EMIR Newsflash: ESMA regulatory forbearance on derivatives trading obligation

A brief overview of the ESMA public statement on the derivatives trading obligation following the entry into force of EMIR REFIT.

Following the entry into force of EMIR REFIT, one of the key uncertainties has been whether small financial counterparties that benefitted from an exemption from the clearing obligation (CO) under EMIR would also benefit from an exemption from the derivatives trading obligation (DTO) under MiFIR.

A similar question also arose in respect of whether non-financial counterparties above the clearing threshold (NFC+), that are now only subject to the CO in respect of the asset classes for which they exceed the relevant clearing threshold, would also only be subject to the DTO in respect of those asset classes.

ESMA has now published a public statement that acknowledges the potential misalignment between the scope of the CO and the DTO and recommends regulatory forbearance. More specifically, the statement advises National Competent Authorities (NCAs) not to prioritise their supervisory actions in relation to the DTO towards counterparties exempted from the CO. This suggested regulatory forbearance will last until the European bodies consider, as mandated by the EMIR REFIT, whether the DTO in MiFIR should be formally amended at legislative level to align with the CO under EMIR.

In addition, ESMA clarifies in its statement that the start date for the DTO for Category 3 FCs that are subject to the CO should be the same as the start date for the CO - ie four months following the notification from FC to ESMA and its NCA as required under EMIR REFIT, rather than the previously mandated 21 June 2019.

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