The European Securities and Markets Authority has published a final report and recommendations on aligning the trading obligation under the Markets in Financial Instruments Regulation with recent changes made to the clearing obligation under the European Markets Infrastructure Regulation by the EMIR Refit Regulation. ESMA's report to the European Commission will support the Commission's report to the European Parliament and Council that is due by December 18, 2020.
The majority of the provisions under the EMIR Refit Regulation came into force on June 17, 2019. These included an exemption from the obligation to centrally clear certain derivatives contracts for small Financial Counterparties by introducing a clearing threshold for FCs. Related amendments were not, however, made to corresponding provisions in MiFIR requiring on-venue trading of derivatives contracts. As a result, small FCs are now exempt from the clearing obligation under EMIR, but technically continue to be subject to the on-venue trading obligation under MiFIR. EMIR Refit also modifies the mechanism for determining the clearing obligations of Non-Financial Counterparties that cross the clearing threshold in a particular asset class, meaning such NFCs need only centrally clear contracts in the asset classes in which they exceed clearing threshold for the particular asset class (as opposed to being obliged to centrally clear all their derivatives contracts if the exceed one of the prescribed thresholds for any asset class). The scope of the derivatives trading obligation under MiFIR refers to the original version of EMIR, meaning there is misalignment between the two pieces of legislation.
In July 2019, ESMA requested that national regulators provide regulatory forbearance for FC- and appropriate NFCs until such time as MiFIR is formally amended to be aligned with EMIR Refit. This clarification will be confirmed in the European Commission's report, including any recommendations for legislative changes.
ESMA recommends that steps should be taken to:
- align the scope of the NFCs subject to the trading obligation to the scope of the NFCs subject to the clearing obligation;
- align the scope of the clearing obligation for smaller FCs to the scope of the trading obligation of smaller FCs; and
- introduce a mechanism for suspending the derivatives trading obligation, that can operate without any link to the clearing obligation.