Esma Urged To Rethink Share Trading Obligation

Shanny Basar

Nausicaa Delfas, executive director of international at the UK Financial Conduct Authority, urged the European Securities and Markets Authority to reassess its guidance on the share trading obligation to avoid harming liquidity and best execution.

Delfas spoke at the City and Financial Brexit & Beyond Summit in London today. Due to a lack of equivalence in certain areas after the UK leaves the European Union, Esma said this week that EU firms will have to trade certain shares and derivatives on EU or equivalent venues, even if most liquidity is currently in London.

She warned that after Brexit this will conflict with the UK’s own share trading obligation. She said: “This has the potential to cause disruption to market participants and issuers of shares based in both the UK and the EU, in terms of access to liquidity and could result in detriment for client best execution. We have therefore urged further dialogue on this issue in order to minimise risks of disruption in the interests of orderly markets.”

Jonathan Herbst, partner and global head of financial services at law firm Norton Rose Fulbright, said at the conference: “The Esma guidance on trading venues is extraordinary. It is a blunt political statement that does not meet any regulatory policy objectives.”

Delfas continued that the FCA has been working with firms since the referendum result to ensure that risks relating to Brexit are mitigated and firms are ready for all scenarios, including the possibility of a hard Brexit. For example, the UK regulator has set up a temporary permissions regime to allow EU firms and funds that currently passport into the UK to continue operating in the UK in the event of a no-deal Brexit.

However, Delfas said there is no similar system for UK firms who passport into the EU.

“A number of EU member states have put arrangements in place similar but not identical to the TPR arrangements,” she added. “These include jurisdictions that we know are important to UK firms: Germany, Spain, France, Ireland, Italy, Luxembourg and the Netherlands.”

More than 1,000 EU firms and fund managers have already entered the FCA’s temporary permissions regime.

“After the notification window closes, we will inform the firms of when they will have to submit their application for authorisation – their ‘landing slots’,” said Delfas. “We expect the first landing slots to be October to December 2019 and the last to be January to March 2021.”

Elizabeth Chorley, senior adviser, Allianz Global Investors and chair, implementation taskforce for growing a culture for social impact investing, said on a panel that the requirement for any transactions in euros to take place in the EU would harm capital formation in the region.

James Bardrick, UK country officer for Citi, said on a panel that the cliff edge risk of a hard Brexit had been eroded due to the hard work done by regulators and firms since the vote in 2016.

Camille Blackburn, global chief compliance officer at Aviva Investors, said on a panel that most asset managers have been preparing for a no-deal Brexit for at least 12 months.

“It is easier for the buy side as we already have third country regimes in place and regulators have confirmed that delegation can continue,” she added. “Many EU member states have also introduced their own temporary permissions regime to allow UK funds continued to be sold.”

John Glen, MP, economic secretary to the Treasury and City Minister, also spoke at the conference and said people were right to be frustrated with the deadlock over Brexit in parliament.


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