Markets View - May 2025

In some years, there is a flurry of regulatory activity around the Easter break, with major proposals published before the holidays. This year, there has indeed been a flurry of activity, but instead of major proposals we are swimming in technical details and draft instruments from the FCA, HMT and ESMA. Of course, if you are looking for major change, President Trump’s tariff announcements are widely seen to usher in a new global trading order. There has certainly been an increase in the volume and volatility of trading on exchanges around the world.

Before turning the update, you might just be able to secure one of the last tickets for the following fabulous City & Legal Event at the Old Bailey:

• City & Legal Event: The legal characterisation of digital assets: Recent developments – Sir Geoffrey Vos KC, 8 May 2025
• A lecture and panel discussion will be held at the Central Criminal Court, Old Bailey at 5.45pm – 7.30pm on 8 May 2025, discussing the Legal Characterisation of Digital Assets. The Keynote speech will be given by Sir Geoffrey Vos, Master of the Rolls.
• Panellists include Professor Sarah Green (Head of Digital Assets and Trade Finance, D2 Legal Technology), Dina White (General Counsel, Zodia Markets), John Siena (Associate General Counsel, Brown Brothers Harriman), Nik Yeo (Counsel, Fountain Court Chambers) and Oliver Ward (Counsel, Simmons & Simmons). The event is part of the City & Legal Lecture series, hosted by Alderman and Sheriff Gregory Jones KC.

Please email Liz.Ekpiken@Simmons-Simmons.com if you would like one.

And now for the (quite extensive) update:

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FCA updates Handbook for Digital Securities Depositories in the Sandbox

The FCA has updated the Handbook Glossary and added two new chapters MAR 5AB and 5AC, effective 28 March 2025. The amended rules will cause a Digital Securities Depositories’ core functions and “category 1” activities, when carried on by an FCA-authorised firm, to be treated as if they were unregulated activities for the purposes of the FCA Handbook.

The Digital Securities Depositories Instrument 2025 (FCA 2025/14) disapplies activity-specific requirements for a firm carrying on the core functions of a digital securities depository and related “category 1” ancillary activities for the purposes of enabling the core functions of a digital securities depository in the Digital Securities Sandbox. Category 1 activities are those which enable the core DSD functions of settlement, notary or maintenance.

FCA update on PISCES and pre-application support

The FCA published a webpage on 10 April 2025, with early feedback on its consultation on the Private Intermittent Securities and Capital Exchange System (PISCES) sandbox. Likely post-consultation changes include:

• Changes to core information PISCES companies must disclose, and making optional the rules on legitimate omissions from core disclosures;
• Clarifying PISCES operators should monitor for risks to orderly trading and have proportionate controls;
• Clarifying PISCES companies may restrict participation in a trading event, provided the restriction is based on published, transparent and non-discriminatory rules;
• Providing guidance: requiring consideration of investor interests and market integrity when determining whether to postpone, suspend, or terminate a trading event; and on the FCA's expectation for volatility controls where a PISCES trading system allows intermittent periods of continuous trading. Additionally, operators may not be required to monitor transactions for misleading statements; and
• Ensuring breaches of rules in Pisces Sourcebook (PS) 2 (Disclosure by Pisces companies), PS 3 (Pisces operator requirements) and PS 4 (Manipulative trading practices) do not give rise to a right of private action under s138D FSMA 2000.

A formal Policy Statement with Final Rules is expected in June 2025.

FCA updates RTS and Handbook to expand the DTO to SOFR OIS, and for post-trade risk reduction services

The FCA published on 03 April 2025 a Policy Statement on the derivatives trading obligation and post-trade risk reduction services (PS25/2). Post-trade risk reduction services (PTRRS) are services that enable counterparties to reduce or manage their exposure to risks that arise from their derivatives portfolios, like counterparty and operational risk, without altering their market risk. The derivatives trading obligation (DTO) requires that the trading of standardised and liquid OTC derivatives be concluded only on eligible trading venues.

Effective 30 June 2025, the FCA sets out amendments to:

• The RTS on the trading obligation for certain derivatives, Commission Delegated Regulation (EU) 2017/2417. This will expand the derivatives trading obligation (DTO) to certain classes of SOFR OIS (secured overnight financing rate overnight index swaps), as part of the transition from swaps based on LIBOR to risk-free rates (RFR).
• The Handbook Glossary, GEN and inserts the PTRRS rules into new MAR 12. Providers of PTRSS will need to notify the FCA prior to providing the services for the first time. Given the non-price forming nature of the transactions resulting from PTRRS, the new rules exempt firms from some requirements, such as the obligation to report to the public the transactions that arise from PTRRS.

FCA updates UK list of exempted shares under Short Selling Regulations

The FCA updated its webpage on the notification and disclosure of net short positions. The updated list of exempted shares applies to all positions from 01 April 2025. Net short positions held in any of the shares on the list are not reportable to the FCA.

FCA trading apps review findings; IOSCO report

The FCA published a webpage summarising findings from its survey of 28 trading apps (aka neo-brokers), on 11 April 2025. The FCA reminded firms to consider:

• PRIN 2A.3 and PROD 3, including on identifying a target market;
• PRIN 2A.4 on delivering fair value and ensuring the price of a product or service is reasonable;
• Digital engagement practices (DEPs) are inappropriately manipulating retail customers’ behavioural biases; and
• COBS 4.12A.28R or COBS 10/10A, ensuring products are appropriate for retail customers.

IOSCO also published a Consultation Report on Neo-brokers, on 12 March 2025, focussing on addressing retail investor fraud. Jurisdictions are asked to consider: appropriate disclosure of fees and charges to retail investors; disclosure and consent from clients when offering ancillary services; potential impact of non-commission related trading revenue (such as Payment for Order Flow); and the robustness of IT infrastructure.

FCA Regulatory Initiatives Grid updated

On 14 April 2025, the FCA updated its Regulatory Initiatives Grid. Items of interest include:

• Draft legislation on financial services regulatory regime for cryptoassets including stablecoin, was expected Q1 2025, to be laid in Q2;
• From the FCA Crypto Roadmap, at least one discussion paper and four consultation papers are expected this year;
• An FCA consultation on the stablecoin regime is subject to the timings of Treasury secondary legislation;
• The BoE will publish final rules and a supervisory statement in Q2 2025 on fundamental rules for financial market infrastructures (FMIs);
• An SI for PISCES, the Private Intermittent Securities and Capital Exchange System, is expected by May 2025; and
• On The Short Selling Regulations 2025, made in January, the FCA will in Q3 2025 publish a consultation paper, draft rules and draft policy statement on the use of its emergency powers; with final rules around H2 2026.

Draft SI revamping the UK MiFID Org Regulation

HM Treasury published a Policy Note on 18 March 2025 together with near-final draft Markets in Financial Instruments (Miscellaneous Amendments) Regulations 2025. The draft SI will revoke the UK MiFID Organisational Regulation (MiFID Org Reg) and restate key definitions in UK financial services legislation, so that firm-facing regulations within the MiFID Org Reg can be transferred to the FCA and PRA rules. The draft SI includes:

• Restatement with some modifications of definitions in the Regulatory Activities Order, including “commodity”, “money-market instruments”, “wholesale energy products that must be physically settled” and “spot contract”; and in relation to derivative contracts and derivative financial instruments (Schedule 2, RAO) and algorithmic trading, high-frequency algorithmic trading technique and direct electronic access (Schedule 3, RAO);
• Restatement with some modifications of definitions in the Recognition Requirements Regulations, including in relation to the definitions of “algorithmic trading” and “direct electronic access”, “high-frequency algorithmic trading technique”; and in relation to “significant damage to investors’ interests or orderly functioning of financial markets”;
• Updates to cross references in the Financial Promotions Order; and
• Changes to the MiFI Regulations 2017, including to definitions of “algorithmic trading”, “direct electronic access” and “high message intraday rate”.

The deadline for technical comments is 14 April 2025, although the policy approach is already settled. The SI is expected to be laid in summer 2025 and commence alongside revocation of the MiFID Org Regulation, following the publication of final FCA and PRA final rules in H2 2025.

UK consultation on Voluntary Carbon and Nature Markets

The UK Department for Energy Security and Net Zero published a consultation on 17 April 2025 on Voluntary Carbon and Nature Markets: Raising integrity. The consultation explains how the Government is supporting VCNMs through its six Principles for VCNMs Integrity, which DESNZ published in November 2024.

The UK currently intends to meet its 2030 and 2035 NDCs through domestic emissions reductions and removals alone, in line with advice from the Climate Change Committee, but reserves the right to use voluntary cooperation through Article 6 of the Paris Agreement. Such cooperation could include international emissions reductions or removals, or those which result from linking the UK Emissions Trading System to another emissions trading scheme. The UK does not intend to apply corresponding adjustments to voluntary purchases of credits from UK based projects, and intends that the underlying reductions and removals from such purchases will count towards the UK’s carbon budgets and NDCs.

DESNZ is consulting on whether to implement governance arrangements to enable UK project developers to sell “Mitigation Contribution 6.4 Emissions Reductions” (MC A6.4ERs) through the Paris Agreement Crediting Mechanism (PACM). MC A6.4ERs may be sold without the requirement for a corresponding adjustment to be made by the country in which the mitigation activity has taken place. This means the buyer of this credit supports mitigation activity which counts towards the NDC of the country in which the seller undertakes the mitigation activity.

Responses to the consultation are due by 10 July 2025.

ACER updates REMIT Q&As

ACER updated its Questions & Answers on REMIT on 31 March 2025, following amendments to the Regulation in 2024. Changes include: new obligations for third-country market participants; order book reporting by organised marketplaces; coverage of new products such as energy storage and hydrogen; and clearer explanations of reporting and compliance aspects.

ICMA updates Recommendations for EEA and UK SFTR reporting

The International Capital Market Association (ICMA) updated in March 2025 its Recommendations for reporting under SFTR, for both the EU and UK versions of the Regulation on reporting and transparency of securities financing transactions (SFTR). A blackline against the April 2023 version is available.

Among various minor updates and clarifications, including updating “EU” references to “EEA” to include Iceland, Norway and Liechtenstein, there are new sections on:

• Variable-rate repos;
• Reporting LEI of the issuer of collateral, even where that entity is a subsidiary of another legal entity which is being financed by the security;
• Fixed-term, fixed-rate repos scheduled to pay interest during their term;
• Fixed-term, floating-rate repos scheduled to make irregular interest payments;
• DTCC "Sponsored Repos"; and
• Guaranteed or indemnified repos not cleared at a CCP.

PRA/FCA draft BTS on EMIR margin requirements

On 27 March 2025, the PRA and FCA published a joint Consultation Paper, “Margin requirements for non-centrally cleared derivatives: Amendments to BTS 2016/2251” (CP5/25).

There are three proposals. Firstly, to make indefinite the current temporary exemption (which expires on 04 January 2026) from the UK bilateral margining requirements, for single-stock equity options and index options. Secondly, to remove the obligation to exchange initial margin (IM) on outstanding legacy contracts, where a firm subsequently falls below the EUR 8bn average aggregate notional amount (AANA) in-scope thresholds. This currently incentivises firms to cancel legacy contracts and create new ones. Thirdly, when transacting with a counterparty subjected to the margin requirements in another jurisdiction, permit UK firms to use that jurisdiction’s threshold assessment calculation periods and entry into scope dates to determine whether those transactions are subject to IM requirements.

The indefinite exemption would align the UK with other jurisdictions, and the other proposals would reduce administrative burdens. A policy statement and amended binding technical standards (BTS) are expected in H2 2025.

ESMA draft RTS on clearing thresholds under EMIR 3.0

On 08 April 2025, ESMA published a Consultation Paper on “Draft technical standards amending Regulation (EU) 149/2013 to further detail the new EMIR clearing thresholds regime”.

Key proposals include:

• Maintaining aggregate clearing thresholds for financial counterparties (FCs), at least for interest rate (at EUR 3bn) and credit derivatives (at EUR 1bn), which are in scope of the clearing obligation;
• Calibration of uncleared thresholds;
• No separate thresholds for commodity derivatives sub-asset classes; remove reference to “other” (e.g., crypto) derivatives in the fifth bucket for commodity and emission allowance derivatives in the clearing thresholds, and no new sixth bucket for “other” derivatives; no introduction of more granular thresholds for commodity derivatives based on ESG factors or crypto-related features;
• No changes to the definition of hedging contracts for non-financial counterparties (NFCs);
• New trigger mechanisms for ad-hoc reviews of the clearing thresholds, following significant price fluctuations in the underlying class of OTC derivatives or a significant increase of financial stability risks.

ESMA extends recognition of UK CCPs; revises MoU with BoE; and peer reviews EU CCP supervision

ESMA published on 17 March 2025 a press release announcing extension of the recognition decisions and tiering determination decisions for the three recognised UK CCPs - ICE Clear Europe Ltd, LCH Ltd (as Tier 2) and LME Clear Ltd (as Tier 1) – to 30 June 2028.

ESMA also published a revised Memorandum of Understanding with the Bank of England, following amendments under EMIR 3.0, in particular, in respect of systemically important third-country CCPs (Tier 2 TC-CCPs).

On 2 April 2025, ESMA published its 2024 CCP Peer Review Report on outsourcing and intragroup governance arrangements. Most supervisory expectations were met by National Competent Authorities (NCAs). The report notes that NCAs had diverging approaches to categorisation of major activities linked to risk management, in relation to notification and authorisation of new outsourcing arrangements. EMIR does not provide any definition or guidance, and ESMA’s EMIR Q&A (Q10) only categorise the internal audit function as a major activity.

ESMA MiFIR consultation on derivatives transparency, package orders and CTP input/output data

On 03 April 2025, ESMA published MiFIR Review Consultation Package 4, “On transparency for derivatives, package orders and input/output data for the derivatives consolidated tape”. The consultation includes:

• Draft RTS on the transparency requirements for derivatives – new deferral regime for ETD and OTC, changes to pre-trade illiquid waiver and LiS waiver, changes to post-trade fields and flags;
• Consequential changes to CDR 2017/2194 on package orders; and
• Changes to RTS 2017/583 (RTS2) on CTP input and output data.

Interestingly, OTC interest rate derivatives will only be in scope of transparency if they:

• are denominated in EUR, JPY, USD or GBP,
• are subject to the clearing obligation,
• are centrally cleared; and
• have a contractually agreed tenor of 1, 2, 3, 5, 7, 10, 12, 15, 20, 25 or 30 years.

So, for example if the trade is in scope for the clearing obligation but the notional is on Polich Zloty or Swiss Francs, then it would not be in scope of MiFIR transparency if these rules go ahead. So those trades subject to MiFIR transparency will be a subset of cleared interest rate derivatives. The policy objective appears to be that OTC transparency is only required in major G4 currencies.

Responses are due by 03 July 2025, with a final report expected by the end of 2025.

ESMA draft ITSs and RTSs on SIs, volume cap, transparency calculations, circuit breakers; and execution policies

On 10 April 2025, ESMA published a Final Report covering:

• Systematic Internalisers (SIs): Draft ITS setting out the procedure for firms notifying NCAs of commencement of SI activities and the associated template to use;
• Volume Cap: (relating to CP3) with proposed amends to RTS3 to reflect the switch from DVC to SVC, as well as the upcoming use of transaction reporting data for transparency calculations. It also confirms the phasing out of daily reporting for data flowing into the FITRS and DVC systems;
• Circuit breakers: Draft RTS 7a (recast of RTS7 – CDR 2017/584) including new provisions relating to the establishment of circuit breakers as well as target amendments to provisions previously included in RTS7 (which have been revised under the DORA framework).

On the same day, ESMA published another Final Report proposing a new draft RTS on how the order execution policy (and the order execution obligations) can take account of whether the orders are executed on behalf of retail or professional clients.

The Commission has until 10 July 2025 to endorse or reject all these proposals.

ESMA requests Commission clarification on fractional share trading

ESMA wrote to the European Commission on 04 April 2025, requesting clarification on the classification of fractional shares under MiFID2, particularly as these accounted for over 10% of transactions in 2023-24. Because transactional shares are not defined in MiFID2 or MiFIR, they fall to be defined by national law, meaning some Member States may define them as derivatives and others as shares. In March 2023, ESMA published a Public Statement, which clarified that “instruments that enable investors to access fractions of shares through derivatives deriving their value from the price of an underlying corporate share” — should not be marketed as fractional shares. ESMA believes the Commission should now clarify that fractional shares replicating the key characteristics and trading environment of shares should remain subject to the rules applicable to shares under MiFIR.

Iberian blackout: Market and regulatory impact

The Iberian peninsula experienced a near total electricity blackout on 28 April. Spain's power generation unexpectedly dropped at 12:33hs by about 60%. Power was widely restored in the region over the following 24 hours, but the cause(s) of the outage are not yet understood.

According to press reports of OMIE data in Spain, on the following day, the wholesale price of electricity was low, around 5.79 EUR, with several hours at 0 EUR or negative price. On 30 April, the pricing reverted to 31.83 EUR/MWh, still far from the peak in April of 64.39 EUR/MWh, and in March of over 110 EUR/MWh.

Both Spain and Portugal invoked emergency crisis powers. Portugal's prime minister subsequently announced an independent commission and called on ACER, the EU Agency for the Cooperation of Energy Regulators, to investigate the affected electricity systems. ENTSO-E, European Network of Transmission System Operators for Electricity, is establishing an Expert Panel to investigate the causes of the blackout, with National Regulatory Authorities and ACER invited to participate. The affected Transmission System Operators (TSOs) are required to report by the end of May, with the Expert Panel publishing an interim report by the end of October, and a final report with recommendations by September 2026.