This consultation, on the above-mentioned exemption, contains draft guidelines on market making and the application of exemptions for market making activities and primary market operations under the Regulation which should be used as the interim benchmark by both participants and regulators in the application and assessment process pending the final publication of the guidelines. The draft guidelines set out and clarify: the scope of the exemption for market making activities, including the required link between the relevant financial instrument, the trading venue or “equivalent” third country venue and the membership of the notifying entity; how the relevant competent authority for notification is defined, in particular for notifying entities from third countries; guidelines for the process of notification of the intent to use the exemption and its content, including common templates for notification as well as the approach to processing notifications received by relevant competent authorities and assessing conditions of the exemption; and transitional measures relating to the sending of notification of intention to use the exemption for market making activities or as authorised primary dealers as at 1 September 2012. Responses are required by 5 October 2012. ESMA will be holding an open hearing at its offices in Paris on 1 October 2012.

This details the current status of various relevant Directives and European-level proposals.

ESMA has published a Q&A document intended to promote common supervisory approaches and practices amongst the EU’s national securities markets regulators on the requirements of the Short Selling Regulation once it comes into force on 1 November 2012. It will also provide clarity on the requirements of the new regime to market participants and investors. Specific issues considered include: territorial scope; transparency requirements; calculation of net short positions; uncovered short sales; and enforcement regime. ESMA notes that it is likely to revise and update this document before 1 November as new questions are received.

IMA has appointed four new Board members: Hugh Mullan (UK MD, Fidelity Worldwide Investment)l Mark Zinkula, )CEO, Legal & General Investment Management) ; Andrew Formica (CEO, Henderson Global Investors and Andrew Laing (Deputy CEO, Aberdeen Asset Management). The following Board members stood down: Helena Morrissey (CEO, Newton Asset Management); Alain Dromer (former CEO, Aviva Investors) and Bill Smith (CEO, Lazard Asset Management).

ESMA has published a document aimed at retail investors which warns them of potential pitfalls when investing online.

This combined CP/DP proposes a number of changes to the client assets regime. The paper is split into three parts. Part I outlines the segregation and porting measures in Articles 39 and 48 of EMIR and consequential changes to CASS. Part II sets out proposals for introducing multiple pooling, which FSA suggests could result in the most significant changes made to the client assets regime in over 20 years. It proposes to permit firms to create multiple client money sub-pools in relation to any investment business, with the discretion left to the firm and the clients to determine the basis. For example, a firm may wish to create a separate client money sub-pool for its prime brokerage business, separating it from other parts of business. Alternatively, a client may agree with a firm to have only its own client money held in a client money sub-pool, separate from all other clients’ money. FSA also asks whether firms should be forced to operate certain client money sub-pools, for example splitting out retail from wholesale clients. Part III is a discussion on the wider client assets review currently underway, which is focused on getting a better result in the context of client assets in a firm’s insolvency. Comments must be received by 16 October (for proposals in Part I) and 30 November 2012 (for Parts II and III). FSA expects to publish a FS and final rules in December 2012 (with regard to Part I and feedback and final rules in the first half of 2013 (with regard to Parts II and III). FSA notes that it will provide relevant feedback to the Government to assist in the review of the Investment Banking Special Administration Regulations.

FSA invites comments on the following proposed amendments to the FSA Handbook which relate to the EU Short Selling Regulation that applies from 1 November 2012: the repeal of the UK’s current short selling regime contained in FINMAR 2; an amendment to DEPP 7 to note that the existing interview policy covers the Regulation; a proposal to apply the existing penalties policy contained in DEPP 6 to the Regulation; an amendment to SUP to provide that a firm must allow access to FSA representatives to its business premises so FSA can fulfil its obligations under the Regulation; an insertion in FINMAR 2 outlining the framework for our use of temporary suspension powers given in the Regulation; an insertion in FINMAR2 specifying the method for converting a euro value into sterling for the purposes of determining one of the categories of shares admitted on UK trading venues to which the temporary suspension powers apply; an insertion in FINMAR 2 outlining the procedure applying to reviews of decisions by FSA to prohibit persons from using the market-maker and authorised primary dealer exemption; consequential amendments to GLOSS, GEN and other parts of the Handbook; FSA notes that it understands that the Government will propose legislation to Parliament before the Regulation comes into effect to amend FSMA and related legislation. FSA has liaised with HMT with regard to changes it anticipates that the government will propose as legislation to Parliament. If these proposals change, FSA will revisit our policy and Handbook proposals.

FSA notes that this CP is a result of its promise to review client money rules with respect to general insurance intermediaries. Its review of CASS 5 raised concerns over inappropriate controls around the use of the non-statutory trust; ineffective risk transfer documentation; application of the pooling rules; infrequent client money calculations; client money held by third parties; and client money held as designated investments (although FSA acknowledges it also found examples of good practice). This CP sets out proposals in relation to the following: ¶ the use of the non-statutory trust under CASS 5 and associated client money concerns; including discussion of issues around risk transfer and proposals intended to ensure more effective risk transfer; ¶ discussion of distribution rules and proposals that aim to facilitate firms in the transfer of client money on a sale of business; ¶ clarification on persification of client money, including a proposal on the amount of client money which can be held in a group bank; ¶ clarification on the accrual method of calculating the client money requirement, guidance on trust letters and a proposal on the CASS 5 resolution pack; ¶ proposals relating to credit write backs, unclaimed client money, unallocated client money, client money held at third parties, prudent over-segregation, money held as designated investments, commission, same day draw down and money due to a client from a firm, including a proposal in relation to segregation of client money held by a firm’s appointed representatives, field representatives or other agents; ¶ proposals in relation to firms’ governance on CASS oversight, client money audit reports and Section C of RMAP. ¶ Responses are required by 30 November 2012. FSA intends to publish feedback and final rules in Q2 2013.

IOSCO has published a statement from its chairman following SEC’s announcement on money market fund reform. He notes that IOSCO intends to continue its work on the basis of the mandate given to it by G20 and FSB to develop policy recommendations for strengthening oversight and regulation of the shadow banking system, including MMFs. A committee is set to meet at the end of August to consider feedback to a consultation on MMFs published in April and the IOSCO board will determine IOSCO’s further course of action on this matter at a meeting on 3/4 October and intends to report to the G20 finance ministers’ meeting in November.

This is the first of a series of notes on the implementation of the legal entity identifier initiative. Progress reports on the LEI initiative will be prepared approximately every three weeks.