FIA reports EU propose amendments to CCP supervision

14 June 2017

European Commission proposes amendments to CCP supervision
Yesterday, the European Commission issued a proposal for "more robust supervision" of central counterparties. The proposal would establish a more rigorous system of supervision for third-country CCPs that are systemically important to the European Union's financial markets, and would give European regulators the authority to require these CCPs to relocate into the EU if the additional supervision is deemed to be "insufficient to mitigate the potential risks." The proposal also would establish a number of procedures to make the supervision of EU CCPs "more coherent."

In a press release announcing the proposal, the Commission explained that the proposed reforms are needed to address the increasing systemic importance of CCPs as well as the withdrawal of the U.K. from the European Union. The next step is for the proposal to be submitted for adoption by the European Parliament and the European Council, which represents the member states. Feedback on the proposal can be submitted until Aug. 9.

FIA President and CEO Walt Lukken issued a statement expressing support for the European Commission’s desire to enhance regulatory oversight to maintain stable markets but expressing concern about the potential for a forced relocation of clearing. 

"Although the proposal includes significant limits under which a clearinghouse would be required to relocate, we remain concerned about potential market disruption should any forced relocation occur," Lukken said. "As FIA noted in comments to the European Commission last week, forced relocation would fragment markets, diminish the risk-reducing benefits of portfolio margining, harm liquidity, and ultimately increase costs for end users. We urge the Commission to consider public input and maintain a dialogue with market participants on how best to protect financial stability while maintaining integrated, liquid markets.”

Click here for the Commission's proposal and related documents

Click here for FIA's response to the Commission's proposal

Click here for FIA's June 6 letter on forced relocation

SEC Approves CEO Pay Ratio Rule

SEC approves CEO pay ratio rule

By Jeff Drew August 6, 2015

The SEC on Wednesday approved a new rule requiring U.S. public companies to disclose the ratio between their CEO’s compensation and that of their median employee.

The rule, passed in a 3–2 vote, implements Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, some five years after the law was passed. Companies will now be required to reveal the following:

  • The      median of the total annual compensation of all their employees except the      CEO.
  • The      annual total compensation of the CEO.
  • The      ratio of the two amounts.

The pay-ratio proposal has generated what SEC Chair Mary Jo White called “a contentious and, at times, heated dialogue.” The commission has received more than 287,400 comment letters on the proposal. That total includes more than 1,500 unique letters, with the rest being form letters.

Debate over the pay-ratio requirement intensified after the SEC proposed the new rule in 2013. Proponents of the changes argued that knowledge of the CEO-employee pay ratio would provide investors with information helpful in making investment decisions and exercising their shareholder rights, especially in cases where they have a say on executive pay. Opponents of the measure countered that the disclosures would add no information of value and that they would be expensive to implement.

“While there is no doubt that this information comes with a cost, the final rule recommended by the staff provides companies with substantial flexibility in determining the pay ratio, while remaining true to the statutory requirements,” White said in a published statement. “The final rule provides companies with substantial discretion to use estimates and sampling as a means to determine the median employee and the employee’s compensation.”

SEC commissioners Luis A. Aguilar and Kara M. Stein joined White in voting to approve the pay-ratio requirement, while commissioners Michael S. Piwowar and Daniel M. Gallagher voted against the plan. In published dissenting opinions, Piwowar and Gallagher called the pay-ratio rule a political ploy included in the Dodd-Frank act to shame companies into lowering CEO pay.

“Today’s rulemaking implements a provision of the highly partisan Dodd-Frank Act that pandered to politically-connected special interest groups and, independent of the Act, could not stand on its own merits,” Piwowar said in his statement. “I am incredibly disappointed the Commission is stepping into that fray.”

Said Gallagher: “To steal a line from Justice [Antonin] Scalia, this is pure applesauce.” (See full statement).

Also see the full statements of Aguilar and Stein.

Median calculations

The new rule establishes guidelines for companies to determine a “median” employee to compare with the CEO. Companies are granted considerable flexibility in choosing a methodology to identify a median employee. Companies can use their total employee population or a statistical sampling of that population, following guidelines set out in the rule. In addition, companies can keep the same median employee for up to three years unless there are major changes to their employee population or the median employee’s compensation.

The new guidelines require companies to calculate the median employee’s annual total compensation using the same rules used to calculate the CEO’s compensation. The rule allows companies to apply a cost-of-living adjustment in calculating the median employee’s total annual compensation and CEO pay ratio, although companies must also disclose compensation and pay ratio figures without the cost-of-living adjustment.

The disclosure requirement applies to all companies required to provide executive compensation disclosure under Item 402(c)(2)(x) of Regulation S-K. Smaller reporting companies, foreign private issuers, MJDS filers, emerging growth companies, and registered investment companies are exempt from the requirement.

The rule requires companies to report the pay ratios starting with their first fiscal year beginning on or after Jan. 1, 2017.

Putin says dump dollar

Putin Says Dump Dollar

Russian President Vladimir Putin has drafted a bill that aims to eliminate the US dollar and the euro from trade between CIS countries.

This means the creation of a single financial market between Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and other countries of the former Soviet Union.

“This would help expand the use of national currencies in foreign trade payments and financial services and thus create preconditions for greater liquidity of domestic currency markets”, said a statement from Kremlin.

The bill would also help to facilitate trade in the region and help to achieve macro-economic stability.

Within the framework of the Eurasian Economic Union (EEU) the countries have also discussed the possibility of switching to national currencies. According to the agreement between Russia, Belarus, Armenia and Kazakhstan, an obligatory transition to settlements in the national currencies (Russian ruble, Belarusian ruble, dram and tenge respectively) must occur in 2025-2030.

Today, some 50 percent of turnover in the EEU is in dollars and euro, which increases the dependence of the union on countries issuing those currencies.

Outside the CIS and EEU, Russia and China have been trying to curtail the dollar’s dominance as well.