Progress on European securities market
The international financial instability lingering since the
crisis broke out has triggered a raft of new regulations
that are changing the financial market playing rules.
With a view to mitigating the ramifications of the crisis
and addressing system shortcomings, a huge number of
regulations, sponsored by various international forums
(G20, EU), have been passed in the last five years.
One thing made abundantly clear by this crisis is its
global nature and the need for the various international
financial institutions to come up with multilateral solu-
tions. However, the reality has strayed from this ideal, as
most of the regulatory initiatives adopted by the EU to
offset the crisis have been heterogeneous, with some
contradicting individual initiatives pursued by member
states and the approach being taken in the US.
In addition to the profusion of regulations, the crisis
has sparked considerably more stringent obligations
and requirements on the part of the banks, with the
attendant danger that these entities will be lured into
shadow banking, as the Financial Stability Board (FSB)
has warned.
Since the crisis erupted, the European Union has been
immersed in a far-reaching overhaul of its financial regu-
lations. The goals of the standards adopted since then,
and those in theworks, can be grouped into three catego-
ries: (i) reinforced transparency, with a view to restoring
market confidence; (ii) reinforced bank solvency, in order
to ensure their ability to withstand new episodes of
stress; and (iii) investor protection, investors being the
weakest party in the contractual relationship. In these
matters, within the financial market arena, the equity
markets have proven over the past five years to uphold
strict transparency and investor protection standards.
• Reform of the Prospectus Directive.
By means of Regula-
tion (EU) 486/2012, amending the Prospectus Directive
as regards the format and the content of the prospectus,
the base prospectus, the summary and the final terms
and as regards the disclosure requirements, and Regu-
lation (EU) 862/2012, amending the Directive as regards
information on the consent to use of the prospectus,
information on underlying indexes and the requirement
for a report prepared by independent accountants or
auditors. These Regulations took effect on 1 July and 22
September 2012, respectively.
• Legislative proposal for bank recovery and resolution
dated 6 June 2012. The proposal contemplates new
crisis management measures to avoid future bank
• Proposal for a Regulation on packaged retail invest-
ment products
of 3 July 2012. The goal of this legis-
lation is to enhance retail investor protection. The
proposal introduces a new Key Information Document
(KID) for investment products which must include
specific information regarding the key characteris-
tics of the investment product in question, including
the risks and costs associated with the investment,
enabling retail investors to compare and contrast
products. Preparation of KIDs will be mandatory for
packaged investment products, which are products
whose returns depend on the performance of one
or more benchmark assets or securities other than
interest rates. The proposal specifically singles out
investment funds, insurance policies with investment
components, structured products and derivative
The idea is to restore investor confidence in the finan-
cial system by addressing the system shortcomings
highlighted by the crisis.
Key EU proposals and enacted regulations
The key regulatory initiatives affecting the securities
markets set in motion by the EU in 2012 include the
• Regulation on short selling.
On 14 March 2012, the EU
approved Regulation 236/2012 on short selling and
certain aspects of credit default swaps. The Regulation
took effect on 1 November 2012.
• Regulation on OTC derivatives.
With a view to
making over-the-counter (OTC) derivatives markets
more transparent and secure, on 4 July 2012, the EU
approved Regulation 648/2012 on OTC derivatives,
central counterparties and trade repositories, widely
known as EMIR. This Regulation took effect on 1
January 2013.
Key aspects of this legislative reform include the reduc-
tion of counterparty credit risk by forcing counterparties
to clear through central counterparties (CCPs); pan-Eu-
ropean harmonisation of the organisational, business
conduct, and prudential requirements to which CCPs
are bound; and the requirement to report OTC derivative
trades to the trade repositories, which information will
be accessible by national supervisors.
• Proposal to amend the Directive on undertakings
in collective investment in transferable securities,
known as UCITS IV,
of 3 July 2012. The amendment
would reinforce the role of the UCIT depositaries by
regulating their tasks and liabilities and introduce a
common approach to how core breaches of the UCITS
legal framework are sanctioned. The idea behind the
new sanction regime is to restore investor confidence
in the financial markets and enhance their functioning.
• Progress on the proposal for a Directive on access to
the activity of credit institutions and the prudential
supervision of credit institutions and investment
firms, known as CRD IV
. On 15 May 2012, the EU
reached an agreement on the legislative proposals
regarding capital requirements (CDR IV), with a view
to transposing the Basel III agreement reached in the
G20 into EU law.
Report 2012
Market Environment
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