UK Chancellor sets out package of major regulatory reforms in Mansion House speech
The UK Chancellor of the Exchequer Jeremy Hunt has presented a series of financial market reforms in his annual Mansion House address to the financial industry. Specifically, the Chancellor announced a series of measures intended to improve outcomes for savers and increase funding liquidity for high-growth companies through reforms to the UK’s pension market. This includes an industry-led compact committing nine of the UK’s largest defined contribution pension providers to the objective of allocating at least five per cent of their default funds to unlisted equities by 2030.
Other initiatives in the Mansion House reforms include a warm response to the investment research recommendations set out by the chair of the UK Listings Review Rachel Kent. The review recommends the establishment of a research platform to provide a central facility for the promotion, sourcing and dissemination of research as well as changes to the rules around how investment research is paid for. This is intended to remove barriers that UK buy-side firms face when buying research from jurisdictions where payment on a bundled basis is standard practice. The UK government will now consider the recommendations and legislate accordingly.
Finally, the Chancellor committed to replacing the Prospectus Regulation, putting in place a viable consolidated tape regime, and establishing a new intermittent trading venue before end-2024 to improve private companies’ access to capital markets before they publicly list.
The speech comes just after the Financial Services and Markets Act became law that will make significant changes to the structure of UK financial regulation. While this all fuels a narrative of regulatory divergence between the EU and the UK, there are also signs of growing cooperation between the two jurisdictions. Notably, the UK government and EU Commission have signed a memorandum of understanding (MoU) on bilateral regulatory cooperation in financial services. The first meeting of the EU-UK Financial Regulatory Forum is expected to be held in the autumn.
UK FCA consults on consolidated tape regime for bonds
The UK Financial Conduct Authority (FCA) has published proposals for consultation on a framework for a UK bond consolidated tape (CT). The regulator is seeking feedback on the criteria for how a CT provider would operate and how the tender process for deciding a CT provider should be run. For context, a CT collates market data, such as prices and volumes associated with trades in a financial market, and aims to provide a comprehensive picture of transactions in a specific asset class, bringing together trades executed on trading venues as well as those arranged over-the-counter. The FCA proposes that a CT for equities will follow the CT for bonds and is seeking thoughts on how a CT for equities should be approached. Comments are due by September 15, 2023 and the FCA intends for a CT for bond data to be operational in 2025 following a tender process and subsequent authorisation.
UK FCA publishes final guidance on the trading venue perimeter
The FCA has published its final guidance on the trading venue perimeter following consultation with industry. Providing firms across the trading ecosystem with greater clarity about the permissions they need is the main intention behind the final guidance. While a firm operating a multilateral system requires trading venue authorisation, the evolution of technological developments have made it more challenging to distinguish certain types of arrangements and systems from trading venues. The FCA intends that this new guidance will facilitate the correct identification of multilateral systems requiring authorization and will allow some flexibility to supervise the perimeter on a case-by-case basis. The guidance comes into force on October 9, 2023.
European legislators reach political agreement on the MiFIR Review
Legislators from the European Parliament and Council reached a political agreement on the revisions to the markets in financial instruments regulation and directive (MiFIR-D) that governs Europe’s trading and investment landscape. A key objective of this review is to facilitate the emergence of consolidated tapes in different asset classes to provide a holistic view of market data for investors to access key information such as price, volume and time. Significantly, the agreement represents a compromise on the consolidated tape for equities after significant debate between various stakeholders. Further, the agreement specifies that the practice of ‘payment for order flow’ whereby brokers receive payments for forwarding client orders to certain trading platforms will be phased out by end-June 2026. A number of other significant considerations such as non-equity transparency deferrals and the cost of market data will be subject to the technical review over the summer and then implementing measures to be drawn up by the European Supervisory Authorities (ESAs) once the legislation is final. A final text will be formally approved by both the European Parliament and EU member states in the coming months.
Thailand debuts fully digital platform for corporate bond issuance
The Stock Exchange of Thailand (SET), together with the Securities and Exchange Commission (SEC) and other industry bodies, launched the country’s first digitized platform for corporate bond offerings. This will be the first time that private debt securities in the primary market will be fully digitally supported throughout the process. The new platform, part of the SEC’s sandbox program, aims to enhance efficiency and transparency in Thailand’s capital market services, reduce costs and improve accessibility for issuers and investors. The overarching intention is to digitally transform Thai capital markets in response to current global trends.
SEC proposes amendments to the broker-dealer customer protection rule
The US Securities and Exchange Commission (SEC) proposed amendments to Rule 15c3-3 (Customer Protection Rule) to require certain broker-dealers to increase the frequency with which they perform computations of the net cash they owe to customers and other broker-dealers (known as PAB account holders) from weekly to daily. Net cash owed to customers and PAB account holders must be held in a special reserve bank account. The public comment period will remain open for 60 days following publication of the proposing release on the SEC website or 30 days after publication of the proposing release in the Federal Register, whichever period is longer.
Singapore finalizes approach for transitioning SIBOR loans to SORA
Singapore’s SC-STS (Steering Committee for SOR & SIBOR Transition to SORA) has finalized its recommendations on the approach to convert the Singapore Interbank Offered Rate (SIBOR) loans to Singapore Overnight Rate Average (SORA). In particular this will address the setting of adjustment spreads to account for the difference between SIBOR and Compounded SORA. The recommendations are intended to allow the industry to complete its transition from SIBOR ahead of its discontinuation after December 31, 2024. Market participants and customers with SIBOR loans are encouraged to adopt the guidance to convert their SIBOR exposures to SORA.
Bloomberg
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