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    ESMA Updates Q&A, Sets Out Standards on Benchmark Transition

    November 19, 2021

    The European Securities and Markets Authority (ESMA) updated the Questions and Answers (Q&A) on several regulations, including the Securitization Regulation, the Benchmarks Regulation, and the European crowdfunding service providers for business Regulation. ESMA also published the final report that sets out the proposed draft regulatory technical standards on clearing and derivative trading obligations to accompany the benchmark transition. The draft regulatory standards relate to the benchmark transition away from EONIA and LIBOR and onto new Risk-Free Rates. The report also presents a timeline for when these changes should come into effect.

    The regulatory standards amend the scope of the clearing and derivative trading obligations for over-the-counter (OTC) interest rate derivatives denominated in EUR, GBP, JPY, and USD, as part of the transition away from EONIA and LIBOR and onto alternative benchmarks. ESMA had consulted on amending this scope from July 09, 2021 to September 02, 2021 and this final report on draft standards presents the feedback received from the consultation. The draft regulatory standards have been updated considering the progress made in the transition, the feedback received from stakeholders, and the discussions with the regulators from other jurisdictions. ESMA proposed to

    • remove interest rate derivative classes referencing GBP and USD LIBOR from both the clearing and derivative trading obligations
    • remove interest rate derivative classes referencing EONIA and JPY LIBOR from the clearing obligation
    • introduce interest rate derivative classes referencing €STER, SONIA, and SOFR to the clearing obligation (with a longer phase-in)

    The trading and clearing activity in derivatives referencing EONIA or LIBOR is expected to have pivoted to derivatives referencing other benchmarks shortly, though it is not the end of the transition. For instance, certain markets are in a multi-rate environment and thus liquidity for these various rates might evolve and other benchmarks may develop. This also means that beyond this final report presenting the changes to the clearing and derivative trading obligation regulatory technical standards with regard to EUR, GBP, JPY, and USD classes, ESMA will continue to monitor this transition and may need to adapt the scope of the clearing and derivative trading obligations further in the future as a result. The proposed amendments aim to ensure a smooth benchmark transition while maintaining an effective scope for these two obligations, in line with the G20 objectives. With this final report, ESMA is submitting the draft regulatory technical standards to the European Commission for endorsement in the form of a Delegated Regulation. Following a non-objection review by the European Parliament and Council they would only enter into force after publication. ESMA’s proposal would be for the changes to apply from January 02, 2022 (or 20 days after publication, whichever is the latest).


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    Keywords: Europe, EU, Banking, Securities, Clearing Obligation, Derivatives Trading Obligation, Regulatory Technical Standards, Derivatives, LIBOR, EONIA, Benchmark Reforms, Q&A, Risk-Free Rates, ESMA

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