Wednesday, September 30, 2020

Alarm Raised on Stock Loans for "Withholding Tax Schemes”

Findings Point to a New Role for Emerging Fintech

Author: David Schwartz

European commissioners are reviewing a study from their securities and market authority (ESMA) that includes a recommendation for new laws to combat unfair trading practices and an extended remit for National Competent Authorities (NCAs) to conduct snap audits of securities loans and transactors. Loans deemed to be suspicious would prompt an inquiry to determine penalties for unfair strategies and inappropriate beneficiaries. However, useful audit results may be doubtful based on our preliminary review that uncovered shortcomings in the proposed SFTR surveillance datasets, as well as possible flaws in the study’s basic methodology. 

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Wednesday, July 3, 2019

ESMA Takes a Look at Tax Withholding Schemes

Proposes Some Best Practices and Promises a Follow-up Study

Author: David Schwartz

The European Securities and Markets Authority (ESMA) has published the findings of its preliminary study of multiple withholding tax (WHT) reclaim schemes. ESMA conducted this preliminary study at the request European Parliament (EP) and has launched a formal inquiry to gather further evidence from national competent authorities (NCAs) on the supervisory practices and experience regarding those schemes.

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Friday, March 31, 2017

Lack of Haircut Data Hampers E.U. SFT Risk Assessment

Author: David Schwartz

The European Securities and Markets Authority (ESMA)’s report on Trends, Risks, and Vulnerabilities No. 1, 2017 (TRV) is the body’s latest effort to highlight areas of risk facing European financial markets. Noting that financial markets remained relatively calm since its last quarterly assessment, ESMA said that risks in the markets "remained at high levels, reflecting very high risk in securities markets, and elevated risk for investors, infrastructures, and services.” ESMA’s overall risk assessment remained unchanged with market and credit risks remaining at "the highest level,” while liquidity and contagion risk remained merely “high." The report also identified political and policy uncertainties following Brexit and the U.S. elections as well as potential repercussions from the upcoming elections in some E.U. member states as the main risk drivers for 2017. ESMA also expressed concerns about haircut levels in securities financing transaction (SFT) markets but said that lack of haircut data was a significant impediment to assessing risks in SFT markets.  

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Thursday, October 16, 2014

ESMA Proposes Mandatory Clearing for FX Non-Deliverable Forwards

Author: David Schwartz

The European Securities and Markets Authority is seeking input on its plans for mandatory central counterparty clearing of foreign exchange non-deliverable forwards (FXNDF). FXNDFs are cash-settled foreign exchange forward contracts that cannot result in physical delivery of the designated currencies at maturity. FXNDFs allow hedging of currencies where government regulations restrict foreign access to local currency or the parties wish to compensate for risk without a physical exchange of funds.

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Wednesday, October 8, 2014

What’s in a Name? Would a Derivative by Any Other Name Smell As Sweet?

Author: David Schwartz

The different approaches to the interpretation of MiFID I across Member States mean that there is no commonly-adopted application of the definition of derivative or derivative contract in the EU for some asset classes. Whilst this issue has in the past been noted as a concern since the implementation of MiFID, the practical consequences have come to the forefront with the implementation of the European Markets Infrastructure Regulation (EMIR).

What exactly is a derivative?  That’s precisely what the European Securities and Markets Authority (ESMA) wants to pin down with it’s latest consultation draft.  Why do they care?  Because ESMA is worried that inconsistent application of the definitions of derivative instruments could have a significant detrimental effect on the consistent application of European Market Infrastructure Regulation (EMIR). According to ESMA, it is imperative that references to the these derivatives definitions be clarified to ensure that regulatory authorities are all taking a common approach to setting reporting and clearing obligations in Europe.

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