ESMA issued the final draft regulatory technical standard implementing the trading obligation for derivatives under the Markets in Financial Instruments Regulation (MiFIR). The draft regulatory standard provides the implementing details for on-venue trading of interest rate swaps (IRS) and credit default swaps (CDS). This draft standard has been submitted to EC for its endorsement. EC has expressed, to ESMA, its strong commitment to apply the trading obligation from the start date of the MiFID II framework. Therefore, ESMA envisages January 03, 2018 to be the application date.
MiFIR, which implements parts of the MiFID II framework, outlines the process for determining which derivatives should be traded on-venue. The trading obligation only applies to classes of derivatives that are sufficiently liquid and available for trading on at least one trading venue. Therefore, ESMA has decided to make the following fixed-to-float IRS and CDS indices subject to on-venue trading:
- Fixed-to-float interest rate swaps denominated in EUR
- Fixed-to-float interest rate swaps denominated in USD
- Fixed-to-float interest rate swaps denominated in GBP
- Index CDS – iTraxx Europe Main and iTraxx Europe Crossover
Under MiFIR, trading obligation will move over-the-counter (OTC) trading in liquid derivatives onto organized venues. Trading derivatives on-venue will bring transparency into the OTC sphere, benefiting investors and regulators alike. Enhanced transparency will provide better information on prices, liquidity, and risk, thus fostering market integrity. The trading obligation for derivatives under MiFIR is closely linked to the clearing obligation under the European Market Infrastructure Regulation (EMIR). Once a class of derivatives needs to be centrally cleared under EMIR, ESMA must determine whether these derivatives, or a subset of them, should be mandatorily traded on-venue on a regulated market (RM), multilateral trading facility (MTF), organized trading facility (OTF), or an equivalent third-country trading venue.
Effective Date: January 03, 2018
Keywords: Europe, EU, Securities, Trading Obligation, MiFID/MiFIR, OTC Derivatives, On-Venue Trading, IRS, CDS, ESMA
Previous ArticleIAIS Publishes Newsletter for December 2017
HKMA is consulting on revisions to the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.
PRA provided further information on the application of regulatory capital and IFRS 9 requirements to payment holidays granted or extended to address the challenges arising from COVID-19 outbreak.
HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.
BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.
ECB launched consultation on a guide specifying how the Banking Supervision expects banks to consider climate-related and environmental risks in their governance and risk management frameworks and when formulating and implementing their business strategy.
ECB published an opinion (CON/2020/16) on amendments to the prudential framework in EU in response to the COVID-19 pandemic.
EBA published a report that examines the interlinkages between recovery and resolution planning under the Bank Recovery and Resolution Directive (BRRD).
SRB published the final Minimum Requirements for Own Funds and Eligible Liabilities (MREL) policy under the Banking Package.
US Agencies (FDIC, FED, and OCC) published a final rule that makes technical changes to the March 31, 2020 interim final rule that provides a five-year transition period for the impact of the current expected credit loss (CECL) methodology on regulatory capital.
ECB published results of the March 2020 survey on credit terms and conditions in euro-denominated securities financing and over-the-counter (OTC) derivatives markets.