Commission Implementing Regulation (EU) 2016/1646
of 13 September 2016
laying down implementing technical standards with regard to main indices and recognised exchanges in accordance with Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential requirements for credit institutions and investment firms
(Text with EEA relevance)
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 and in particular Article 197(8) thereof,
Whereas:
(1)
Regulation (EU) No 575/2013 states that equities or convertible bonds included in a main index may be used by institutions as eligible collateral. One of the eligibility criteria for collateral is that it should be sufficiently liquid. To be considered as main indices for the purposes of that Regulation, equity indices should therefore mainly consist of equities that can reasonably be expected to be realisable when an institution needs to liquidate them. This should be the case when at least 90 % of the components of an index have a free float of at least EUR 500 000 000 or, in the absence of information about free float, a market capitalisation of at least EUR 1 000 000 000.
(2)
It should also be possible for institutions to recognise as eligible collateral instruments that are liquid relative to the markets in which they are operating and meet a minimum level of liquidity, irrespective of whether a market is established in the Union or in a third country. Therefore, an equity index should be considered as a main index where it includes no more than half of the total number of companies whose shares are traded on the market on which the index is based, where the average daily turnover is at least EUR 100 000, and where it also meets two of the following three criteria: the total market capitalisation of the index is at least 40 % of the market capitalisation of all the companies whose shares are traded on that market; the total turnover of trading in the components of the index is at least 40 % of the total turnover of all equity trading on that market; and the index serves as an underlying for derivatives products.
(3)
Convertible bond indices should be considered as main indices only where the constituent bonds can be converted into equities where at least 90 % of those equities have a free float of at least EUR 500 000 000 or, in the absence of information about free float, a market capitalisation of at least EUR 1 000 000 000.
(4)
Where two indices meet the criteria to be considered a main index and one is a subset of the other, for simplicity only the broader one should be included in the list of main indices.
(5)
Regulation (EU) No 575/2013 states that debt securities issued by certain institutions, not having a credit assessment by an external credit assessment institution (ECAI) may be used as eligible collateral where they fulfil a number of conditions, one of them being that they are listed on a recognised exchange.
(6)
In order to be considered a recognised exchange for the purposes of Regulation (EU) No 575/2013, an exchange is required to meet the conditions laid down in Article 4(1)(72) of that Regulation. Regarding one of those conditions, namely that the exchange should have a clearing mechanism, all regulated markets trading financial instruments not listed in Annex II to Regulation (EU) No 575/2013 should satisfy this second condition by virtue of being licensed as a regulated market under Directive 2004/39/EC of the European Parliament and of the Council and by virtue of the existence of rules and procedures for the clearing and settlement of transactions in place as required under that Directive 2004/39/EC.
(7)
Where an exchange's clearing mechanism is provided by a central counterparty (CCP), that CCP should comply with the requirements laid down in Regulation (EU) No 648/2012 of the European Parliament and of the Council . For the rare derivatives exchanges not served by CCPs, the margining rules laid down in Regulation (EU) No 648/2012 should be used as the benchmark for assessing whether the margining requirements imposed by those exchanges are appropriate.
(8)
This Regulation is based on the draft implementing technical standards submitted by the European Securities and Markets Authority (ESMA) to the Commission.
(9)
On 17 December 2015, the Commission notified ESMA of its intention to endorse the draft implementing technical standard with amendments to take account of the fact that some equity indices that meet the eligibility criteria to be considered as main indices were not included in the list provided in that draft standard. In its formal opinion of 28 January 2016, ESMA confirmed its initial position and did not resubmit an implementing technical standard amended in a way consistent with the Commission's proposed amendments. The draft implementing technical standard should therefore be endorsed with the amendments necessary to avoid the exclusion of indices that meet the eligibility criteria to be considered as main indices for the purposes of Regulation (EU) No 575/2013.
(10)
ESMA has conducted an open public consultation on the draft implementing technical standards on which this Regulation is based and has requested the opinion of the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council . ESMA has not analysed in detail the potential costs and benefits related to the draft implementing technical standards as this would have been disproportionate in relation to their scope and impact,
HAS ADOPTED THIS REGULATION:
OJ L 176, 27.6.2013, p. 1.
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC (OJ L 145, 30.4.2004, p. 1).
Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (OJ L 201, 27.7.2012, p. 1).
Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (OJ L 331, 15.12.2010, p. 84).
The “appropriate regulator” has power to make such provision as they consider appropriate by means of an instrument in writing to prevent, remedy or mitigate any failure of the provisions of this Regulation to operate effectively or any other deficiency arising from the withdrawal of the United Kingdom from the EU, see The Financial Regulators' Powers (Technical Standards etc.) (Amendment etc.) (EU Exit) Regulations 2018 (S.I. 2018/1115), regs. 2, 3, Sch. Pt. 4 (with saving on IP completion day by S.I. 2019/680, regs. 1(2), 11; 2020 c. 1, Sch. 5 para. 1(1))
Regulation: power to modify conferred (11.7.2023) by Financial Services and Markets Act 2023 (c. 29), ss. 3, 86(3), Sch. 1 Pts. 1, 3; S.I. 2023/779, reg. 2(d)