Featured Product

    EC Issues Regulation on Adjustments to K-Factor Coefficients Under IFR

    January 20, 2022

    The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU). As far as the single rulebook is concerned, this stocktaking exercise did not reveal strong support for further-reaching EU level harmonization across all sectoral legislation. However, respondents overwhelmingly converge in their request to better align the timing of level 2 measures with the timing for the application of level 1 measures. EC also published the Delegated Regulation 2022/76, which supplements the Investment Firms Regulation (IFR: 2019/2033) regarding the regulatory technical standards specifying adjustments to the K-factor “daily trading flow” (K-DTF) coefficients. Regulation 2022/76 sets out adjustments to the formula for determining coefficient of the K-DTF cash trades and coefficient of the K-DTF derivatives and provides the meaning of the "period of stressed market condition." Regulation 2022/76 shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

    The daily trading flow (DTF) is calculated based on the volume of transactions. Circumstances leading to higher trading volumes may, therefore, force investment firms dealing on own account, including market makers, to reduce their trading activities. This may lead to a risk of reduced market liquidity, with potential detriments to financial stability. Consequently, the K-DTF coefficients are being adjusted in a way that does not disincentivize trading activities. Where circumstances lead to lower trading volume, those considerations do not apply and therefore, the adjustments to the K-DTF coefficients are based only on the trades volumes occurring during periods of high volatility. If the K-DTF requirements in stressed market conditions are overly restrictive and detrimental to financial stability, the coefficient shall be adjusted to be smaller than the one provided in Table 1 of Article 15(2) of IFR, in order to avoid making the K-DTF a disincentive to trading.

    For the purposes of calculating the adjusted K-DTF, stressed market conditions should cover cases where short-term changes in trading volume and price have a significant impact for the calculation for the K-DTF. As stressed market conditions may last for an indeterminate period of time, including periods as short as a few minutes, the adjusted coefficients should be capable of reflecting the value of the daily trading flow that takes place during periods of any different duration. According to Regulation 2022/76, an event of stressed market condition means a situation where the specific parameters are met and where those stressed market conditions lead to increased trading volumes. The start and end time of an event of stressed market condition shall be the time which the trading venue has identified in accordance with Article 6(2) of Delegated Regulation 2017/578 which sets out regulatory technical standards specifying the requirements on market making agreements and schemes.

     

    Related Links

    Effective Date: February 09, 2022

    Keywords: Europe, EU, Banking, Investment Firms, Regulatory Technical Standards, IFR, K-Factor Regime, Derivatives, EC

    Related Articles
    News

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News
    News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8699