SEC Issued Joint Report on International Swap Regulation

Securities and Exchange Commission (SEC), capital market regulator of United States issued "Joint Report on International Swap Regulation" in line of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

SEC has quoted in the report that effectively regulated financial markets are a necessary component of a strong economy. When the financial system failed three years ago, over-the-counter (“OTC”) derivatives were unregulated, and financial systems and participants were interconnected to a greater extent than ever before. The global nature of OTC derivatives requires comprehensive international cooperation and coordination.

Efforts to regulate OTC derivatives are under way in the United States and abroad. The financial crisis of 2008 has led to broad international consensus on the need for improved transparency, mitigation of systemic risk, and protection against market abuse, and extraordinary coordination on how best to achieve sound regulation appropriately tailored to the OTC derivatives market.

Jurisdictions with major OTC derivatives markets have taken steps toward regulating OTC derivatives – with variance in pace, but with consistency among many of the ultimate policy goals. In the United States, the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”) provides the Commodity Futures Trading Commission (“CFTC”) and the Securities and Exchange Commission (“SEC” and, together with the CFTC, the “Commissions”) with the authority to regulate certain types of derivatives that currently are entered into bilaterally and that typically are not cleared. Subject to certain exceptions, Title VII of the DFA (“Title VII”) requires the CFTC to regulate those derivatives defined as swaps, and requires the SEC to regulate derivatives defined as security-based swaps. The Commissions are in the midst of promulgating regulations to implement this statutory mandate.

DFA Section 719(c) requires the Commissions jointly to conduct a study (“Study”) and then to report to Congress (“Report”) on how swaps and security-based swaps (collectively “Swaps”, unless otherwise indicated) are regulated in the United States, Asia, and Europe and to identify areas of regulation that are similar and other areas of regulation that could be harmonized. Section 719(c) also calls for the Report to identify major dealers, exchanges, clearinghouses, clearing members, and regulators in each geographic area and to list the major contracts (including trading volumes, clearing volumes, and notional values), the methods for clearing swaps, and the systems used for setting margin in each geographic area.

The Study is one facet of the CFTC’s and the SEC’s work in analyzing the international context and implications of the DFA. Congress directed the Commissions (and prudential regulators) in Section 752(a) of the legislation to “as appropriate . . . consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation … of swaps, security-based swaps, swap entities, and security-based swap entities” in order to “promote effective and consistent global regulation of swaps and security-based swaps”.

This Report includes four sections. Section I discusses the Congressional mandate for the Study and Report, including the process and approach used by CFTC and SEC staff. Section II describes the regulatory framework for OTC derivatives in the Americas, European Union, and Asia, and Section III analyzes the similarities and differences across jurisdictions, discusses potential areas for harmonization, and makes recommendations for next steps.10 Finally, Section IV provides the conclusion of the Study and Report.

IRDA Exposure Draft on Health Insurance Policies for People Living HIV/AIDS (PLHA)

Insurance Regulatory and Development Authority, an insurance market regulator in India has issued Exposure Draft to discuss on various issues involved in, to provide insurance cover to the people living with HIV and to people in general including doctors and nurses etc who are vulnerable to HIV/ AIDS, in Health Insurance policies of both Life and Non Life insurance companies.

The Authority proposes implementation of these orders to be effective from 1st october, 2012 and requests comments on the Exposure Draft within 30 days.

FSA Consultation Paper on Amendments to the Listing Rules, Prospectus Rules, Disclosure Rules and Transparency Rules

Financial Services Authority, UK has tabled consultation paper on Amendments to the Listing Rules,

Prospectus Rules, Disclosure Rules and Transparency Rules.

This consultation paper sets out proposals for changes to the Listing Rules to ensure that they reflect properly recent changes in market practices and so allow the UK Listing Authority (UKLA) to meet its objectives of:
• providing an appropriate degree of protection for investors in listed securities;
• facilitating access to listed markets for a broad range of enterprises; and
• seeking to maintain the integrity and competitiveness of UK markets for listed securities.

Present consultation paper focusing on the changes that are required as a matter of priority to ensure that the operational effectiveness of the Listing Regime is maintained. The principal areas in which we are proposing changes are:
• reverse takeovers;
• sponsors;
• transactions;
• financial information; and
• externally managed companies.

The Financial Services Authority invites comments on this Consultation Paper. Comments should reach us by 26 April 2012.

SEBI New Circular on Offer For Sale of Shares by Promoters through the Stock Exchange Mechanism

Securities and Exchange Board of India (SEBI) has issued new circular In order to facilitate promoters to dilute/offload their holding in listed companies in a transparent manner with wider participation, it has been decided to allow the offer for sale of shares by promoters of such companies through a separate window provided by the stock exchange(s).

CSSF Press Release on Global Situation of Undertaking For Collective Investment and Specialised Investment Funds at the End of December 2011

Commission de Surveillance du Secteur Financier (CSSF), capital market regulator of Luxembourg Press Release 12/04 described overall statical situation of Global UCI and SIFs' market.

In accordance to the Press Release, As at 31 December 2011, total net assets of undertakings for collective investment and specialised investment funds reached EUR 2,096.512 billion compared to EUR 2,059.419 billion as at 30 November 2011, i.e. a 1.80% growth over one month. Over the last twelve months, the volume of net assets decreased by 4.66%.

Overall, the Luxembourg UCI industry registered a positive variation amounting to EUR 37.093 billion during December. This increase is the result of the favourable impact of financial markets amounting to EUR 40.577 billion (+1.97%) and negative net issues amounting to EUR 3.484 billion (-0.17%).

The number of undertakings for collective investment (UCIs) and specialised investment funds (SIFs) taken into consideration totalled 3,845 as against 3,833 the previous month. A total of 2,427 entities have adopted an umbrella structure, which represents 11,876 sub-funds. When adding the 1,418 entities with a traditional structure to that figure, a total of 13,294 entities are active in the financial centre. As regards net capital investment and the impact of financial markets on Luxembourg UCIs, the following can be said about December 2011.

Most categories of equity UCIs recorded price increases. In the United States, the publication of positive economic data favourably influenced prices. In Europe, the measures in relation to the sovereign debt crisis announced during the European summit of 8 and 9 December were positively interpreted by investors but did not significantly impact markets. Only Eastern European equity UCIs registered price decreases in December.

More details of various statistical components of global UCIs and SIFs market elaborately describe in the Press release.

SEBI amended Regulation to Streamline Institutional Placement Programme in India

Securities and Exchange Board of India (SEBI) amended Issue of Capital and Disclosure Requirements Regulations, 2009 and inserted specific requirements for Institutional Placement Programme under Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2012.

The provisions of this Regulation shall apply to issuance of fresh shares and or offer for sale of shares in a listed issuer for the purpose of achieving minimum public shareholding through Institutional Placement Programme.

Regulation has defined “Institutional Placement Programme” means a further public offer of eligible securities by an eligible seller, in which the offer, allocation and allotment of such securities is made only to qualified institutional buyers in terms of this Regulation. Eligible Seller includes listed issuer, promoter/promoter group of listed issuer.

Present Regulation laid down conditions of Institutional Placement Programme under  Issue of Capital and Disclosure Requirements Regulations, 2009 , obligations of Merchant Banker and Disclosure requirements, pricing and allocation cap, minimum number of allottees, maximum amount restriction of any issue and reasonable restrictional conditions on issuer.

ESMA outlines Future Regulatory Framework for ETFs and other UCITS Issues

European Securities and Markets Authority (ESMA) publishes a consultation paper (ESMA/2012/44) setting out future guidelines on UCITS Exchange-Traded Funds (UCITS ETFs) and other UCITS-related issues. The proposals cover both synthetic and physical UCITS ETFs and detail the obligations to come for UCITS ETFs, index-tracking UCITS, efficient portfolio management techniques, total return swaps and strategy indices for UCITS.

ESMA is an independent EU Authority that contributes to safeguarding the stability of the European Union's financial system by ensuring the integrity, transparency, efficiency and orderly functioning of securities markets, as well as enhancing investor protection.

In the summer of 2010 ESMA started looking into the operation of UCITS making use of the new investment freedoms introduced by the UCITS III Directive and the Eligible Assets Directive (2007/16/EC) in order to identify the possible impact on investor protection and market integrity. As part of this work, ESMA published a discussion paper on policy orientations on guidelines for UCITS Exchange-Traded Funds and Structured UCITS on 22 July 2011 (ESMA/2011/220), responses to which were due by 22 September. This consultation paper represents the next stage in the development of ESMA guidelines in this area.

ESMA’s proposals therefore go wider than ETFs and cover such areas as the use of total return swaps by any UCITS, for which ESMA envisages additional obligations with respect to the collateral to be provided, or UCITS investing in strategy indices, where the requirements on eligibility of such indices have been tightened. The proposals also include placing an obligation on UCITS ETFs to use an identifier and facili-tating the ability of investors to redeem their shares, whether in the secondary market or directly with the ETF provider.

ETFs will need labelling, more transparency requirements overall

For UCITS ETFs, ESMA proposes the obligatory use of an identifier for all funds that fall within the scope of the harmonised definition. In addition, investors should be provided with more information when the UCITS ETFs does not track an index and is actively managed. Finally, ESMA is seeking stakeholders’ feedback on the appropriate regime for secondary market investors (see section 4 of the consultation paper), and in particular the possibilities for them to dispose of their shares.

Concerning index-tracking UCITS, ESMA proposes additional disclosure requirements on such issues as the index to be tracked and the method of replication and the tracking error (see section 3 of the consultation paper).

Requirements for securities lending and collateral management are introduced

With regard to securities lending, ESMA proposes that collateral posted to mitigate counterparty risk should comply with the criteria set out in the CESR Guidelines on Risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS of July 2010 (CESR/10-788), while recommending that the diversification and haircut criteria be strengthened. These requirements would also apply to repo and reverse repo activities. Therefore, according to the draft guidelines, collateral posted in the context of efficient portfolio management techniques should respect the UCITS diversification rules and UCITS should have a documented and appropriate haircut policy for each category of assets received as collateral.

Following the feedback received from the first public consultation1, ESMA decided to address certain of the proposed guidelines to all UCITS investing in total return swaps and strategy indices respectively. For total return swaps, ESMA proposes to apply the same obligations on collateral management as for securities lending. Finally, regarding strategy indices, ESMA confirms most of the policy orientations presented in the discussion paper on eligibility of indices, disclosure to investors and the due diligence to be carried out by the UCITS.

Retailisation of complex products remains a concern

In the discussion paper published in July 2011 (ESMA/2011/220), ESMA expressed its concerns about the increasing number of complex products sold to retail investors and the lack of regulatory convergence in relation to the manufacturing and management of such products. ESMA reiterates the need to tackle these issues and will continue to contribute actively to the regulatory response to these problems.