REGULATORY NEWS｜July 18th

ESMA continues to focus on concentration risk following the LME nickel event

Speaking at an FIA Forum in Frankfurt last Tuesday, Klaus Loeber, the chair of the European Securities and Markets Authority (ESMA) Central Counterparty (CCP) Supervisory Committee, pointed to issues around concentration risk and transparency. He detailed further action being taken in light of disruptions in the derivatives markets this year, particularly the London Metal Exchange nickel shut down in March.

Loeber referenced that the third and fourth ESMA CCP stress test exercises have shown that the concentration exposures for commodity products are significant and attract relatively low concentration add-ons. ESMA will interact with national competent authorities, on a CCP-by-CCP basis, to further strengthen the use of concentration add-ons to cover concentration risks, where needed.

FSB sets sights on commodity margin, crypto markets

The Financial Stability Board (FSB) said this year it will focus on contagion risks linked to the commodities markets and the turmoil in cryptocurrencies. FSB chair Klaas Knot cited in a letter to G20 finance ministers and central bank governors published last Wednesday ‘financial strains’ stemming from the Russian-Ukraine issues, causing increased margin requirements and concerns about leverage.

The FSB is working with standard-setting bodies, analyzing financial issues in commodity markets and closely monitoring the possible spillovers from these markets into the broader global financial system as part of its ongoing surveillance. The FSB has also doubled down on its criticism of the crypto-asset markets and specifically stablecoins, reflecting the collapse of confidence in some tokens over the last few months.

CFTC adds 34 unregistered foreign entities to Registration Deficient List

The Commodity Futures Trading Commission added another 34 unregistered foreign entities to its Registration Deficient List (RED List). Launched in 2015, CFTC’s RED List now has 202 entities. A firm is added to the RED List when the CFTC determines, from investigative leads and public inquiries, that it is not registered with the Commission and appears to be acting in a capacity that requires registration, such as trading binary options, foreign currency (forex), or other products.

The Commodity Exchange Act generally requires intermediaries in the derivatives industry to register with the CFTC. An intermediary may also be subject to various financial, disclosure, reporting, and recordkeeping requirements. There are some exceptions or exemptions where an intermediary does not require registration.