1. Welcome to Legal Shorts, a short briefing on some of the week’s developments in
the financial services industry.
Listen to this week's Legal
http://vimeo.com/cummingslaw
Shorts
on
CLTV
by
going
to
If you would like to discuss any of the points we raise below, please contact me or
one of our other lawyers.
Claire Cummings
020 7585 1406
claire.cummings@cummingslaw.com
www.cummingslaw.com
How to start and build a fund
At a seminar this week, Claire Cummings joined Johnny Moulsdale of Rees
Pollock and Nancy King of Portman Compliance to give a short talk on the
basic UK and offshore steps for starting and building a fund manager and
fund. A short video of all the talks will be made available next week on
CLTV
(Cummings
Law
Televsion,
which
is
found
at
https://vimeo.com/cummingslaw).
ESMA: RTS
ESMA has published a list of responses to its July discussion paper on its
draft RTS under CRA III Regulation. Respondents include the Association
for Financial Markets in Europe and number of credit rating agencies.
Details
can
be
found
on
http://www.esma.europa.eu/consultation/Discussion-Paper-CRA3Implementation#responses

2. Financial Stability Board
AIMA is one of the industry bodies to reply to the Financial Stability Board
(FSB) consultation on implementation guidance for the key attributes of
effective resolution regimes. Other respondents include the the Managed
Funds Association, the Association of British Insurers and the Institute of
International
Finance.
Details
can
be
found
on:
http://www.financialstabilityboard.org/publications/c_131025_1.htm.
Algorithmic and high-frequency trading concerns
The Financial Markets Law Committee (FMLC) has published a letter it has
sent to the European Commission highlighting concerns relating to
algorithmic and high-frequency trading. Having previsusly raised concerns
about legal uncertainties, the FMLC now comments on algorithmic trading
and high-frequency trading ambiguities in the MiFID II and MAR proposals
and sets out the provisions concerned, the ambiguities identified, the impact
of each ambiguity and, where available, a proposed solution.
High Court on securities lending
In a negligence claim for damages arising out of a failed investment, the
High Court looked at the role of a securities lending agent which had been
appointed to invest and manage its client's cash collateral reinvestment
portfolio. The court found that that on becoming aware that an investment
was at serious risk of default and loss, the securities lending agent presented
its client with information that was misleading and incomplete which, while
not intentionally misleading, amounted to negligent misstatement or
misrepresentation or both. Thus, the securities lending agent’s dealings with
its client both fell below the standards of care by which it had contractually
agreed to be bound and was a failure to comply with the common law duty
of care.
EMIR
The FCA has published two factsheets relating to EMIR and thethe
Regulation on OTC derivatives, central counterparties and trade
repositories). The first is a factsheet for financial counterparties (FCs)
subject to the EMIR requirements for timely confirmation and bilateral risk

3. mitigation and summarises the FCA’s findings from discussions it held with
FCs this summer to identify challenges for market compliance with the
timely confirmation and bilateral risk mitigation requirements OTC
derivative contracts under EMIR. The second factsheet is for those nonfinancial counterparties (NFCs) which are subject to EMIR and gives
information on a review by the FCA into how NFCs have been defining
their hedging activity and monitoring their status against the clearing
threshold. This factsheet also discusses certain challenges of complying with
EMIR.
EMIR notifications for intragroup exemption submissions
The FCA is now accepting submissions for the intragroup exemption from
the clearing obligation under EMIR via its EMIR web portal. At the
moment, only notifications for exemptions in respect of transactions
between two entities in the same group that are both established in the UK
can be submitted. The FCA has 30 calendar days to consider notifications
and applications and will email counterparties within this time period to
confirm whether counterparies can use the exemption, or notified them in
advance if the FCA expects to oppose use of the exemption. Details on when
submissions will be accepted for transactions between UK and EU
counterparties or UK and non-EU counterparties can be found on the EMIR
portal Q&A pages.
ESMA and Prospectuses
ESMA has updated it’s Q&A on prospectuses with three new questions: (i)
on the statement of auditors' agreement where a prospectus includes a profit
estimate, ESMA considers that this statement may be made by the auditors,
issuer, offeror or person seeking admission to trading and holds that the
statement means that the auditors do not expect the figures to change
substantially, except in the case of unforeseen events, and does not
necessarily imply that the auditors should be able to issue their audit opinion
when the prospectus is published; (ii) on the application of proportionate
disclosure regime to a rights issue that is not fully subscribed, ESMA holds
that an offer to the public for unsubscribed shares following a rights issue is
a separate public offer and should be accompanied by a prospectus drawn up
in accordance with the requirements of Annexes I to III of the Prospectus
Regulation. It adds that unless an exemption is available, the proportionate
disclosure regime for rights issues will not apply; and (iii) on the
proportionate disclosure regime for rights issues and admission to trading,
ESMA confirms that a prospectus drawn up in accordance with the

4. proportionate disclosure regime for rights issues also applies to the
admission to trading on a regulated market of new shares that are not
subscribed by existing shareholders or by pre-emptive rights holders, but
placed with other investors by using the exemptions set out in Article 3.2 of
the Prospectus Directive.. ESMA has also updated its responses to the
questions relating to pro forma financial information and the level of
disclosure concerning price information for share offerings . The revised
responses will not take effect until 28 January 2014.
The FCA comments on the future of the industry
Martin Wheatley, FCA Chief Executive, has given a speech on shaping the
future in asset management in which he called for greater transparency in
asset management to boost its reputation, and an open discussion on how
and where dealing commission is spent. He also commented on: (i)
regulations, saying that the FCA will be working with asset managers in the
UK and policy makers in Europe to find a balanced regulatory solution; (ii)
conflicts of interests, stating that the FCA will conduct a thematic review
following up on previous work; and (iii) examining bundled brokerage
arrangements and looking at buy-side and sell-side practices . He confirmed
that the FCA plans to publish a consultation paper in November seeking
views on how to improve the use of dealing commissions and focusinh on
providing clarity around how "research" is defined, and what the FCA
considers to be eligible and non-eligible when purchasing goods and
services from clients' dealing commissions.
Possible AIFMD reporting delays
Reports are circulating that ESMA rules which should come into force in
January 2014 may be delayed by the FCA.
GUEST SHORTS
This week, Wall Street attorney Stephen A. Bornstein reports on the FCA's
recent announcement regarding the warning of investors about targets of
ongoing securities fraud investigations:
“Until now, the UK’s financial regulator publicly revealed the identities of
alleged securities violators only after it had made the decision to impose a

5. penalty or initiate a proceeding. The newly-established Financial Conduct
Authority, however, has just announced that it intends to publicly disclose
warnings sent to suspected wrongdoers – firms and individuals — that they
can expect enforcement actions against them. The purpose of the new
initiative is to put investors on notice of putative fraud so as to prevent any
further harm. Targets apparently would be given the opportunity before their
warnings are published to persuade the FCA that publication would be
unfair. According to one UK legal observer, “the FCA … knows that the
crowd only gathers when there is a body in the stocks.”
Stephen's law practice is described at www.wallstreetcounsel.com and his
blog posts on legal and regulatory developments in the global financial
services industry appear at www.aroundwallstreet.com.
Cummings
Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
1 November 2013