The European Commission has recognised some US trading venues authorised by the Commodity Futures Trading Commission (“CFTC”) as eligible for compliance with the EU trading obligation for derivatives. This follows an agreement between the European Commission and the CFTC on a common approach regarding certain derivatives trading platforms. According to the European Commission, this means that EU counterparties will be able to continue to trade the most liquid derivatives instruments on US platforms.
As set out in our previous briefing (here), Article 28 of the Markets in Financial Instruments Regulation (“MiFIR”) requires certain classes of derivatives transactions to be traded on a regulated market, multilateral trading facility ("MTF"), organised trading facility ("OTF") or third country (ie, non-EU) trading venue that is subject to a European Commission equivalence decision. This trading obligation applies to financial counterparties and non-financial counterparties above the EMIR clearing threshold.
Before a class of derivatives is subject to the trading obligation, the European Commission must adopt a delegated regulation stating that this is the case. The first draft delegated regulation specifying the trading obligation for classes of interest rate swaps and credit default swaps is currently going through the legislative process (see our earlier briefing here). Once that draft delegated regulation enters into force, possibly on 3 January 2018, it will no longer be possible for an inscope counterparty to trade the relevant class of derivatives on a non-EU trading venue unless the requisite equivalence decision is in place.
The Equivalence Decision
On 5 December 2017 the European Commission adopted Commission Implementing Decision 2017/2238 (here), recognising certain trading venues authorised by the CFTC as eligible for compliance with the EU trading obligation for derivatives. The decision applies to the designated contract markets and swap execution facilities set out in the Annex to the decision. These include platforms run by CME Group Inc. and Intercontinental Exchange Inc, as well as more than 20 swap-execution facilities registered in the US. The Implementing Decision will enter into force the day after its publication in the EU’s Official Journal.
According to a joint announcement published by the European Commission and the CFTC (here), the CFTC’s staff has recommended to the CFTC that it exempt MTFs and OTFs authorised in the EU from US swap execution facility registration requirements. Such an exemption would allow US counterparties to comply with the CFTC’s trade execution requirement, by executing swaps subject to that requirement on MTFs or OTFs that have been exempted by the order. These MTFs and OTFs would also be able to offer trading in swaps that are not subject to the CFTC’s trade execution requirement to US counterparties.