March 21, 2018

ESMA issued an opinion providing further guidance on the treatment of packages under the trading obligation for derivatives, which the Markets in Financial Instruments Regulation (MiFIR) introduced on January 03, 2018. ESMA notes that the trading obligation is designed to apply at the level of a financial instrument and not at the level of the package. Therefore, only components of a package are subject to the trading obligation, but not the package.

Under MiFID II, trading obligation for derivatives does not provide for a tailored regime for packages, which is likely to result in the divergent application of the trading obligation for derivatives in the EU. To ensure a consistent application of the trading obligation across EU, ESMA issued this opinion, which clarifies, through a positive list, the categories of packages for which the derivative components subject to the trading obligation are always required to be traded on a trading venue. Package orders/transactions are composed of two or more financial instruments that are priced as a single unit, simultaneously executed, and where the execution of each component is contingent on the execution of all other components. Packages are a relevant part of the financial markets by enabling investment firms and their clients to conduct trades for risk management and hedging purposes.

 

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Keywords: Europe, EU, Securities, MiFID II, MiFIR, Trading Obligation, OTC Derivatives, ESMA

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