European Securities and Markets Authority Publishes Initial Proposals on the Trading Obligation under MiFIR

The European Securities and Markets Authority published a discussion paper on the trading obligation for derivatives under the Markets in Financial Instruments Regulation. The trading obligation is applicable to classes of derivatives that: (i) have been declared subject to the clearing obligation under the European Market Infrastructure Regulation, (ii) are admitted to trading on at least one trading venue (a regulated market, multilateral trading facility, organized trading facility or a third country equivalent trading venue) and (iii) are sufficiently liquid. ESMA is required to prepare Regulatory Technical Standards setting out which derivatives (or a subset of derivatives) that have been declared subject to the clearing obligation (currently comprising only certain interest rate swaps and credit default swaps) will also be subject to the trading obligation and the date on which the obligation will take effect. ESMA is seeking feedback on its approach to implementing the trading obligation for derivatives, including its application to certain types of counterparties and the possibility of the obligation being phased in, and on its initial assessment of some classes of derivatives that might become subject to the obligation. The discussion paper also sets out how the trading obligation has been implemented in other jurisdictions, such as the US, Japan, Switzerland, Mexico, Argentina and China. 

Responses to the discussion paper are due by November 21, 2016. ESMA aims to publish a consultation paper in the first quarter of 2017 with draft RTS to be submitted to the European Commission expected by September 2017. ESMA has six months from the date that a derivative has been declared subject to the clearing obligation to prepare, consult on and submit draft RTS to the Commission on the trading obligation for those derivatives. However, implementation of the trading obligation has been affected by the MiFID II delay and the earliest that a trading obligation could apply from is January 3, 2018. ESMA considers that it is better to finalize the RTS for the first trading obligations as close as possible to the application date of MiFID II so that it assesses the up-to-date data on liquidity for those derivatives that have already been declared subject to the clearing obligation.

View the discussion paper.