Giu 152018

The European Securities and Market Authority (ESMA) issued the first report on the supervisory measures and penalties  carried out under the  European Market Infrastructure Regulation (EMIR). The report focuses in particular on the supervisory actions undertaken national authorities, their supervisory powers and the interaction between these authorities and market participants when monitoring the compliance of the following EMIR requirements:

  • the clearing obligation for certain OTC derivatives (Art. 4 EMIR);
  • the reporting obligation of derivative transactions to TRs (Art. 9 EMIR);
  • requirements for non-financial counterparties (Art. 10 EMIR); and
  • Risk mitigation techniques for non-cleared OTC derivatives (Art. 11 EMIR).

ESMA has sent its report to the European Parliament, the Council and the Commission today, informing them about the findings, which will also help to gradually identifying best practices and potential areas that could benefit from a higher level of harmonisation.

Regarding the organization and allocation of competences related to the provisions in Articles 4, 9, 10 and 11 of EMIR, 14 countries (AT, CZ, DK, DE, FI, HU, IE, LV, MT, NO, PL, ES, SE, SK) have the supervisory powers and the power to impose penalties centralised in one single National Competent Authorities (NCA). It is observed that, among the countries with a single authority in charge of the supervision and the imposition of penalties, in 5 (AT, DK, FI, LV, SK.) out of 14, both the supervisory actions and the imposition of penalties are taken care by the same team/unit within the single authority.

On the contrary, the other 9 out of the 14 countries with a single authority there is a clear separation between the teams involved. In some NCAs, such as in the case of Germany and Ireland, the supervisory function is also split depending on the type of counterparty or on the specific provisions that are being monitored.

In respect to the other twelve countries (out of 26) that have the supervisory powers and the power to impose penalties decentralised and split between different NCAs, we observe that the majority of them share these competences with their respective Central Banks (with the exception of LX, IT, PT, SJ and SK).

In IE, sectoral supervision teams are responsible for supervising different entities’ compliance with all applicable legislation (including EMIR). The team responsible for supervising funds is also responsible for monitoring non-financial counterparties. In DE, one team focuses on matters related to Arts. 4, 10-11 and the other, to art. 9 of EMIR. In Italy, besides the role of BdI, Covip and IVASS are responsible respectively for the regulatory surveillance of pension funds and insurances.

The data gathered from the survey sheds some light on the level of interaction and the means used by the authorities to interact with market participants in relation to the implementation or the phase-in of EMIR provisions (in particular, Articles 4, 9 and 11 of EMIR).

The authorities have engaged in different activities aimed at providing awareness, training and guidance. In the majority of the 26 countries, authorities have engaged directly with market participants through different initiatives. Around 54% have launched processes to get feedback during the process of the EMIR implementation, with similar figures in respect to the clearing and the risk mitigation techniques and a higher percentage with respect to the reporting obligation. Around 58% of the NCAs have prepared specific trainings. In addition, 35% of the NCAs have engaged in working groups with market participants’ representatives.

Regarding the clearing obligation (Article 4 of EMIR), in Austria, Germany and Italy, authorities held trainings on intragroup transactions exemptions and the corresponding notifications. In Malta, three training sessions were organised for market participants (one with the participation of ESMA staff), focused on the clearing obligation, the intragroup exemptions regime and clearing obligation as applicable to financial and non-financial counterparties. In some countries, such as Belgium , trainings were addressed to independent auditors, who under the national law are responsible for checking the compliance of some entities with the provisions in Articles 4, 9 and 10 of EMIR. Another method used by some NCAs to interact with market participants is to establish working groups with representatives of market participants. In total, around 35% of the NCAs set up working groups in relation to Articles 4, 9 and 11 of EMIR44.

The report serves as a good basis for NCAs to share on their practices in their supervisory activities and more broadly, to raise awareness on the supervisory approaches followed in the different countries. It helps understand the information checked by NCAs and its use, for a range of supervisory measures.

The report also shows that the majority of NCAs share similar competences in their supervision and enforcement of Articles 4, 9, 10 and 11 of EMIR. ESMA expects this first report to be the baseline for future reports on penalties and supervisory measures, which will help monitor compliance in the different member states and possibly identify areas where a higher level of harmonisation could be considered to ensure a level playing field.

Supervisory Measures and Penalties under Articles 4, 9, 10 and 11 of EMIR (PDF)

Giu 152018

The regional consulting group for Americas of the Financial Stability Board (FSB) met in Nassau to discuss economic development in the regions.

The economies in the Americas have better fundamentals than at the time of the 2013, some vulnerabilities have worsened, especially the overall leverage in the economy. The underlying fragilities in the region are the increased reliance on external funding and the high levels of debt, both private and public, in an environment of global recovery, inflation returning toward targets, and financial tightening.

The regulatory treatment of sovereign exposures has also be discussed. Namely, it was discussed how to monitor the risks that sovereign exposures play in the banking system, financial markets and the broader economy. The discussion followed a of the Basel Committee (The Regulatory Treatment of Sovereign Exposures, link below).

A rather new issue is that concerning the role of FinTech and RegTech in the improvement of the effective implementation of measures related to anti-money laundering and countering the financing of terrorism. Money laundering and terrorist financing risks are a concern in certain areas of the FSB’s work, including the potential financial stability implications of crypto-assets.

The discussion took place more broadly on how crypto-assets may have an impact on the financial landscape and potential implications for financial stability (although it was recognized that their size is still small relative to the overall financial system). Members also exchanged views on other regulatory aspects involved with crypto-assets and the role of central banks and financial regulators, given the rapid growth of crypto-asset markets and the growing involvement of retail investors.


FSB Americas Press Release (PDF)

 Basel Committee – The Regulatory Treatment of Sovereign Exposures (PDF)

Giu 152018

Il 14 giugno, la Banca d’Italia ha posto in pubblica consultazione la revisione della disciplina delle obbligazioni bancarie garantite (OBG). Prima di queste modifiche, l’emissione di OBG (covered bonds) era consentita ai gruppi bancari aventi, al momento dell’emissione, i seguenti requisiti:

  • fondi propri non inferiori a 250 milioni di euro; e
  • un total capital ratio a livello consolidato non inferiore al 9%.

Le modifiche permettono l’emissione di OBG anche alle banche che detengono fondi propri inferiori alla soglia di 250 milioni di euro. L’emissione è soggetta a una preventiva valutazione, caso per caso, condotta dalla Banca d’Italia e basata su alcuni elementi chiave:

  • gli obiettivi perseguiti attraverso l’emissione, i rischi connessi e l’impatto sugli equilibri economico-patrimoniali della banca attuali e prospettici;
  • l’adeguatezza delle policy, dei meccanismi di gestione dei rischi e delle procedure organizzative e di controllo volte ad assicurare l’ordinato e sicuro svolgimento del programma di emissione anche in caso di insolvenza o risoluzione, in specie con riferimento al rispetto dei requisiti organizzativi e dei presìdi previsti dal paragrafo 5;
  • l’adeguatezza delle competenze professionali in materia di obbligazioni garantite sviluppate dal personale responsabile dell’amministrazione e dei controlli sul programma;
  • il rispetto dei limiti alla cessione degli attivi idonei di cui al paragrafo 2;
  • la conformità alle disposizioni riguardanti la composizione del patrimonio separato e il rapporto minimo di collateralizzazione previste dal decreto del Ministro dell’economia e delle finanze del 14 dicembre 2006, n. 310.

Per le banche che detengono fondi propri in misura almeno pari a 250 milioni di euro rimangono ferme le attuali previsioni, che consentono di emettere OBG senza una comunicazione preventiva alla Banca d’Italia.

Disciplina delle OBG (PDF)

Revisione della disciplina delle OBG (PDF)


Giu 152018

The Governing Council of the ECB met in Riga the 14th of June to review the cross-country pattern  towards a sustained adjustment of inflation. The discussion was supported by the latest Eurosystem staff macroeconomic projections, measures of price and wage pressures, and uncertainties surrounding the inflation outlook. Based on this review the Governing Council made the following decisions:

The Governing Council will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of September 2018. After September 2018, subject to incoming data confirming the Governing Council’s medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to €15 billion until the end of December 2018 and that net purchases will then end.

The Governing Council intends to maintain its policy of reinvesting the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

The Governing Council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path.

Monetary policy decisions – Press release (HTML)

Giu 062018

The European Securities and Markets Authority (ESMA) has now formally adopted new measures for the provision of binary options and contracts for differences (CFDs). The measures provide a prohibition on the marketing, distribution or sale of binary options to retail investors, starting to apply the 2 July 2018.

In this way, the Authority aims also at preventing the purchase of these contracts by unaware “venture web-capitalists” trying to make easy money through these investors. Namely, Steven Maijoor, ESMA’s Chair, claims that “..ESMA’s prohibition on the marketing, distribution or sale of binary options to retail investors addresses the significant investor protection concerns caused by the characteristics of this product.”

Concerning CFD, although a full ban has not be imposed to retail investors, several restrictions  will be adopted from the beginning of this August. The product intervention measures ESMA has adopted include:

1.    Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:

·         30:1 for major currency pairs;

·         20:1 for non-major currency pairs, gold and major indices;

·         10:1 for commodities other than gold and non-major equity indices;

·         5:1 for individual equities and other reference values;

·         2:1 for cryptocurrencies;

2.    A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more retail client’s open CFDs;

3.    Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;

4.    A restriction on the incentives offered to trade CFDs; and

5.    A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

“The measures ESMA has taken today are a significant step towards greater investor protection in the EU”, continued the ESMA Chair. ” The new measures on CFDs will, for the first time, ensure that investors cannot lose more money than they put in, restrict the use of leverage and incentives, and provide understandable risk warnings for investors.”

These measures in the official languages of the EU and they will remain in force for a period of three months from the date of application. Before the end of the three months, ESMA will review the product intervention measures and consider the need to extend them for a further three months.

Notice of ESMA’s Product Intervention Decisions in relation to CFD and binary options (PDF)

Contract for differences definition in Eur-lex (HTML)

Binary Option definition in Eur-lex (HTML)

Giu 062018

The European Central Bank (ECB) published today the yearly analytical report collecting the result of the  Survey on the Access to Finance of Enterprises (SAFE) for the year 2017. The survey is conducted on a sample of Small-Medium Enterprises (SME) across Europe. Table 1 summarizes the number of SMEs involved in the survey for each member of the European Union (EU).

The results refer to the period from October 2017 to March 2018. This survey round was conducted between 12 March and 20 April 2018. The total EU countries sample size was 16 656 firms. The euro area sample size was 11 733 firms, of which 10,720 (91%) had fewer than 250 employees.


Table 1 : SMEs sample by EU country (Source: ECB, SAFA 2017)

The main results are summarized in the ECB press release of the SAFA 2017.

  • SMEs continued to indicate improvements in availability of external sources of finance
  • Lower, albeit still high, percentage of SMEs reported increasing turnover and profits
  • Fewer SMEs reported falling interest rates on bank loans

The financial situation of firms further improved, albeit at a slower pace than in the previous survey round. From October 2017 to March 2018, the percentage of euro area SMEs reporting a higher turnover decreased (24%, down from 27%). The moderation in turnover was also reflected in profits, as 4% of euro area SMEs reported increases, down from 5%, in a context of growing labour costs (50%, up from 49%) and other production costs (54%, up from 48%).

In net terms, SMEs continued to indicate improved availability of bank loans (14%, from 12%), with the highest percentages in Spain (24%), Portugal (19%), and Ireland (18%). SMEs attributed these improvements to a persistently high willingness of banks to provide credit (19%, from 18%). Although Greece continued to lag behind the other euro area countries, there are also signs there of an incremental improvement in the willingness of banks to provide credit since the beginning of 2017.

SMEs signalled that the fall in interest rates on bank loans became more muted (with a net percentage of SMEs confirming -1%, compared with -5% in the previous round). At the same time, they registered a moderate increase in other costs of financing, such as charges, fees and commissions (26%, from 30%).

To emphasize the importance of banks for the financing decisions of firms, this survey round included ad hoc questions on firm/bank relationships along three dimensions: number, duration and exclusivity. Results suggest that SMEs tend to do business with less than three banks, on average. Long-term relationships prevail across different firm sizes, however, the concentration of loans varies across countries, reflecting the heterogeneity of financial structures across the various euro area countries.

SAFE Report 2017 (PDF)

Giu 062018

In November 2015 the Financial Stability Board (FSB) issued a new standard on the adequacy of total loss-absorbing and recapitalisation capacity for Global Systemically Important Banks (G-SIBs) in resolution (‘the TLAC standard’).

The main principle upon which the entire TLAC standard is built is that G-SIBs banks must have sufficient loss-absorbing and recapitalisation capacity available in resolution to implement an orderly resolution that minimises any impact on financial stability, ensures the continuity of critical functions, and avoids exposing taxpayers (that is, public funds) to loss with a high degree of confidence.

In practice, the TLAC standard seeks to ensure that G-SIBs have at all times sufficient loss-absorbing and recapitalisation capacity available so that in case of failure they can be resolved  in without affecting financial stability despite their systemic importance.

The TLAC standard will be phased in from January 2019. The FSB made a commitment to report, by the time of the G20 Leaders’ Summit in June 2019, on whether the implementation of the TLAC standard is proceeding in a manner consistent with the timelines and objectives set out in the TLAC standard and to identify any technical issues or operational challenges in the implementation.


FSB Total Loss Absorbing Capacity Standards (PDF)

FSB TLAC – call for public feedback (PDF)

Giu 062018

The Bank of International Settlement (BIS) quarterly review this June focused on the CDS market, ten years the CDS “Bangs”. The CDS Bangs were the first real attempt to build a Standardized CDS market, to face this market’s shortcomings, which were fully unveiled by the Great Financial Crisis.

Many authors (see [2] and references therein) document how the shape of the market eventually resulting from these Standardization processes should be smoother and less resilient to regulatory interventions on a global scale. BIS Quarterly Review sheds now light on these forecasts. Ten years after the first CDS Bang was issued by the International Swaps and Derivatives Association (ISDA), a sufficiently informative dataset is available.

The  first issue to be tackled when shaping the new CDS market, is the contracts’s schedule of payments. On the buyer’s side, this task can be accomplished in a relatively simple way. Standard contracts provide for quarterly payments of standardized coupons, so the cash flow is easy to retrieve as long as the interbank money market remains stable. On the seller’s side, a thorough analysis is conducted on the Reference Entity’s default date, payment dates of bonds recoveries depending on different covenants.

When all contracts are signed based on the Standard ISDA format, it is easy for a Central Counterparty (CCP) to net opposite position among a restricted number of big dealers.  The provision for an Upfront Payment to be coupled with the standardized coupon piles liquidity up the CCP table. In this way, it is easier for the CCP to fulfill its major role of counterparty risk mitigator.


Figure 1: The CDS Market; Source: BIS, 2018 [1]

Figure 1 shows the evolution of the CDS market by notional amount (left), notional amount after netting opposite positions (center) and by maturity buckets (right). The CCP is able to accomplish the task of actually reducing the notional amount to the netted values by guaranteeing the netting transactions. It is not straightforward to compute the clearing rate out of the number of cleared contracts. (see the discussion in the BIS complete report [1]). Figure 2 shows that, despite the different metrics used in computing such ratios, the upward trending importance of  CCPs is quite clear.


Figure 2: The CDS Market and CCP; Source: BIS, 2018 [1]  

The number of cleared contracts increased rapidly from the CDS Standardization of contracts, reaching a peak of half the number of contracts according to some of the proposed ratios. The presence of CCP is relevant especially in view of the rise of contracts written on Sovereign Refererence Entities, which shifted from the 2% of total CDS share before the crisis  to a peak of nearly 17% of total CDS share in 2015, and hovers actually around 15%. CDS entail exposure to two types of risk: the underlying credit risk of the reference entity and the counterparty risk faced by the CDS protection buyer.


Figure 3: The CDS Market by Reference Entity; Source: BIS, 2018 [1]


The BIS report argues that both types of risk have diminished. The underlying credit risks have shifted towards sovereigns and portfolios of underlying reference securities with overall better credit ratings. The rise of CCPs and the increased standardisation in the CDS market facilitated the netting of exposures. This, in turn, has helped to lower counterparty risks. Despite these structural changes, credit risks is not retained to be concentrated at specific counterparty types.


[1] Bis Quarterly Review 2018 (PDF)

[2] Colozza, T. (2013) Standardization of the Credit Default Swaps Market

Giu 012018
CoinDesk, a dedicated blog to Fintech and cryptocurrencies, reported on the release of the EOS Blockchain launch, which will occurr this weekend. First announced in 2017, the EOS project has been fundraising for nearly a year, raising a reported $4 billion in what many are claiming is the largest amount ever collected by a team creating a custom cryptocurrency.

The fervor around the unveiling is, in part, due to the diverse discussions long surrounding the project. As detailed by CoinDesk, EOS has long been a target of criticism for its vision and execution, though it has attracted advocates who believe it offers a decentralized alternative to the cloud hosting services that currently dominate the lucrative market for data storage.

With public trading for the cryptocurrency already well underway, all eyes are likely to be on the markets, in addition to technology forums, where token holders are already queuing up with questions related to trading, token registration, airdrops and wallet compatibility. Clarity has been hard to come by, something that hasn’t been helped by a lack of dialogue from those who have been most publicly associated with the project.

Nevertheless, the upcoming launch process is not wholly mysterious. Most notably, the launch will begin 23 hours after the protocol’s publisher,, makes the code available as open-source software. The release of the code, however, will be the extent of’s involvement in the launch.

From there, a community of aspiring block producers — various entities competing to act as validators in the network’s delegated proof-of-stake system (dPOS) — will subsequently pick up the baton as part of an elaborate process that appears unorthodox, even in the evolving world of new blockchain technologies.

CoinDesk: The EOS Blockchain Launch: What Should Happen (HTML)

Giu 012018

Yves Mersch, Member of the Executive Board of the ECB, at the Frankfurt Finance Summit, Frankfurt, 29 May 2018 illustrated the key role played by central counterparties in Europe. During the 2008 financial crisis, counterparty risks became infamous. The failure of Lehman Brothers and the large losses suffered by AIG in over-the-counter derivatives markets revealed that there were counterparty risks throughout the entire financial system. This was due to the domino effect of counterparty defaults in leveraged products.

In the 2009 summit in Pittsburgh, G20 countries agreed to move all standardised derivatives contracts to clearing through central counterparties (or CCPs), yet CCPs can only make the financial system safer if they are safe themselves.

In the European Union, they are subject to a comprehensive regulatory framework. The European Market Infrastructure Regulation (or EMIR) ensures that they hold robust resources to deal with financial distress. The global regulatory push towards central clearing has contributed to making CCPs extremely important parts of the global financial system. In 2009, just 40% of all interest rate derivatives contracts were cleared through CCPs, but by 2017 this had increased to 83%.

The rising importance of CCPs means that their supervisory framework needs to be reformed. Most clearing is now done across borders and is strongly concentrated in a limited number of EU CCPs, which have become systemically important for the EU as a whole.

Furthermore, two of these CCPs are based in the United Kingdom and they currently clear around 95% of euro-denominated interest rate derivatives and around 30% of euro-denominated repos. Thus, a significant disturbance involving a major UK CCP could affect financial stability and market functioning across the EU.

On top of this, most of the liquidity provided by central banks tends to be channelled through the repo market. The United Kingdom’s withdrawal from the EU means the supervisory framework for non-EU countries must be adapted. EU authorities must continue to be able to not only closely monitor UK CCPs but ensure they comply with EU regulations.

In this sense, precautions have to be taken to ensure that CCPs do not become a weak point for monetary policy and the currencies issued by central banks. CCPs can pose significant risks to the smooth operation of payment systems and to monetary policy transmission in times of market stress.

For example, market volatility or failures in CCPs’ risk management may affect liquidity within the financial system and that of CCP users, who are typically monetary policy counterparties and key participants in payment systems. In extreme situations, liquidity shortfalls could foster contagion and lead to CCPs and banks becoming distressed.

This could mean the ECB needs to provide liquidity to systemic CCPs or to their members to ensure that payment systems continue to function smoothly and that monetary policy can be transmitted effectively. It is clear that, in such cases, liability and control need to be well aligned: the ECB must be able to monitor and control the risks posed by CCPs.

CCPs are also directly relevant for payment systems. Cleared markets represent a significant share of financial markets as a whole, meaning that CCPs are settling large payment volumes. In order to ensure that payment systems continue to function smoothly, the ECB must ensure that CCPs have appropriate arrangements in place for liquidity management and settlement in euro.

Moreover, in the past CCPs have increased margins and collateral haircuts beyond the levels required by prudential standards or their own risk models. But doing so they may cause liquidity strains and increase volatility in bond prices which, in turn, affects the transmission of monetary policy. To be clear, CCPs should of course make sure they remain resilient to liquidity risks. But they should do so in a predictable manner and based on sound risk models that should not undercut monetary policy decisions.

Yves Mersch: ECB Clearing – the open race, full press release (HTML)