conference on securities lending - rmahq.orglanding.rmahq.org/global/filelib/pasla/legal,_tax...u.s....

DAY 1: TUESDAY, 7 MARCH

THE 14th ANNUAL PASLA/RMA CONFERENCE ON SECURITIES LENDING

Industry Documentation and the ISDA Stay Protocol

1400 – 1430

Industry Documentation and the ISDA Stay Protocol

Learn about resolution planning, including the ISDA Stay Protocol, and an update on various jurisdictions.

Gain insight into other issues including a move from transfer of title to pledge, and Brexit to learn more

about the impact to documentation.

Moderators: Paul Landless, Partner, Clifford Chance, Singapore

Greg Lyons, Partner, Debevoise & Plimpton LLP, New York

Chen Xu, Associate, Debevoise & Plimpton LLP, New York

Panelists: Jenny Cosco, Co-Head Government Affairs Asia-Pacific, Goldman Sachs (Asia) LLC, Hong Kong

Glenn Horner, Managing Director, Chief Regulatory Officer/Securities Finance, State Street, Boston

Rebecca Terner Lentchner, Head of Government Relations APAC, BNY Mellon, Hong Kong

The statements and opinions expressed by the panelists are those of the panelists as of March 1, 2016 and do not represent the views of any

organization. This is for general information purposes only and is not intended to provide legal, tax, accounting, investment, financial or other

professional advice on any matter. This information does not constitute a recommendation of any kind.

Agenda

• Brief Overview

• Overview of Regulations

• Beneficial Owner Issues

• Agent Bank Issues

• ISDA Protocol Adherence Mechanics

Special Resolution Regimes

• Special Resolution Regimes. As a result of difficulties during the financial crisis in resolving large, complex financial institutions, regulators have been putting into place “special resolution regimes” (“SRRs”) in order to facilitate complicated resolutions.

• Resolution Powers. Examples of special resolution powers that may be relevant to securities lending include:

– Stay on Default Rights. SRRs may provide that counterparties cannot exercise default rights (termination, foreclosure of collateral) in connection with the insolvency for a period of up to two business day s(in some cases permanently).

– Transfer to Bridge. Under a single point of entry strategy, the receiver may transfer assets/liabilities of the failing entity to a bridge entity.

– Suspension of Payment Obligations. SRRs may provide that payment and delivery obligations of parties to financial contracts are suspended for up to two business days.

– Bail-In of Liabilities. SRRs may provide regulators with the power to bail-in or write down liabilities of a failing entity, e.g., converting debt to equity to prevent insolvency.

Expansive Resolution Powers

Lender Borrower(MSLA)

Examples of Issue

• Example of Issue . Suppose that the Foreign Broker Borrower becomes insolvent and becomes subject to the SRR in the Foreign Broker’s home country (e.g. UK BRRD for UK borrowers).

– Under the SRR, the Foreign Broker Borrower’s financial contracts are likely to be stayed, including securities financing contracts like the MSLA.

– Since the MSLA is governed by U.S. law (although the FDIC might disagree) it is not entirely clear that the U.S. Lender would be subject to stays under that SRR.

• Contractual Clarity is Needed. SRRs will not work for large international financial institutions unless there is cross-border recognition.

– One possible solution is to have the parties amend their MSLA to have the U.S. Lender recognize stays provided under the Foreign Broker Borrower’s SRR.

Governing Law = U.S. Law

U.S. LenderForeign Broker

Borrower

(U.S. MSLA)

ISDA Resolution Stay Protocol

• ISDA Protocol. The Protocol implements the solution discussed on the previous slide.

– In 2014, regulators and industry groups finalized a Protocol for derivative transactions.

– An updated form (which would include SFTs) was finalized in 2015.

– A modified version of the Protocol has been finalized that allows a broader range of adherence by market participants and to allow compliance with related regulations promulgated by the various participating jurisdictions.

• Completely Voluntary. The Protocol is just an industry standard document. “Adherence” to the Protocol is entirely voluntary.

– The Protocol is not really mandatory for G-SIBs (and their subsidiaries).

– Although the Protocol is voluntary, regulators see the Protocol as the primary means through which to comply with upcoming regulations, discussed on the slide below.

Contractual Recognition of Stays

Rgulations

• Implementing Regulations. Almost all participating jurisdictions indicated that their proposals would be finalized in the coming year.

– The basic requirement of each country’s regulations would be to require domestic regulated financial entities to require their counterparties to recognize the cross-border application of stays under that country’s SRR.

– Example: the UK regulation requires UK credit institutions and investment firms to require their counterparties to agree to recognize stays under UK BRRD.

• Status Update.

– German Legislation has been finalized.

» Applies to financial contracts governed by third country law.

» Entities incorporated abroad are also included, unless the contracts do not have obligations guaranteed by a German domestic entity.

– U.K., Japanese and Swiss regulations in finalized.

– U.S. Regulations expected by the end of the year.

» Proposal applicable to QFCs with U.S. G-SIBs and the U.S. operations of foreign G-SIBs.

Contractual Stay Regulations

Representative Examples

• Coverage of Regulations. If regulations in the foreign parent’s country apply to the U.S. broker, the U.S. Broker’s counterparty (U.S. Lender) must adhere to the Protocol with respect to A.

– Some jurisdictions will not require A to be subject to the scope of their regulations (e.g. Germany).

• Parent Insolvent; Broker Solvent. Assuming no cross-default rights under A, if the Foreign Parent becomes subject to an SRR in its home country, but if the U.S. Broker remains solvent, then the U.S. Lender may exercise termination rights against the U.S. Broker with respect to A (so long as the termination rights are not tied to FP’s insolvency).

– Note that the U.S. Lender may exercise termination rights regardless of whether it has adhered to the Protocol, i.e. adherence does not affect substantive rights.

• Broker Insolvent. Assuming no cross-default rights, if the U.S. Broker became insolvent, it would become subject to OLA or SIPA proceedings. If subject to OLA, the U.S. Lender would be stayed from exercising termination rights against the U.S. Broker with respect to A. If subject to SIPA, the U.S. Lender could close out transactions subject to SIPA requirements (generally, immediately for cash collateral, and for non-cash collateral identified in SIPC letters, after submitting an affidavit to SIPC and approval has been granted).

U.S. Subsidiary of Foreign Parent (Protocol is not an Issue)

U.S. Lender

Foreign Parent

U.S. BrokerBorrower

A (U.S. MSLA)


• Examples. This example may not be applicable under every jurisdiction’s regulations, but it seems like Germany and the UK have adopted this model.

• Coverage of Regulations. If B is governed by U.S. law, the foreign broker’s regulations may require adherence from the U.S. lender, since there is ambiguity as to whether the a U.S. court would recognize the foreign broker’s special resolution regime.

– The US. Lender may achieve compliance with the regulations by adhering to the Modular Protocol.

• Broker Solvent. Suppose that the Foreign Broker Borrower becomes insolvent and becomes subject to the SRR in the Foreign Broker’s home country (e.g. UK BRRD for UK borrowers).

– Under the SRR, the Foreign Broker Borrower’s financial contracts are likely to be stayed, including B.

– Since B is governed by U.S. law (although the FDIC might disagree) it is not entirely clear that the U.S. Lender would be subject to stays under that SRR.

– The U.S. Lender, however, has adhered to the Protocol pursuant to the Foreign Broker Borrower home country’s regulations. B is therefore subject to stays.

Governing Law = U.S. Law


Borrower

B (U.S. MSLA)


• Examples. This example may not be applicable under every jurisdiction’s regulations, but it seems like Germany and the UK have adopted this model.

• Coverage of Regulations. If C is governed by the law of the jurisdiction of the Foreign Broker Borrower, the U.S. Lender will likely not required to adhere.

• Broker Solvent. Suppose that the Foreign Broker Borrower becomes insolvent and becomes subject to the SRR in the Foreign Broker’s home country (e.g. UK BRRD for UK borrowers).

– Under the SRR, the Foreign Broker Borrower’s financial contracts are likely to be stayed, including C.

– Since C is governed by home country law, there is no choice of law issue that would give rise to confusion as to whether the SRR applied to C.

– The U.S. Lender’s adherence to the Protocol is therefore unnecessary (and not likely to be required under regulations).

Governing Law = Foreign Broker’s Home Country


Borrower

C (Foreign MSLA)

Protocol Legal Impacts

• Substantive Rights. The Protocol only modifies substantive rights with respect to B. In A, the underlying SRR is unlikely to stay contracts of a solvent subsidiary. In C, the underlying SRR applies unambiguously to the arrangements, so adherence is not required.

• Adherence Requirement. Only A and B are likely to generate an adherence requirement under applicable regulations. This is because there is no legal uncertainty under C, whereas A and B are governed by the law of a foreign country (from the perspective of the foreign borrower).

Beneficial Owner Issues

• SRR Diligence. Beneficial owners will need to conduct diligence to ensure that they understand the amendments that regulators are requiring them to make.

– Which SRRs (based on counterparty) are implicated by transactions with which active counterparties?

– What types of resolution powers might be applied to covered transactions?

– Would any substantive rights are actually affected by the amendments.

– Would the amendments consistent with the beneficial owners’ fiduciary duties?

• Legal Documentation.

– What steps are necessary (e.g., signing agent consent) to comply via an industry standard protocol (the preferred method of compliance)?

» What are the additional step/costs required to comply on a bilateral basis?

– Is any authorizing documentation required to make amendments on behalf of any beneficial owner client accounts?

– Would agreeing to amendments be consistent with client investment parameters and with any regulations applicable to covered transactions?

• Business Level Changes. Beneficial owners may wish strengthen borrower creditworthiness criteria, or may wish to increase collateralization with respect to affected counterparties.

SRR Checklist

Agent Bank Issues

• Client Outreach. Agent lenders will need to conduct client outreach to beneficial owners to educate them on any changes required by SRRs and related regulations.

• Documentation Issues. Agents will need to address a number of topics related to legal documentation:

– Agents should review their existing documentation (MSLAs and SLAAs) to confirm whether amendments are necessary, and with respect to which borrowers.

– Certain agents may need to review SLAAs for changes necessary to accommodate resolution stays, e.g. indemnification triggers.

– Agents will need to draft consents giving the agent authorization to adhere to the Protocol in question

– Agents should build out compliance processes related to industry standard protocol (the preferable method of compliance).

» Agent may consider whether bilateral amendment are operationally feasible.

• Operational Issues. Agents will need to:

– Ensure that client adherence is managed consistently across business lines (e.g. derivatives, sec lending and repo) within their organization.

– Manage bilateral adherence (including potential one-off revisions to MSLAs), to the extent Protocol adherence is not desirable.

– Consider processes and procedures that need to be put into place as new beneficial owners/borrowers are brought into the relationship.

SRR Checklist

ISDA Protocol Adherence Mechanics

• RMA Documentation Initiative. We are working together with RMA to develop industry standard documentation with respect to agent bank adherence to Protocols.

– Compliance with these regulations has become even more important for many institutions as foreign banks are shifting the borrowing entity from the U.S. broker-dealer to the foreign parent (e.g., for capital reasons).

• Client Education. Clients will need to be educated as to the consequences of the various SRRs and (effectively) opting into those regimes.

• Consents. As a matter of best practice, agents will need to obtain client consent to agree to any amendments, as these amendments involve substantive changes to documentation.

• ISDA Protocols. Compliance may be achieved by signing up to an ISDA jurisdictional module.

– Adherence Letter. Submit an adherence letter to ISDA (as undisclosed agent) and pay a one-time $500 fee.

» In the letter, the agent may specify adherence with respect to all or certain borrowers, and all or certain lending clients.

– Notification of Borrowers. The Agent will need to notify borrower of its adherence on behalf of clients.

– Underlying Funds Notice. The Agent will need to tell borrower on whose behalf it has adhered, and with respect to which agreements.

» If new clients are added, no new adherence is necessary; you can simply update the list.

Jurisdictional Modular Protocol

Appendix

Appendix: Resolution Regulations

Resolution Stay Laws/Regulations

• Scope of Covered Entities. Covers U.S. Global Systemically Important Banking Institutions (G-SIBs) and the U.S. operations of foreign G-SIBs, and their subsidiaries an affiliates worldwide.

• Scope of Contracts. Includes all “qualified financial contracts,” a term that not only includes the main sec lending/borrowing, repo and derivatives contracts, but also guarantees of such contracts.

– Includes G-SIB agent SLAAs where the G-SIB agent provides borrower default indemnification.

• Basic Prohibition. The U.S. proposals contain two basic prohibitions:

– Recognition of FDIA/OLA. Covered QFCs of covered entities must explicitly acknowledge the applicability of stays and transfers under FDIA and OLA.

– Prohibition against Cross-Defaults. Covered QFCs may not contain cross-defaults tied to affiliate insolvency.

• Effective Date. The rule is expected to be finalized in the first half of 2017 and be effective in 2018 (as to all new contracts entered into thereafter; existing master agreements would be affected to the extent new trades are conducted under those agreements).

United States: Restrictions on Qualified Financial Contracts of Systemically

Important Banking Organizations


• Scope of Covered Entities. Covers “BRRD undertakings”, including:

– PRA-authorized banks, building societies, PRA-designated investment firms (brokers) and their qualifying parent undertakings; and

– Subsidiaries of the above that are credit institutions, investment firms and financial institutions, regardless of domicile.

• Scope of Contracts. Broader coverage than ISDA Universal Resolution Stay Protocol (USRP); all non-European Economic Area (EEA) law governed “financial arrangements” covered (e.g., bespoke sec lending and repo agreements). The regulation excludes:

– UK or EEA law governed agreements;

– agreements that do not contain “relevant” termination rights or rights to enforce a security interest;

» “relevant” in this context means those rights the enforcement of which could be suspended, prevented or would be otherwise disregarded under the UK BRRD.

– agreements entered into by subsidiaries whose obligations are neither guaranteed nor otherwise supported by a UK firm; and

– agreements with payment and securities settlement systems, central counterparties and central banks.

United Kingdom: Contractual stays in financial contracts governed by third-country

law (PS25/15)


• Basic Prohibition.

– Covered entities may not create a new obligation or materially amend an existing obligation under a non-EEA law governed financial arrangement unless their counterparty agrees to be bound by the same termination or security interest rights as would be entitled to under UK law and stay provisions under the UK Special Resolution Regime (SRR).

» The prohibition is a trading prohibition, i.e., UK firms cannot do trades that do not comply with the rule.

• Effective Date.

– June 1, 2016 for counterparties that are credit institutions or investment firms; January 1, 2017 for all other counterparties.

– Only retroactive for financial arrangements after a material change to the substantive terms of the contract; automatic rollovers would not be considered material.

United Kingdom: Contractual stays in financial contracts governed by third-country

law (PS25/15)


• Scope of Covered Entities. German regulated financial institutions and their worldwide affiliates.

– Foreign subsidiaries are covered only if the obligations are guaranteed or otherwise supported by a German entity.

• Scope of Contracts. Covers “financial contracts” governed by non-EEA law or for which the legal venue is a non-EEA country (also broader than the ISDA URSP). Excludes:

– liabilities incurred prior to January 1, 2016, except where the relevant liability is part of a netting agreement that also includes liabilities entered into after January 1, 2016;

– financial contracts or master agreements with systems or operators of systems, central counterparties or central banks.

• Basic Prohibition. Covered entities must include a provision in their non-EEA law governed financial contracts acknowledging and accepting the applicability of stays on termination and other contractual rights applicable under German insolvency law.

– Unlike the UK rules, the German law is not a trading prohibition. ISDA and German firms have reported that BaFin has granted waivers permitting limited non-compliance.

• Effective Date. January 1, 2016 (subject to the limitations on retroactivity discussed above).

Germany: Act on the Reorganization and Liquidation of Credit Institutions,

(As Amended September 2015)


• Scope of Covered Entities. Swiss regulated banking institutions (at the institution and group level).

• Scope of Contracts. Agreements subject to foreign law or “envisage” a foreign jurisdiction (also broader than the ISDA URSP).

• Would only cover new contracts or amendments to existing contracts entered into on or after the effective date.

• Basic Prohibition. Counterparties under covered contracts must recognize the applicability of postponement of the termination of the contract in accordance with Article 30a of the BankA.

– The ordinance is “barebones”; FINMA has opened consultation on a more detailed guidance/partial revision of the FINMA Banking Insolvency Ordinance.

• Basic Prohibition. Counterparties under covered contracts must recognize the applicability of postponement of the termination of the contract in accordance with Article 30a of the BankA.

– The ordinance is “barebones”; FINMA has opened consultation on a more detailed guidance/partial revision of the FINMA Banking Insolvency Ordinance.

• Effective Date. January 1, 2016 (regulations implementing the ordinance are expected to be effective 2Q 2017). Regulations are final, but an official translation not yet available.

Swiss Confederation: Ordinance on Financial Market Infrastructures and

Market Conduct in Securities and Derivatives Trading

(2015); Banking Ordinance of 30 April 2014 (Article 12)

International Resolution Stay Laws/Regulations

• Scope of Covered Entities. Article 55 of the BRRD applies to EU incorporated banks and qualifying investment firms, their EU incorporated holding companies, their subsidiaries that are EU financial institutions, and certain affiliates.

– Non-EU incorporated firms and their EU branches are out of scope.

• Scope of Contracts. Non-EEA law governed contracts that include in-scope liabilities (most types of liabilities). There are notable exclusions for:

– EU insured deposits;

– deposits placed by individuals and small and medium sized companies;

– secured liabilities (only to the extent of the value of any security);

– short maturity liabilities (under 7 days) to other unaffiliated banks/investment banks; and

– certain liabilities to critical suppliers of goods or services, and to employees.

• Basic Requirement. The basic requirement is that contracts that contain in-scope liabilities must include a description of the relevant bail-in powers and must include an acknowledgment and acceptance of those bail-in powers.

• Effective Date. The BRRD imposed deadline for EU member states to adopt Article 55 and publish implementing legislation and regulations is January 1, 2016, but the details of implementation will vary from jurisdiction to jurisdiction.

Europe: Contractual Recognition of Article 55 Bail-In

Securities Lending Legal, Tax and

Regulatory Update

1430 – 1600

Legal Tax and Regulatory Update

Learn about global regulatory environment such as the upcoming issues presented by “Basel 4”, FSB's

Shadow Banking Work Stream updates, Basel III Capital, Leverage and Liquidity Rules, Single

Counterparty Credit Limits, and other global proposals affecting beneficial owners, agent lenders, broker

dealers, and hedge funds in the Asia/Pacific region.

Moderators: Paul Landless, Partner, Clifford Chance, Singapore

Greg Lyons, Partner, Debevoise & Plimpton LLP, New York

Chen Xu, Associate, Debevoise & Plimpton LLP, New York

Panelists: Jenny Cosco, Co-Head Government Affairs Asia-Pacific, Goldman Sachs (Asia) LLC, Hong Kong

Glenn Horner, Managing Director, Chief Regulatory Officer/Securities Finance, State Street, Boston

Rebecca Terner Lentchner, Head of Government Relations APAC, BNY Mellon, Hong Kong

The statements and opinions expressed by the panelists are those of the panelists as of March 1, 2016 and do not represent the views of any

organization. This is for general information purposes only and is not intended to provide legal, tax, accounting, investment, financial or other

professional advice on any matter. This information does not constitute a recommendation of any kind.

Agenda

• Overview and Market Update

• Basel IV Reforms

– Core Basel IV Reforms (Constraints on IRB, Capital Floor)

– Other Basel Reforms (Op. Risk, SA-CCR)

• U.S. Developments

– Single Counterparty Credit Limits

– Net Stable Funding Ratio (NSFR)

– Prudential Overlay

• Trump Administration

• Appendices

2

Overview and Market Update

3

Where We Are – Where We’re Going

4

TimelineUnited States

CECL Finalized

NSFR Proposed

Intermediate Holding Companies

Physical Commodities NPR

QFC Contractual Stays Proposed

QFC Recordkeeping

SCCL Re-Proposed

Money Market Reform Effective

TLAC

2016 2017 and beyond

Standardized Approach Revisions

Revisions to Basel III Leverage

Constraints on IRB Models

Capital Floor

Standardized Op Risk

FSB Shadow Banking Initiatives

U.S. SA-CCR (?)

QFC Stay Rules

Basel IV

Basel Committee

FRTB

Standardized Op Risk

Proposed

Revisions to the

Securitization

Framework

TLAC

Basel III Status Update

5

Risk-Based Capital Shortfalls

Basel III Status Update

6

LCR and NSFR Shortfalls

7

Core Basel IV Reforms

Revisions to the Standardized Approach

• Issue. The current standardized framework for calculating exposures to securities lending transactions has several shortcomings:

– Diversification. The current approach does not recognize the benefits of diversification within a portfolio (e.g., diversification may offer some protection against significant declines in prices of loaned securities during a buy-in).

– Correlation. The current approach assumes that securities on loan will always increase in value and collateral will always decrease in value, regardless of correlations between long and short positions (e.g., it is unlikely that Google stock would rise and Apple Stock would fall by ~11% during a period of market stress).

8

Securities Lending Example

Google StockGeneral Electric StockTesla Motors StockFannie Mae Bond

Securities on Loan

CashU.S. TreasuriesGE BondApple Stock

Collateral Pool

RWA

Not Yet Final


• Impact. Potentially significant decrease in capital charges for indemnified agency securities lending activity under the standardized approach.

• Basel Proposal. Basel has proposed to allow banks to recognize up to 40 percent of the benefits arising from correlation between positions.

– Basel framework expected to be finalized by year-end. U.S. to consider adopting Basel framework when finalized.

– Knock-on effects to single-counterparty credit limits/large exposures.

– Although the Basel Committee has proposed to retain VaR for banks that use the IMM, unclear how the U.S. might interpret this provision.

9

Securities Lending Example

Google StockGeneral Electric StockTesla Motors StockFannie Mae Bond

Securities on Loan

CashU.S. TreasuriesGE BondApple Stock

Collateral Pool

RWA

Not Yet Final


10

Comparison of Methodologies

-$25,000

$0

$25,000

$50,000

$75,000

$100,000

$125,000

$150,000

$175,000

$200,000

Mark-to-Market Basel III Standardized Basel IV Standardized

Cash Collateral

Not Yet Final


11


-$25,000

$0

$25,000

$50,000

$75,000

$100,000

$125,000

$150,000

$175,000

$200,000


Fixed Income Collateral

Not Yet Final


12


-$25,000

$0

$25,000

$50,000

$75,000

$100,000

$125,000

$150,000

$175,000

$200,000


Equities Collateral

Not Yet Final

Constraints on Internal Models

13

Variability in RWA

• Variation in RWA. The Basel Committee has found significantly higher variation in RWA under Basel II (IRB) than under Basel I.

• Reducing Variability. One of the Basel Committee’s outstanding goals under Basel IV is to reduce the complexity of the Basel framework, improve comparability and address what it perceives as excessive variability in credit RWA.

• Consultation. In March 2016, the Basel Committee published a consultative document on “Reducing variation in credit risk-weighted assets – constraints on the use of internal model approaches.”

Source: Basel Committee, July 2013

Not Yet Final

Constraints on Internal Models

14

Convergence towards Standardized

• Use of Internal Models. The Basel Committee is proposing to:

– Eliminate IRB certain exposures: banks and other financial institutions, large corporates (corporates that are part of consolidated groups with total assets > €50B); and equities.

– Introduces a floor to the internal models method for measuring counterparty credit risk based on a percentage of the standardized approach.

• Impact. Further erosion to the benefits enjoyed by large advanced approaches banks.

• Other Changes. Other changes include exposure-level floors for model parameters and limitations on the range of acceptable practices in estimating model parameters. Basel Committee separately reviewing sovereign exposures

Source: Basel Committee, July 2013

Not Yet Final

Basel Capital Floor

0

20

40

60

80

100

RWAs

Standardized RWA

IRB RWA

70% Capital Floor

15

International Collins Amendment (Lite)

• U.S. Collins Amendment. Currently, in the United States, the largest banks must calculate under both the standardized approach and advanced approaches and take the worse of the two as their binding constraint.

• Basel Proposal. The Basel framework currently does not contain a standardized floor. The Basel Committee is expected to propose a capital floor by the end of this year.

– For example, if a bank’s advanced (IRB) approaches calculation result in 60% of the RWAs as under the standardized approach, the institution would manage to 70% of standardized RWAs rather than use the IRB RWA.

• Impact. Depending on where the floor is set, this could have a significant impact on EU banks.

Not Yet Final

16

Other Basel IV Reforms

Basel Standardized Operational Risk

• Second Consultation. In March 2016, the Basel Committee re-proposed a standardized measurement approach for operational risk.

– Expected to be finalized by 4Q 2016/1Q 2017

• No Internal Models. The consultation removes the availability of internal models (the “Advanced Measurement Approach”) to measure operational risk capital.

• Basic Formula. The SMA generates a capital requirement by combining the Business Indicator (BI), a simple financial statement proxy of operational risk exposure, with a Loss Component (LC) consisting of bank-specific operational loss data.

• Impacts. Although the Basel Committee’s intent is not to increase overall capital requirements, many banks (e.g., EU banks) may face significantly higher operational risk capital charges.

– For certain advanced approaches banks in the U.S., operational risk accounts for a very large percentage of RWA.

Standardized Measurement Approach (SMA)

SMA Capital Requirement

LC

BI

17

Not Yet Final

Revised Operational Risk Capital

• Operational risk accounts for 28% of the RWAs for the five largest U.S. investment banks, compared with 12% at European banks.

• Under the proposed Basel Committee revisions, European banks are expected to see steeper increases in RWAs than U.S. banks.

– European banks tend to use scenario-based models to calculate operational risk, whereas U.S. banks tend to use the loss distribution approach.

– The loss distribution approach is broadly comparable to the proposed Basel Committee revisions.

18

Impact on European Banks

Source: Risk.net, April 11, 2016

Not Yet Final

U.S. Basel III Risk-Based Capital

19

Standardized Approach for Measuring Counterparty Credit Risk Exposures (SA-CCR)

• Final Basel Framework. Basel Framework finalized in 2014.

• Key Features• Differentiates between margined and un-

margined trades• Provides more meaningful recognition of

netting• More accurately captures volatilities over

recently observed stress periods• Risk sensitive, but minimizes discretion

by national authorities and banks

• Implementation Timeline• Basel implementation by January 1, 2017,

but national regulators have yet to formally propose

• U.S. regulators still reviewing

Potential U.S. Implementation

Not Yet Final

U.S. Single Counterparty-Credit

Limits

20

Single Counterparty Credit Limits

Overview

Single Counter-Party Credit Limits

• Bank’s credit exposure to unaffiliated counterparties limited to 25% of bank’s eligible capital base

• More limited eligible capital base for large banks

• More stringent 15% G-SIB-to-G-SIB limit

Stringent Calculation Requirements

• Banks must aggregate credit exposures of any affiliates (25% ownership test)

• “Counterparty” includes any affiliates (and more)

• U.S. government and qualifying central counterparties excluded

SCCL Formula

��

��≤��%

21

Federal Reserve Re-Proposal

Maximum Exposure

Credit Exposures

Counterparty

BankBank and Affiliates

Counterparty and Affiliates

Secu

rities Fin

an

ce

Not Yet Final

Single Counterparty Credit Limits

Impact on Counterparty Activities

Impact on Banks/Brokers

• Must look for a broader range of counterparties

• Increased burden on inter-G-SIB funding (including repo)

• Brokers will need information on counterparties not necessarily currently provided through disclosure/on-boarding

Operational Impacts

• Banks/brokers must build out operational capabilities; large banks must calculate daily and report monthly

• Increased incentive to move towards central clearing

22

Federal Reserve Re-Proposal

Maximum Exposure

Credit Exposures

Counterparty

BankBank and Affiliates

Counterparty and Affiliates

Secu

rities Fin

an

ce

Not Yet Final

23

Net Stable Funding Ratio (NSFR)

U.S. Basel III Liquidity

24

Net Stable Funding Ratio

Required Stable Funding

Dealer Inventory

• Funding Risk• NSFR focuses on obtaining stable

funding (6mo+ time horizon)

• Available Stable Funding• Overnight/short-term funding from

financial institutions generally does not qualify as “available”

• Required Stable Funding• Trading Book Inventory must be funded• Derivatives/Repo Receivables must also

be funded

• General Themes• Impact on principal-based activity• Increased demand for certain asset

classes (e.g., U.S. Treasuries)• Most impactful on traditional investment

banking monoline model.

Derivative/SFT Assets

Available Stable FundingCounterparty-Based Activities

Regulatory Capital

Retail Deposits

Debt with residual maturity of at least 6 months

Other Balance Sheet Assets

U.S. Basel III Liquidity

25

Net Stable Funding Ratio

More Favored Less Favored

• Retail deposit funding• Rates (treasury and agency)

• Short-term wholesale funding• Financial institution deposits• Non-operational corporate

deposits• Equity derivatives• Prime brokerage• Repo• Non-agency MBS• Municipal securities• Credit products• Structured products

Impact By Product-Line

26

U.S. Prudential Overlay

Capital Planning and Stress Testing

27

CCAR and DFAST

• Stress Testing Plans• Capital Planning (CCAR)• Supervisory Stress Testing (scenarios

created by regulator)• Company-Run Stress Testing (company

created scenarios)

• Revisions to CCAR• Tailor CCAR to remove certain large and

non-complex firms from the qualitative assessment ($50B - $250B and total consolidated nonbank assets of <$75B

• Decrease the de minimis distribution threshold from 1.00% to 0.25%

• Future Changes• Incorporation of G-SIB surcharge into

CCAR to come

Stress Testing

Resolution Planning

General Principle: Firms should have the liquidity capabilities necessary to execute their preferred resolution strategies (e.g., those described in SR 14-1)

28

Pre-Positioning Liquidity

Resolution Liquidity Adequacy and Positioning (RLAP)

Material Entity Liquidity

• Firms should be able to measure the stand-alone liquidity position

of each material entity

Planning Horizon

• RLAP model should cover a period of at least 30 days and should

reflect the idiosyncratic liquidity profile and risk of the firm

Design Principles

• RLAP model should not rely exclusively on either full pre-

positioning or the parent

• RLAP model should ensure the holding company holds sufficient

HQLA to cover the sum of all stand-alone material entity net

liquidity deficits

• RLAP model should account for daily contractual mismatches,

daily flows from movement of cash and collateral from inter-

affiliate transactions and potential trapped liquidity

Assumptions

• Liquidity position of each material entity should be measured

using a firm’s internal liquidity stress test assumptions (inter-

affiliate exposures should be treated as third-party)

• Firm should not assume that a net liquidity surplus at one material

entity could be moved to meet net liquidity deficits at other

material entities

Resolution Liquidity Execution Need (RLEN)

Post-Resolution Liquidity

• RLEN requires firms to have a methodology for estimating the

liquidity needed after a parent’s bankruptcy filing to stabilize the

surviving material entities.

Design Principles

• RLEN methodology should estimate the minimum operating

liquidity (MOL) for each material entity

• RLEN methodology should provide daily cash flow forecasts by

material entity

• RLEN methodology should provide a comprehensive breakout of

all inter-affiliate transactions and arrangements

• RLEN methodology should estimate the minimum amount of

liquidity required at each material entity to meet both MOL and

peak needs

Assumptions

• MOL estimates should capture material entities’ intraday liquidity

requirements, operating expenses, working capital needs and

inter-affiliate funding frictions

• Peak funding needs should be projected for each material entity

• Forecasts of MOL and peak funding should ensure that material

entities could operate post-filing and should inform the RLEN

estimate

• RLEN should be tied to a firm’s governance mechanisms and

should be incorporated into the firm’s “playbooks”

29

Trump Administration


• Core Principles Executive Order. On February 3, 2017, President Trump issued an Executive Order titled “Core Principles for Regulating the United States Financial System.

– Directs the Treasury Secretary to consult with the member agencies and report on whether the existing legal and regulatory framework promotes certain “Core Principles.”

• Core Principles. Although somewhat “coded,” the Core Principles appear to address a number of core financial regulatory issues:

– The Orderly Liquidation Authority and living wills;

– The use of cost-benefit analysis in the rulemaking process;

– Regulatory capital and liquidity rules;

– The process by which various standard setting bodies arrive at decisions (e.g., the Basel Committee and the Financial Stability Board);

– CCAR and other supervisory processes that are conducted without rulemaking; and

– The structure and operation of the Consumer Financial Protection Bureau.

30

Executive Orders


• Executive Orders. President Trump recently signed a number of executive orders that may impact federal banking regulations, including:

– One in, two out. An executive order that require Executive agencies to revoke two regulations for every new regulation they request. The federal banking agencies are not subject to the order, because they are considered “independent agencies” for these purposes.

» The White House issued a follow-up memorandum (FAQ) that “encourage independent regulatory agencies to identify existing regulations that, if repealed or revised, would achieve cost savings that would fully offset the costs of new significant regulatory actions.”

– Suspension. An executive order suspending the rulemaking activities of the Executive agencies.

31

Executive Orders


• Tarullo. Governor Dan Tarullo announced that he was retiring in April 2017.

• Scott Alvarez. The FRB’s long-time GC announced that he would step down in 2017.

• FRB Vice-Chair of Supervision. Trump is rumored to be appointing David Nason (formerly of GECC) to the position of FRB Vice-Chair of Supervision (a role ironically established by the Dodd-Frank Act).

32

FRB Personnel Changes

Department of Labor Fiduciary Rule

• Impending Deadline. The impending compliance date for the new Department of Labor (DoL) fiduciary duty rule April 10, 2017.

• Trump Administration Memo. On February 3, 2017, President Trump issued a Memorandum for the Secretary of Labor directing the DoL to examine more closely the legal and economic impact of its recently finalized fiduciary duty rule.

– The Memo directs the DoL to consider certain impacts.

– If the DoL makes certain affirmative findings, it must propose a new rule that rescinds or revises the existing rule.

– Earlier drafts of the Memo included a 180 day postponement. The final Memo does not include such a delay.

33

Trump Executive Order

Clifford Chance

SFTR and Shadow Banking

1

Objective of FSB’s work: Ensuring that shadow banking is subject to appropriate oversight and regulation to address bank-like risks to financial

stability emerging outside the regular banking system

Not inhibiting sustainable non-bank financing models that do not pose bank-like risks

Proportionate approach to financial stability risks, focusing on activities material to the system

Provide a process for monitoring the shadow banking system so that rapidly growing new activities that pose bank-like risks

can be identified early and those risks addressed

–FSB’s approach in defining the shadow banking system:

1. Authorities to cast the net wide, looking at all non-bank credit intermediation to ensure that data gathering and surveillance

cover all areas where shadow banking-related risks to the financial system might arise

2. Authorities to narrow the focus to the subset of non-bank credit intermediation where there are: (i) developments that

increase systemic risk, and/or (ii) indications of regulatory arbitrage that is undermining the benefits of financial regulation.

SFTR in the context of shadow

banking regulation

2

Maintain

consistency

across

jurisdictions in

applying the

policy framework

Minimise gaps in

regulation or new

regulatory

arbitrage

opportunities

Overarching

principles to

ensure non-bank

financial entities

identified as

posing shadow

banking risks are

subject to

oversight

Optional policies

from which

authorities can

draw

Identify sources of shadow

banking risks in non-bank

financial entities from a

financial stability perspective

Focus on credit intermediation

activities by non-bank financial

entities that are close in nature

to traditional banks

Policy framework for shadow banking entities


banking regulation

Information-sharing

Policy toolkits

Five economic functions

3


banking regulation

FSB’s two-pronged

strategy to address

financial stability

risks in shadow

banking

1. Creation of a system-

wide monitoring

framework to track

developments in the

shadow banking

system

2. Coordinating and

contributing to the

development of

policies to strengthen

oversight and

regulation of shadow

banking

i. Mitigating risks in banks’

interactions with

shadow banking entities

ii. Reducing the

susceptibility of money

market funds to “runs”

iii. Improving transparency

and aligning the

incentives in

securitisation

iv. Dampening

procyclicality and other

financial stability risks in

securities financing

transactions such as

repos and securities

lending

v. Assessing and

mitigating financial

stability risks posed by

other shadow banking

entities

4


banking regulation

SFTR Scope and Objectives Reducing risk by improving transparency in securities financing markets

1. Conditions on the reuse of collateral

2. Requirement for managers of UCITS and alternative investment funds to make

detailed disclosures

3. Requirement for counterparties to report securities financing transactions and

total return swaps

The SFTR is integral to

the European

Commission’s strategy

to reduce perceived

shadow banking risks in

the securities financing

markets

5


banking regulation

European Commission Workstream

Green Paper on Shadow Banking - March 2012

Communication on Shadow Banking - September 2013

Proposed regulation on Money Market Funds -

September 2013

Proposed regulation on reporting and transparency of

securities financing transactions - January 2014

EBA final guidelines on institutions' exposures to

shadow banking – December 2015

ECB SFT data store project launched - October 2015

FSB Workstream

Policy Framework for Addressing Shadow Banking

Risks in Securities Lending and Repos - August 2013

Transforming Shadow Banking into Resilient Market-

based Finance: An Overview of Progress - Nov 2015

11 Key FSB

Recommendations

Including

Disclosures on re-

hypothecation

Reporting requirements

of fund managers

towards end investors

Regulatory reporting

Minimum standards for

cash collateral

reinvestment by non-

banks

Harmonisation of client

asset rules on re-

hypothecation

Minimum standards for

collateral valuation and

management

Review of use of CCPs

for inter-dealer repos

On-going FSB

Workstreams Standards and processes for

global securities financing data

collection and aggregation

(Nov 2015)

Haircuts framework – bank to

non-bank and non-bank to non-

bank (Nov 2015)

BCBS consultation on

incorporating haircut floors for

non-centrally cleared SFTs into

the Basel III framework (Nov

2015)

Harmonisation of reuse of client

assets

Further analysis and possible

policy measures Q2 2016 on

securities lending activities of

asset managers and funds

6

– EU Regulation on transparency of securities financing transactions (SFTs) and of reuse and

amending Regulation (EU) No. 648/2012 (EMIR)

SFTR – an overview

Key provisions

Transparency of rights of reuse of financial collateral through disclosure to counterparties

Transparency by collective investment schemes of use of SFTs and total return swaps through disclosure to investors

Transparency of SFTs to regulators through reporting to trade repositories

The SFTR is in force on 12 January 2016

Regulation (EU) 2015/2365 published in the Official Journal on 23 December 2015

Phased implementation - transitional provisions apply

Detailed rules in Level 2

SFTR has broad application:

Applies to financial and non-financial counterparties and fund managers (with extraterritorial scope)

Covers broad range of transactions, not just securities financing, including taking collateral, total return swaps, some

commodities finance and margin loans

Very limited exemptions e.g. no exemption for intra-group transactions

Amends EMIR definition of OTC derivatives to make it easier to recognise non-EU markets

as equivalent to regulated markets

7

ESMA to develop draft RTS specifying the details of the reports to be

submitted to a trade repository or to ESMA (if no trade repository

available) and draft ITS specifying the format and frequency of the reports

for different types of SFTs.

To be submitted to the Commission by late March 2017

ESMA to develop draft RTS on the procedures for registration with a trade

repository and draft ITS on trade repository registration.


ESMA to develop draft RTS on the publication by a trade repository of the

aggregate positions of the SFTs reported to it and the collection and

maintenance of SFT trade details to be made accessible to various

regulatory bodies.


ESMA to develop draft ITS to determine the procedures and forms for the

exchange of information on sanctions and fines between competent

authorities and ESMA


ESMA may, taking into account existing requirements under the UCITS and

AIFMD Directives as well as evolving market practices, develop draft RTS

further specifying the content of Section A of the Annex in order to ensure

uniform disclosure of data and take account of the specificities of different

types of SFTs and total return swaps.

No specified timeline

ESMA may, taking into account existing requirements under the UCITS and

AIFMD Directives, develop draft RTS further specifying the content of

Section B of the Annex in order to reflect evolving market practices or to

ensure uniform disclosure of data.

No specified timeline

Level 2 – RTS and ITS

Article 4 Reporting obligation and safeguarding in respect of

SFTs

Article 5 Registration of a trade repository

Article 12 Transparency and availability of data held in a trade

repositoryArticle 25 Exchange of information with ESMA

Article 13 Transparency of collective investment undertakings

in periodical reports (optional)

Article 14 Transparency of collective investment undertakings

in pre-contractual documents (optional)

8

SFTR –

illustrative implementation timeline

Notes:

The SFTR was published in the OJ on 23 December 2015

Record-keeping requirement for SFTs (Art. 4(4)), transparency requirements for pre-

contractual documents for new funds (Art. 14) and the obligation to establish internal

procedures for reporting breaches (Art. 24(3)) apply from the date SFTR comes into

force i.e. 12 January 2016

Reuse requirements (Art. 15) apply from 13 July 2016, 6 months after date SFTR

came into force, with retroactive effect for existing collateral arrangements

Funds transparency requirements apply from 13 January 2017 (Art. 13) and, for

existing funds, 13 July 2017 (Art. 14)

Q1 Q2 Q2Q3 Q4 Q1 Q2Q3 Q4 Q1 Q2Q3 Q4 Q1

2016 2017

Q1 Q2 Q2Q3 Q4 Q1 Q2Q3 Q4 Q1 Q2Q3 Q4 Q1

2018 2019

Reporting requirements (Art. 4) apply from 12, 15, 18 and 21 months after the RTS on

Art. 4 come into force (depending on counterparty category)

ESMA to deliver draft RTS/ITS on Art. 4 by end of March 2017

Illustrative reporting dates assume delivery of the draft RTS/ITS in March 2017 and

that the RTS come into force in Q4 2017, meaning that the phase-in of the reporting

requirements starts in Q4 2018

Dates could be earlier if ESMA acts quickly or later if Commission amends ESMA’s

draft RTS or the Parliament or the Council object to the RTS

12 January 2016

Entry into force of

SFTR – but only

some rules apply

(see notes)

13 July 2016

Reuse

requirements

apply, including for

existing trades

13 January 2017

Transparency in periodic

reports requirements for

UCITS and AIFs begin to

apply

Oct 2018 (est.)

Trade repository reporting

requirements for investment firms and

credit institutions begin to apply

January 2019 (est.)


requirements for non-

financial counterparties

begin to apply

13 July 2017

Transparency in pre-contractual

documents requirements for existing

UCITS and AIFs begin to apply

January 2019 (est.)


requirements for CCPs and CSDs

begin to apply

April 2019 (est.)


requirement for insurance and

reinsurance firms, UCITS,

AIFMs and pension funds

begin to apply

Level 2 work proceeding

Reuse requirements

Funds transparency requirements

Reporting requirements

Key:

Oct 2017 (est.)

RTS on reporting

obligations enters

into force

9

– 13 October 2016

– ESMA reported on impact of SFTs on leverage and pro-cyclicality not addressed by existing regulation and

possible measures to address this

– 13 October 2017

– The Commission to report on progress in international efforts to mitigate the risks associated with SFTs,

including the FSB recommendations for haircuts on non-centrally cleared SFTs

– 2019

– ESMA to publish first annual report on aggregate SFT volumes by counterparty type and transaction, based

on data reported to trade repositories (date not specified in Level 1 text)

– Q2 2020? (24 months from reporting start date)

– ESMA to report on efficiency of reporting obligation, taking into account the appropriateness of single sided

reporting (and every three years thereafter or earlier if material developments)


– The Commission to report on the effectiveness, efficiency and proportionality of the obligations under SFTR


– The Commission to report on supervisory fees charged by ESMA to trade repositories

Reports and review – timings

Article 29

10

Clifford Chance

Sanctions

11

– Member states have the power to impose sanctions for "at least" the infringement of the trade

repository reporting (Article 4) and reuse provisions (Article 15) requirements

– Infringement of the reuse requirements in Article 15 shall not affect national law concerning the validity or

effect of a transaction (Recital 23, Article 15(4))

– Infringement of the trade reporting requirements in Article 4 does not affect the validity or enforceability of the

transaction, or give rise to compensation rights (Article 22(5))

Sanctions

Articles 22-28

Sanctions can apply to the firm, its managers and to the individuals responsible for the

breach

SFTR specifies minimum administrative sanctions but Member States may choose criminal

sanctions instead

Competent authorities must establish mechanisms for reporting "actual or potential”

infringements of Articles 4 and 15

Counterparties must have appropriate internal procedures for their employees to report


Sanctions and other measures set out in the UCITS and AIFMD directives apply for


12

M

– Include

– An order requiring the person responsible to cease and desist from repeating that conduct

– A public statement naming the person responsible and the nature of the infringement

– Withdrawal or suspension of authorisation

– A temporary ban against persons discharging managerial responsibilities or the person who is deemed responsible from exercising management functions

– Maximum pecuniary sanctions of at least three times the amount of the profits gained or losses avoided

– In respect of a natural person, a maximum administrative pecuniary sanction of at least EUR 5 000 000

– In respect of legal persons, maximum administrative pecuniary sanctions of at least:

– EUR 5 000 000 or up to 10% of the total annual turnover of the legal person for infringements of Article 4

– EUR 15 000 000 or up to 10% of the total annual turnover of the legal person for infringements of Article 15

– Member States may give competent authorities additional powers, a wider scope of sanctions and higher levels of sanctions than those set out in the Regulation

Minimum administrative sanctions

for infringement of Articles 4 and 15

Member States must notify ESMA and the Commission of their rules on sanctions by 13 July

2017

13

Clifford Chance

Key implementation actions

14

– Consider

– Specific disclosures to be included in new master agreements (e.g. GMSLA, GMRA and ISDA) and leveraging

industry initiatives on standard disclosures

– Cross-agreement disclosure through one-way notices or terms of business, in particular when remediating for existing

collateral arrangements

– Overlap with existing and future requirements under CASS 9, EMIR, MiFID and MiFID2

– Possible need to assist clients that are collateral takers to comply with their disclosure obligations

– The need for "prior express consent" which is "evidenced by a signature in writing or in a legally equivalent manner”,

although should be covered by using signed market-standard securities financing or credit support documentation

– Requirement for reuse to be in accordance with the terms specified in the collateral arrangement, but should not

require additional implementation steps

– Where holding financial instruments in custody for client which are reused under a collateral agreement, need to

ensure that the reuse is reflected in the client's securities accounts


Reuse of collateral

Core actions

Identify in-scope entities (EU and non-EU)

Identify and remediate all in scope collateral arrangements existing as at 13 July 2016

Establish processes for all new in scope collateral arrangements by 13 July 2016

15

– Reporting

– Identify entities in-scope for reporting obligations

– Consider

– Systems necessary to identify in-scope transactions

– Client communication requirements and possible need for confidentiality waivers from non-EU counterparties where conflicting local laws

– Counterparty classification processes necessary to identify SME counterparties (and any information required from them in order to report on their behalf)

– Likely available trade repositories, sign-up processes and technical access requirements

– Likely required data sources and processes including sources for LEIs, ISINs and UTIs

– Implementation of record-keeping from 12 January 2016


Funds transparency and reporting

Funds transparency

Identify entities in group that are in-scope UCITS managers or AIFMs

Consider

– Data sources and processes required to generate required disclosures

– Any issues with required disclosures of counterparty identity

– Implementing pre-contract disclosure for new funds from 12 January 2016

Procedures

Establish internal procedures for employees to report infringements of Articles 4 and 15

16

Clifford Chance

Country Updates

1

Korea

Recent regulatory developments in Korea:

The Financial Services Commission (FSC) proposed amendments to short selling rules including restricting

participation in rights issue, designation of overheated short sell stock and strengthening penalties against short

selling rules violators [November 2016]

The Korea Securities Depository (KSD) proposed the amendment of its Securities Borrowing and Lending (SBL)

regulations including a change in loan terms and a change in hair cut ratio of Exchange Traded Funds (ETF) [July

2016]

The FSC proposed amendments to allow for collateral rehypothecation [March 2016]

2

PRC

Recent regulatory developments in the PRC:

China Securities Regulatory Commission (CSRC) launched the Shenzhen-Hong Kong Stock Connect [December

2016]

The Chinese National Association of Financial Market Institutional Investors (NAFMII) issued revised pilot rules for

credit risk mitigation (CRM) tools in the interbank market and four product-related guidelines covering CRM

agreements, credit risk mitigation warrants (CRMW), credit default swaps (CDS) and credit-linked notes (CLNs), as

well as new credit derivatives definitions [September 2016]

The State Administration of Foreign Exchange (SAFE) issued new FX regulations applicable to QFIIs and the

People’s Bank of China and SAFE allow more qualified foreign institutions to trade on China’s inter-bank FX market

[February 2016]

3

Taiwan

Recent regulatory developments in Taiwan:

The Taiwan Stock Exchange (TWSE) amended regulations to require participants of the Taiwan Stock Exchange

Securities Borrowing and Lending (SBL) program to recall securities that are loaned out by means of fixed rate and

competitive bidding in order to participate in new shares subscription of preferred or unlisted securities [July 2016]

The TWSE announced that short-sell volume is now an indicator for a stock to become an attention stock [June 2016]

The TWSE announced that a valid negotiated fee rate is required when a local SBL broker inputs SBL trades into the

TWSE system [April 2016]

4

Japan

Recent regulatory developments in Japan:

The Financial Services Agency of Japan (FSA) exchanged letters on co-operation in banking supervision with the

Australian Prudential Regulation Authority (APRA) [August 2016]

The FSA established the Global Financial Partnership Center (“GLOPAC”) to address issues related to the global

financial markets, to effectively conduct financial sector technical assistance for infrastructure development, and to

further strengthen cooperative relationships with financial authorities around the world [April 2016]

The FSA published its approach for introducing the Total Loss-Absorbing Capacity (TLAC) Framework [April 2016]

5

India

Recent regulatory developments in India:

The National Stock Exchange (NSE) began levying a transaction charge at the rate of 2.5 percent of the lending fee

on each leg of a trade that is executed under the Securities Lending and Borrowing scheme [July 2016]

The Reserve Bank of India (RBI) announced that it has decided to postpone the implementation of margining

requirements. This delay will help avoid cross-border implementation issues, and will also provide market participants

with adequate time to plan and prepare for the new requirements. The RBI intends to release the final guidelines on

margin requirements in due course [September 2016]

The NSE launched the Electronic Bidding Platform (NSE-EBP) for corporate debt to facilitate electronic bidding for

issuance of debt securities on private placement basis [July 2016]

6

Hong Kong

Recent regulatory developments in Hong Kong:

The Securities and Futures Commission (SFC) announced that reporting will be required for reportable short positions

in all Designated Securities eligible for short selling from 15 March 2017 [September 2016]

The Hong Kong Exchange and Clearing Limited (HKEX) tightened the eligibility criteria of designated securities for

short selling to ensure they are up to date with the current conditions and development of Hong Kong’s equity market

[July 2016]

The HKMA issued the final draft of the margin and risk mitigation standards for non-centrally cleared derivatives

[December 2016]

7

Singapore

Recent regulatory developments in Singapore:

The Monetary Authority of Singapore (MAS) has issued a consultation paper on regulations for short selling to

enhance transparency on the level of short selling in securities listed on Singapore’s approved exchanges [December

2016]

The MAS introduced legislative amendments to the Securities and Futures Act (Cap. 289) (“SFA”) to implement policy

proposals aimed at ensuring that the capital markets regulatory framework in Singapore keeps pace with market

developments and is aligned to international standards and best practices [November 2016]

The MAS has set up an International Technology Advisory Panel (ITAP), which will advise MAS on international

developments in FinTech and how Singapore can harness new technologies to enhance the provision of financial

services [August 2016]

8

Indonesia

Recent regulatory developments in Indonesia

The Indonesian Financial Services Authority (OJK) has recently released new regulations on the establishment of

Venture Capital Companies. The new regulations make this an attractive vehicle for investing growth capital in

businesses from the start-up through micro, small and medium phases, as well as new technology businesses,

particularly where these are subject to foreign ownership restrictions [February 2016]

The OJK issued its first regulations relating to FinTech. The regulations lay out minimum capital requirements, interest

rate provision and education and consumer protection rules [January 2017]

The Indonesian tax authorities began their Tax Amnesty Programme, which will run till 31 March 2017 [July 2016]

9

Malaysia

Recent regulatory developments in Malaysia

Bursa Clearing will be expanding the purposes of securities borrowing under the Securities Borrowing and Lending-

Negotiated Transactions (SBLNT) framework to facilitate the settlement of potential failed trades [February 2017]

Bursa Malaysia has revised the uptick rule for Regulated Short Selling (RSS) [February 2017]

Bursa Malaysia started publishing a Notification of Publication of Total Short Position for each Approved Securities on

a weekly basis in relation to Regulated Short Selling (RSS) on the Bursa Malaysia’s website [March 2016]

10

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