At the end of September, the European Securities and Markets Authority (ESMA) published its final guidelines on inside information and commodity derivatives under the EU Market Abuse Regulation (MAR). The guidelines establish the information that is expected to be disclosed on commodity derivatives markets and spot markets. ESMA expects market participants, including buy-side firms, to take the guidelines into account when assessing whether information should be considered ‘inside’ or not.
In its guidelines, ESMA groups information in three categories: information relating to commodity derivatives, information relating to commodity derivatives without a related spot market, and information relating to a spot commodity contract. The market has only a short time to digest the guidelines, as they come into force just two months after being translated into each of the EU’s official languages.
In the past, buy-side firms were largely immune from regulations relating to the reporting of insider information, and market surveillance functions were carried out on their behalf by the broking community. However, with significant changes to MAR in July this year, buy-side firms are now required to conduct their own market surveillance to identify potential cases of insider trading, and to report such cases to the regulator.
With their new responsibilities, buy-side firms should look to integrate ESMA’s guidelines into their governance frameworks. However, buy-side firms lack expertise in market surveillance and complex data reporting requirements. If buy-side firms are to stay on the right side of MAR, they need to significantly extend their governance functions. This includes upskilling compliance team members and introducing new systems capable of analyzing every execution and order against ESMA’s guidelines, real-time market data and other information essential to compliance monitoring.
The cost and complexity inherent in such a transition cannot be taken lightly. Buy-side firms need to update their data management and compliance capabilities to be fit for purpose in the new heavily-regulated environment while keeping costs low and maintaining a high level of service to customers. Lengthy technology migrations and implementation periods will lead to business disruption and in the worst cases risk customer churn.
One solution is to take managed data compliance services from specialist providers such RIMES RegFocus This approach provides buy-side firms with immediate access to the data compliance expertise and market surveillance technologies they need, with no disruption to the business. Moreover, such services reduce the total cost of ownership compared to in-house projects. With managed services such as RIMES’, asset managers can keep on top of all incoming regulatory requirements while maintaining their focus on core business activities.