NO 233 – JULY 2012
Half year market highlights

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WFE Focus July 2012
Regulation

BM&FBOVESPA to establish mergers and acquisitions committee

BM&FBOVESPA, the Association of Capital Markets Investors and the Brazilian Institute of Corporate Governance signed an agreement on 27 June 2012 for the establishment of the Mergers and Acquisitions Committee (CAF). This is a voluntary self-regulatory organization aimed at assuring the equitable treatment of publicly-traded companies’ shareholders during public tender offers and corporate restructuring.

Canadian Securities Regulators establish regulatory framework to manage electronic trading risks

The Canadian Securities Administrators is implementing a regulatory framework for the oversight and management of the risks associated with the use of electronic trading on Canadian market places. The framework is designed to address certain risks to Canadian markets related to the speed and automation of electronic trading, and ensure that marketplaces and participants are actively monitoring and managing these risks. Specifically, the framework will require, among other things, marketplace participants who enter orders electronically to maintain policies, procedures and controls to manage the risks associated with accessing the markets in this manner.

CFTC, SEC adopt tougher rules on derivatives markets

The Commodity Futures Trading Commission and the US Securities and Exchange Commission have recently approved more rules that will limit speculation in financial and commodities markets through derivative investments to reduce risk. Among other things, the new rules determine which banks, Wall Street firms, hedge funds and energy companies will be designated swap dealers or “major swap participants” under the 2010 Dodd-Frank financial reform legislation. While the rules will regulate a limited number of firms, they would cover a large majority of the transactions in the USD 700 trillion global derivatives market because sales are concentrated among a handful of large players. The new rules will require larger firms to maintain higher capital, margin and collateral requirements for many types of derivatives transactions. The CFTC rules create a threshold for permissible dealing activity before a company is defined as a dealer. Regulators are still working on other Dodd- Frank rules, including actual requirements for capital, margin and collateral levels, as well as their final definition of a swap itself. The standards are expected to be completed later this year.

Council of European Union adopts rules on derivatives

On 3 July 2012, the Council adopted a regulation aimed at increasing transparency in derivatives and reducing risk in the OTC derivatives market. The regulation requires that the clearing of standardized OTC derivative contracts through central counterparties in order to reduce counterparty risk. This is aimed at preventing the default of one market participant causing the collapse of other market players, thereby putting the entire financial system at risk. To be authorized, a CCP will have to hold a minimum amount of financial resources. Specifically, the regulation requires a CCP to have a mutualized default fund to which members of the CCP have to contribute. The new rules also require that the reporting of all derivative contracts to trade repositories. Trade repositories would have to publish aggregate positions by class of derivatives, thereby offering market participants a clearer view of the derivatives market. The European Securities and Markets Authority (ESMA) will be responsible for the surveillance of trade repositories and for granting and withdrawing their registration. ESMA will also be responsible for the identification of contracts subject to the clearing obligation, while national competent authorities, in coordination with a college of supervisors, will be responsible for authorization and supervision of CCPs, except in the case of CCPs from third countries, which will have to be recognized by ESMA, provided they meet certain conditions.

İMKB to introduce investor based measures system

In a new regulation which will become effective on 3 September 2012, İMKB clearly defines the orders and trades hindering the realization of trades on İMKB in an open, orderly and fair manner, and regulates the principles and rules regarding the measures to be taken by İMKB against the investors that have been found to be engaged in such orders or trades. This new regulation will be highly instrumental in ensuring the realization of trades on İMKB in an open, orderly and fair manner, efficiently fighting against market abusing activities, strengthening investor confidence in the capital markets, and therefore, in the further development of the capital markets and the realization of İstanbul Financial Center vision.

Shanghai Stock Exchange promotes governance of listed companies to improve blue chip market

The Shanghai Stock Exchange, taking corporate governance as the basis for the construction of the blue chip market, has recently published the notice related to listed companies’ focus on the investor relation management and plans to issue measures for toughening regulation on information disclosure of cash dividend distribution in a bid to improve the governance and the transparency of listed companies, facilitate their standard operation, and strengthen the protection of legal rights and interests of investors

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