Shearman & Sterling LLP | Financial Regulatory Developments Focus | EU Derivatives Trading Obligation Enters Into Force
Financial Regulatory Developments Focus
  • EU Derivatives Trading Obligation Enters Into Force
    A Commission Delegated Regulation on the derivatives trading obligation under the Markets in Financial Instruments Regulation has been published in the Official Journal of the European Union.

    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 or traded on at least one EU trading venue (a regulated market, multilateral trading facility, organized trading facility or a third country equivalent trading venue) and (iii) are sufficiently liquid. The trading obligation applies to financial counterparties and to non-financial counterparties. Where a class of derivatives is determined to be subject to the MiFIR trading obligation, such derivative may only be traded on a third country trading venues if it has been determined to be equivalent by the European Commission.

    The Delegated Regulation contains Regulatory Technical Standards applying the trading obligation to fixed-to-float interest rate swaps denominated in EUR, USD and GBP and to index credit default swaps (iTraxx Europe Main and iTraxx Europe Crossover). The trading obligation for both IRS and CDS applied from January 3, 2018, unless the clearing obligation for a particular class of derivatives has not yet entered into force in which case the trading obligation will apply from the date that the clearing obligation begins.

    By way of background, the related clearing obligation applies to IRS denominated in seven currencies (EUR, GBP, JPY, USD, NOK, PLN and SEK) and to two classes of CDS indices (iTraxx Europe Main and iTraxx Europe Crossover). The obligation to clear OTC IRS denominated in all seven currencies is in force for clearing members of EU CCPs as well as large financial counterparties and alternative investment funds. The IRS clearing obligation will apply to small financial counterparties and AIFs from June 21, 2019 and to non-financial counterparties from December 21, 2018 for IRS denominated in the G4 currencies, and from August 9, 2018 for IRS denominated in CZK, DKK, HUF, NOK, SEK and PLN. The CDS clearing obligation is in force only for clearing members of EU CCPs. The CDS clearing obligation for large financial counterparties and AIFs and non-financial counterparties applies from August 9, 2019 and it applies to small financial counterparties and AIFs from June 21, 2019.

    The Delegated Regulation entered into force on December 23, 2017 and applied across the EU from January 3, 2018.

    View the Delegated Regulation.
    TOPICS: DerivativesMiFID II