useful to understand the global nature of this initiative, as well as the high degree of harmonization achieved. 

As most market participants, ESBG considers that the FX Global Code will be subject to further developments aimed to create a worldwide standard market practice that will cover some market abuse concerns among many other relevant key aspects of the FX spot markets. In our opinion, extending the current scope of the MAR may not only hinder this undergoing process, but also depriving the supervisory bodies of a useful and well adapted tool to carry out their duties. Consequently, it would be more convenient to evaluate the results achieved and improve the current version FX Global Code before developing new initiatives. ESBG would also recommend applying the principle of proportionality in case of new potential obligations (e.g. different requirements linked to the level of complexity of trading activities, size of traded volumes, etc.).

As previously mentioned, the platforms already active in the FX spot market are not adapted to the MiFID-MAR framework and in fact the bulk of the transactions are of a bilateral nature. Likewise, the number of entities actively involved is huge, and large corporations are among the most relevant players. Furthermore, in the current global environment, there are several ways to manage FX positions and exposures in addition to FX spot and forward contracts, some of them very easy and convenient to use, such as the set-off of international payments. Although some supervisory entities are surveying and monitoring some of these activities, mostly for the sake of controlling large international transactions and monitoring their own countries’ balance of payments, from our experience no real reporting practices are being implemented. In general terms, it is important to stress that the main features of the FX spot markets are very different of those of the securities markets and the currencies traded, most of them non-convertible, are subject to the control of the issuing.   In ESBG opinion, including the FX spot market within the scope of the MAR would require the adoption of additional structural changes and potentially the introduction of exchange control regulations. In this vein, among any other potential measures, it would be necessary to consider: 

 • Introduce new reporting duties in connection not only to FX spot transactions, but also in respect of the management of FX positions and international wire transfers.

 • Subject large corporations to supervision in respect of FX positions.

 • Coordinate all supervisory measures on a worldwide basis

In addition to the previous concerns, since currencies are a creation of the issuing country, according to well established principles of international public law the issuance and management of each currency is a sovereign activity. Since all issuing countries are actively managing their own currencies, and so continuously deceiving the expectations of private individuals, a robust market abuse akin to the MiFID-MAR framework will ultimately require improving the By-Laws Rules and Regulations of the IMF.

Full ESBG response

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Consultation paper MAR review

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