LIBOR Transition: Further Proposed Changes to EU Clearing and Derivatives Trading Obligations

The European Securities and Markets Authority has opened a consultation on proposals to amend the EU clearing and trading derivative obligations to reflect recent benchmark transitions from LIBOR to so-called risk-free rates. The scope of the EU derivatives clearing and trading obligations for interest rate derivatives based on LIBOR denominated in EUR, GBP, JPY and USD were amended earlier this year. Amendments to the Regulatory Technical Standards, which took effect on May 18, 2022, removed interest rate derivative classes referencing GBP and USD LIBOR from the clearing and trading obligations, removed IRD classes referencing EONIA and JPY LIBOR from the clearing obligation, and introduced a clearing obligation for IRD classes referencing three new risk-free rates, namely €STR, SONIA and SOFR.

ESMA is proposing to further amend the RTS to:

• introduce a clearing obligation for overnight index swaps referencing TONA (JPY);
• expand the maturities in scope of the clearing obligation for OTC interest rate swaps referencing SOFR (USD); and
• introduce a derivatives trading obligation for certain classes of OTC interest rate swaps referencing €STR (EUR).

Responses to the consultation may be submitted by September 30, 2022. ESMA will consider the feedback before submitting for approval by the European Commission final draft amending RTS.

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