Markets View - May 2026

From enforcement action and new regulatory frameworks to structural shifts in how Europe's equity markets operate, there's plenty to get stuck into.

Here's what's inside:

• The FCA’s Final Notice issued to Dinosaur Merchant Bank
• The FCA’s Regulatory Priorities Report for Wholesale Markets
• The new UK Short Selling Regime
• The FCA & BoE’s new Transaction and Post‑trade Reporting Harmonisation Taskforce
• ESMA’s Call for Evidence on the structure of EU equity markets
• Under EU MiFID, the newly-adopted Delegated Regulation on Order Execution Policies
• Under EU EMIR, the EBA’s consultations on guidelines and technical standards on initial margin model authorisation
• Also under EU EMIR, the new reporting templates and instructions for AAR reporting
• Ongoing discussions around EU ETS in light of Iran crisis
• Under EU REMIT, the recast Implementing Regulation and new Delegated Regulation
• IOSCO’s recent consultation on good practices for OTC commodity derivatives

As always, we’d love to hear from you if you’d like to get in touch.

Dino-Sore Spot: FCA Issues Final Notice

On 27 March 2026, the FCA dropped a Final Notice on Dinosaur Merchant Bank Ltd (DMBL), a UK brokerage firm, hitting it with a £338,000 fine for market abuse surveillance failures. Here's what went wrong.

In June 2024, DMBL launched a new direct market access platform for contracts for difference (CFD) trading, and volumes swelled by 45%. However, orders and trades on the new platform were never ingested into the firm’s automated surveillance system – meaning potential market abuse could have slipped through entirely undetected. When a retrospective surveillance exercise was eventually run in respect of a four- month period in 2024, it threw up 2,916 alerts: 2,723 for insider dealing and 193 for market manipulation. On top of that, the firm's written policies and procedures for reviewing and escalating suspicious activity and for the governance and calibration of alerts were found to be inadequate.

Although DMBL identified this issue in October 2024 and took several remedial steps, the FCA found it didn’t fully address all deficiencies before the CFD business was itself wound down in May 2025.

The takeaway from the FCA here is clear: if you’re providing services in complex, high-risk products like CFDs, your surveillance framework needs to be watertight. The FCA expects proper data ingestion, well-designed and regularly reviewed alert calibration, clearly defined escalation procedures, and accurate management information to support effective oversight. Getting any of these wrong is a recipe for potential enforcement action.

Wholesale Changes: FCA Sets Out Its 2026 Stall

The FCA has published its first ever Regulatory Priorities Report for Wholesale Markets. It replaces more than 40 portfolio letters with a single annual roadmap – covering everyone from benchmark administrators and trading venues to wholesale banks, wholesale brokers, principal trading firms, data reporting service providers, trade repositories, corporate finance firms, and credit rating agencies.

The report sits squarely within the FCA’s drive to be a “smarter” regulator by being more predictable, purposeful, and proportionate with “less intensive attention on firms doing the right thing, and stronger, faster action where harm is greatest”. Alongside this, the FCA signals a pivot to a more outcomes-focused and agile supervisory model, expanding dedicated supervisory contacts and applying a more risk-based approach for its largest firms.

The wholesale agenda is organised around five themes, all underpinned by a continued emphasis on governance, data quality and effective systems and controls:

• improving the resilience of firms and markets – think operational resilience, trading controls, liquidity management and third party/technology risk;
• enhancing efficient, competitive and innovative markets;
• enabling the safe and responsible adoption of new technology (notably AI);
• preventing financial crime and market abuse; and
• ensuring firms effectively manage conflicts of interest and maintain strong conduct oversight.

The report also pulls together the FCA’s broader reform programme for 2026 across equities, bonds, commodities and derivatives. Key dates to have on your radar include:

• 22 June: launch of the UK consolidated tape for bonds.
• May/June: publication of Policy Statement on UK consolidated tape for equities.
• May/June: launch of a consultation on equity market structure and transparency.
• 6 July: go-live of the new commodity derivatives framework under PS25/1.
• 13 July: go-live of the modified UK short selling regime (see our article on this below, and the related client Briefing Note).
• Q3: publication of Policy Statement on UK transaction reporting regime.
• H2: publication of final rules to support issuance and investment in securitisations.

The FCA is positioning this as key reading for senior managers. We recommend taking a careful look, reviewing it against existing plans and acting upon where needed.

Short Shift: New UK Short Selling Regime to Replace EU Rules

From 13 July 2026, the UK will replace the on-shored EU Short Selling Regulation with a significantly modified UK regime. Our latest client Briefing Note sets out the key changes and what they mean in practice for your business. Below, we highlight some of the headline points.

Public disclosure removed: The current 0.5% named public disclosure threshold is being removed. In its place, the FCA will publish anonymised, aggregate net short positions (ANSPs) for each in-scope issuer, based on all NSPs reported at or above the 0.2% threshold. ANSPs for each working day will be published by the FCA from 12pm on T+2.

Reportable Shares List: The FCA will publish and maintain a machine-readable, definitive list of shares subject to the UK position reporting and cover requirements - the "Reportable Shares List". This will replace the current need for firms to manually cross-reference FIRDS and the exempt shares list, which has been administratively burdensome and led to inconsistencies across the market.

Extended reporting deadline: The reporting deadline is being extended from 3:30pm to 11:59pm UK time on T+1 - an extension of 8½ hours. This may be particularly welcome for firms based in the Americas, who have historically struggled to file within UK business hours.

UK sovereign debt: UK sovereign debt and associated CDS will be removed entirely from the scope of both the disclosure and cover requirements. However, the FCA retains emergency powers in relation to short selling activities in UK sovereign debt and associated CDS.

No material changes to NSP calculations or cover: Except for the changes regarding UK sovereign debt and associated CDSs, there are no material changes to how firms calculate NSPs or obtain appropriate cover, and firms should take comfort from this.

Parallel compliance: The EU SSR continues to be in force as normal in the EU and EEA. Firms subject to both UK and EU rules will need to ensure parallel compliance with two separate regimes.

FCA and BoE: Singing from the same Transaction Report

On 2 April 2026, the FCA and Bank of England launched their new Transaction and Post‑trade Reporting Harmonisation Taskforce, and published its terms of reference. This is part of the plan to develop a “cross-authority vision”, with the laudable aim of streamlining transaction reporting regimes across UK MiFIR, UK EMIR and UK SFTR.

The taskforce will comprise three working groups (for “Policy”, “Strategy” and Architecture), each co-chaired by the FCA and BoE. Between them, they’ll be identifying opportunities for harmonisation and simplification, gathering strategic industry insight, and exploring how modern technology and data infrastructure can help with the heavy lifting.

The taskforce will not directly determine policy outcomes. But it’s very likely to shape future consultations and rulemaking, particularly around data fields, reporting architecture and cross‑regime alignment. It’s therefore worth keeping its activities on your radar and engaging with the process where eligible/practicable.

ESMA Call for Evidence: Unveiling Trends in EU Equity Markets

On 30 April 2026, ESMA unleashed a Call for Evidence on the structure of European equity markets. The paper is backed by a detailed study into the structure of European stock markets, drawing on MiFIR transaction reporting data from 2022-25 – whose initial findings are rather interesting.

This comes against a backdrop of recent concerns about a rise in dark trading, a decline in lit continuous trading, and a shift toward bilateral execution. The data focuses on EEA shares and EEA trading venues, and in particular the distinction between trades that are:

• “on-book” (lit continuous trading, periodic auctions, dark trading) vs “off-book” (including negotiated transactions that are off-book-on-exchange, trading via systematic internalisers, and OTC trading); and
• “addressable” vs “non-addressable” – essentially, whether or not the trading activity is equally accessible and/or useful to other investors (a broader concept than just “on-book”)

At a headline level, from 2022-2025 addressable liquidity has remained broadly stable at approximately 85–90%, and on-book trading has held at around 75–80% of total activity, although the latter has gradually been eroded by SI volumes. The report also digs deeper, though, and reveals some interesting trends:

• Overall turnover volumes were stable from 2022 to 2024, with spikes in Q1 2022 (driven by the war in Ukraine) and Q1 2025 (driven by US-EU trade tensions).
• Continuous lit order book (CLOB) trading has fallen materially, driven mainly by a “significant” drop in trading volume on regulated markets (35% - 27%), with a smaller decline showing on MTFs (19.4% - 17.7%).
• Meanwhile, use of auction mechanisms has picked up the slack, including closing and intra-day auctions (18% - 19.3%) and frequent batch auctions (3.1% - 6.2%)
• Price formation via CLOB and closing auctions has dropped (72% - 64%) – a trend which may in time signal growing reliance on less transparent and less accessible trading.
• Dark trading actually remains quite small and has not moved much (4% - 5%), bar one spike at 5.9% in Q3 2025.
• Non-intragroup SI-based trading has roughly doubled (5.1% - 10%).
• OTC trading remained at approximately 7-8% on average.

Overall, ESMA sees a structural shift away from continuous lit trading and toward mechanisms relying on reference prices and offer limited or no pre-trade transparency. We can expect they’ll be watching this trend very closely.

In putting out this Call, ESMA is looking for stakeholder feedback on these trends and whether legislative/regulatory is potentially needed. The deadline for responses is 30 June 2026, with a feedback statement expected in Q3 2026. If you have views, now’s the time to share them!

Policies in Motion: New EU MiFID Rules on Order Execution Policies

On 14 April 2026, the European Commission adopted a new MiFID Delegated Regulation on the criteria for establishing and assessing the effectiveness of firms’ order execution policies. It’s based on the draft RTS that ESMA submitted in its Final Report of 10 April 2025, which we flagged in last May’s edition.

The Delegated Regulation still needs to be scrutinised by the Council of the EU and the European Parliament. It will apply 18 months after entry into force following publication in the Official Journal of the EU – so indicatively around Q4 2027 / Q1 2028.

That may all sound a long way off, but there’s a lot of work to do before then. Firms will want to review their EU Order Execution Policies to ensure compliance. Generally, the Delegated Regulation requires a new level of detail compared to existing requirements, particularly around:

• firms’ selected execution venues, including a requirement to maintain an internal list of approved venues with specified details on governance, financial instrument classes, transaction types and client categories;
• specific factors firms will take into account when selecting execution venues, including the characteristics and needs of clients, availability of order types, typical order sizes and frequencies, price comparisons against reference data, and detailed cost analysis.
• criteria for identifying where firms expect to obtain the best possible result for executing a client order, where that order may be executed on two or more venues, including requirements for automatic order routing systems.
• arrangements on how to deal with client instructions, including how to differentiate between orders with and without specific client instructions.
• specific items in cases where firms execute client orders by dealing on own account, including five specified matters that must be addressed in the order execution policy — and a three-tier price fairness check.
• monitoring the effectiveness of the policy across various elements, including a periodic assessment at least annually.

Meanwhile in sunny Britain, the UK MiFID rules on best execution have been transposed into COBS 11.2A. Under UK MiFID, firms still are expected to take into account guidance issued by ESMA (and CESR) prior to Brexit – but not anything issued since. The direction of travel is thus toward increasing divergence between the UK and EU best execution frameworks.

Assessing that divergence is even trickier than you might thing, not helped of course by the new Delegated Regulation. For example, the EU is now revoking RTS 27 and RTS 28 reports, which the UK already did back in December 2021; so, on the surface, the EU may appear to be following the UK’s lead. The catch is that on the EU side much of that revocation is being counterbalanced by enhanced granularity in order execution policies.

EU EMIR: IM Model Answers on Authorisations

On 17 March 2026, the EBA published two consultation papers on initial margin (IM) model authorisation. Without blinding you with too much EMIR science, here’s what you need to know.

EMIR 3 requires counterparties to apply for authorisation from their competent authorities before using, or adopting a change to, a model for IM calculation. The competent authorities then have six months to grant or refuse authorisation for a new model, or three months for a change to one already authorised. Where the model is a pro-forma model (such as ISDA SIMM), it must have been validated by the EBA (and the counterparties using pro-forma models are also required to apply to the EBA).

These rules entered into force on 24 December 2024, but the EBA published a “no action” letter at the time, effectively telling competent authorities to hold fire on any supervisory or enforcement action relating to IM model authorisation applications.

The first Consultation, “Draft Guidelines on the authorisation of initial margin models under Article 11(3) EMIR” applies to all FCs and NFC+s. It covers:

• the minimum information and documentation to be included in an application for authorisation – note that where a counterparty uses a pro forma model, it doesn’t need to provide information on the model’s design, as this is managed centrally by the model developer
• guidance on changes triggering the need for (re-)authorisation
• ad hoc notification obligations on aspects relevant for the authorisation or its withdrawal
• minimum documentation requirements for less active counterparties.

The second Consultation, “Draft Regulatory Technical Standards on the authorisation of initial margin models under Article 11(15) of EMIR” applies only to credit institutions and investment firms that have, or belong to a group that has, a monthly average outstanding notional amount of non-centrally cleared OTC derivatives EUR ≥750 billion. It sets out a draft RTs with supervisory procedures for the authorisation and ongoing monitoring of IM models, with the approach differing depending on whether the model uses a pro forma model or not.

The deadline for comments on both papers is 17 June 2026, after which the EBA will publish final guidelines and submit a final draft of the RTS to the European Commission for adoption.

The Guidelines and RTS implementation will be phased over an 18-month period based on the significance of counterparties' OTC trading activities, with the first phase indicatively kicking off on 1 January 2028 and the final phase on 1 January 2029. The “no action” letter will cease to have effect once the Guidelines and the RTS on IM model authorisation become applicable.

EU EMIR – AAR Reporting for Duty

While we’re on the subject of EMIR, ESMA has now published its reporting templates and instructions for counterparties subject to the active account requirement (AAR). We gave a run-down of the AAR in our March edition, but by way of a quick reminder it contains two core obligations on in-scope counterparties:

• The ‘Operational Obligation’: to open and maintain an active account at an EU CCP for the AAR in-scope transactions; and
• The ‘Representativeness Obligation’: for larger portfolios, to clear a "representative number" of those transactions in the active account.

The new templates and instructions set out exactly how parties should report to their competent authorities the information needed to demonstrate compliance with the AAR.

The first submission is due on 31 July 2026 (covering the period from 25 June 2025 to 30 June 2026). Thereafter, reports are due every six months, on 31 January and 31 July each year. Get it in the calendar…

Carbon Crunch? Debate Swirls around EU ETS

The Iran-related energy crisis has put the EU ETS back in the spotlight. The core question in play is whether the system should be loosened, and if so how. There is still no EU level decision to suspend or fundamentally relax the system, but political pressure is clearly building.

Some Member States are calling for more free allowances for energy intensive industries to protect competitiveness and avoid carbon leakage, even though that would weaken the carbon price signal. Others are pushing for looser rules on allowance supply, for example by tweaking the Market Stability Reserve (MSR) to let more allowances into the market and limit price spikes. A few countries – notably Italy – have even floated a temporary suspension or softening of ETS obligations, a move strongly opposed by others (including Spain) and which currently lacks majority support. These discussions are also likely to influence the planned 2026 review of the ETS, where extra flexibility and crisis tools are on the table.

In reality, though, most of the EU’s response so far has happened outside the ETS itself: large subsidy and state aid schemes (including under temporary crisis frameworks such as METSAF), plus tax relief and electricity price measures. The effect is to cushion costs without formally changing the carbon market, keeping the ETS intact on paper while partly offsetting its price signal in practice. Doubtless we’ll hear more in due course.

New Exposure to REMIT: Changes to Reporting Rules

We’ve seen a flurry of publications from ACER in relation to new obligations around REMIT data reporting. The two key documents of interest to wholesale energy traders are the (recast) Implementing Regulation and the new Delegated Regulation. We suspect the first of these will be of greatest interest to readers. Both entered into force on 29 April, although certain aspects are yet to take effect.

The new Implementing Regulation shakes up the REMIT reporting rules in 3 key ways:

• Exposure reporting: This is a wholly new reporting requirement for market participants who have annualised positions of ≥600 GWh (assessed separately for electricity and natural gas, at the end of the calendar year). It’s due to come into force next year. If you are caught, you will need to submit quarterly reports to ACER regarding your positions for the next 18 months.
• New reporting timelines: “standard” contracts and related lifecycle events should be reported on a T+2 basis (this was previously T+1), with “non-standard” contracts and events being reported on a T+10 basis (formerly T+1 month).
• New obligations for organised marketplaces: For trades on an OMP, the obligation to submit REMIT transaction reports now falls on the OMP itself (and there is no need for exchange members themselves to do so). Overall this should bring some welcome clarity to traders, tempered only slightly by the introduction of a parallel obligation (effective from 29 October 2027) on members to provide the OMP – where needed – with information to enable it to submit these reports.

The new Delegated Regulation is less directly relevant to traders – it brings in new authorisation and supervision processes for Registered Reporting Mechanisms (RRMs) and Inside Information Platforms (IIPs).

The REMIT goalposts have shifted a lot in recent years and we know that it can be a challenge for t to keep track of all the moving parts. We’re always on-hand to help if you have any REMIT-related queries, so please do get in touch.

Making Good Practice a Common Commodity – The Latest from IOSCO

On 19 March 2026, the International Organization of Securities Commissions (IOSCO) published a consultation report on proposed Good Practices for over-the-counter (“OTC”) commodity derivatives markets. Comments are due by 19 June 2026.

The backdrop is that in November 2024, IOSCO published a Report reviewing how well regulators and exchanges are applying a sub-set of five IOSCO Principles in connection with the regulation and supervision of commodity derivatives markets. The verdict? Broad compliance, but with ongoing challenges in obtaining and aggregating OTC data, monitoring large positions, and intervening during market disruptions. IOSCO is now developing good practices to plug those gaps, with a focus on improving access to OTC position data.

Why does this matter? Commodity market participants often hold positions across exchange-traded, OTC, and physical markets – creating interconnected risks that can affect price formation, volatility, and market abuse. Effective oversight depends on timely access to comprehensive data across all three.

The proposed good practices zero in on three areas:

• strengthening implementation of Principles 12, 15, and 16 regarding the collection and aggregation of OTC derivatives data (including beneficial ownership) to support effective surveillance and better information-sharing among exchanges and regulators;
• setting clear expectations for timely regulatory intervention to prevent or address disorderly market conditions, especially where OTC risks may spill over into exchange-traded markets; and
• promoting proportionate, risk-based, and market-specific approaches to OTC data collection and intervention powers.

The consultation closes on 19 June, and we’ll be keeping our eyes out for IOSCO’s final report in due course. If you’d like to discuss the proposals or their potential implications for your business, we’re here to help.