Featured Product

    ESMA to Amend Derivatives Obligations Owing to Benchmark Transition

    July 09, 2021

    The European Securities and Markets Authority (ESMA) is consulting on review of the regulatory technical standards specifying classes of derivatives subject to the clearing and trading obligations in view of the benchmark transition. The consultation is intended to amend the scope of clearing and trading obligations for derivatives to accompany the benchmark transition for OTC derivatives. The proposed amendments have been presented in the form of amending draft standards in Annex II of the consultation report. The comment period on the proposals end son September 02, 2021, with ESMA expecting to submit the final report to EC in Autumn 2021. ESMA aims to ensure that the scope of derivatives classes subject to clearing obligation trading obligation for derivatives reflect transition to the new alternative rates at the beginning of 2022.

    As a result of the benchmark reforms, EONIA and LIBOR are due to cease at the end of 2021, with the exception of USD LIBOR, publication of which is scheduled to run until June 2023. Thus, the new derivative contracts are expected to no longer reference EONIA or LIBOR from January 03, 2022, whereas derivatives referencing risk-free rates such as €STR in EUR, SONIA in GBP, or SOFR in USD are being traded and cleared. At present, three Commission Delegated Regulations on the clearing obligation and one on the trading obligation for derivatives mandate a range of interest rate and credit derivative classes to be cleared, with a subset of these to also be traded on venue. In view of the benchmark transition, there is a need to review the scope of these standards for the classes and currencies impacted by these changes, namely interest rate derivative classes in EUR, GBP, JPY and USD. For the draft regulatory technical standards amending the scope of clearing obligation, this consultation covers two aspects: which classes should be removed from the clearing obligation and which classes should be added. As per the proposal, ESMA would: 

    • Remove the classes referencing EONIA, GBP LIBOR, and JPY LIBOR as these benchmarks will cease to be produced at the end of the year
    • Keep the classes referencing USD LIBOR in the clearing obligation and will decide later whether to remove these at the time of the final report or later, depending on the responses to the consultation and as well as on how the situation evolves
    • Introduce the classes of interest rate derivatives referencing some risk-free rates for which there seems to be apparent liquidity—namely, Overnight Index Swaps referencing €STR for short maturities and Overnight Index Swaps referencing SONIA for a much larger maturity range
    • Include SOFR Overnight Index Swaps for short maturities and will conduct further assessment based on how the liquidity evolves and based on the responses to this consultation

    To reflect the change of classes to be in scope of the clearing obligation, ESMA is proposing to amend the Annex of the Commission Delegated Regulation where the classes are listed. Also, given that GBP LIBOR will no longer be subject to clearing obligation and will cease to exist by the end of 2021, fixed to-float interest rate swap referencing GBP LIBOR should no longer be subject to the trading obligation for derivatives as per the proposal. 

     

    Related Links

    Comment Due Date: September 02, 2021

    Keywords: Europe, EU, Banking, Securities, Clearing Obligation, Derivatives Trading Obligation, Benchmarks Reforms, Regulatory Technical Standards, Derivatives, LIBOR, EONIA, Benchmark Reforms, Benchmark Transition, ESMA

    Related Articles
    News

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.

    May 12, 2022 WebPage Regulatory News
    News

    EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA

    The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.

    May 11, 2022 WebPage Regulatory News
    News

    EC Mandates ESAs to Propose Amendments to SFDR Technical Standards

    The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.

    May 11, 2022 WebPage Regulatory News
    News

    EBA Examines Supervisory Practices, Issues Deposits Reporting Template

    The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),

    May 11, 2022 WebPage Regulatory News
    News

    SNB Updates NSFR Forms and FINMA Consults on Operational Risk Circular

    The Swiss National Bank (SNB) published Version 1.2 of the reporting forms (NSFR_G and NSFR_P) on the net stable funding ratio (NSFR) of banks, along with the associated documentation.

    May 10, 2022 WebPage Regulatory News
    News

    US Agency Publications Address Basel, Reporting, and CECL Developments

    The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances

    May 09, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8191