No phase-in for MiFID II derivatives trading obligation

From 3 January 2018 banks and asset managers will be required to trade certain OTC derivatives on electronic platforms.

Europe’s regulatory watchdog has ruled out any additional ‘phase-in’ period for banks and asset managers to move their OTC derivatives to electronic trading platforms under MiFID II.

From 3 January 2018, the trading obligation will require firms to shift certain liquid OTC derivatives, such as interest rate and credit default swaps, onto new exchange-like platforms called organised trading facilities (OTF).

The European Securities and Markets Authority (ESMA) recently published its guidance on the trading obligation for OTC derivatives, where it ruled out any type of delay to implementing the rules.

“EU market participants have been aware that the TO (trading obligation) has been coming for quite a long period of time,” ESMA stated.

“Given that there is a political expectation that the TO becomes effective as soon as possible, ESMA does not intend to propose an additional phase-in period for the classes of instruments and categories of counterparties to which the CO already applies.”

However it stated that for pension funds and smaller firms that have limited volumes of derivative activity, their trading obligation will coincide with the delayed central clearing obligation.

Earlier in June Steven Maijoor, chair of ESMA, pledged there will be no further delay on the implementation of MiFID II.

The go-live of MiFID II was originally set for January 2017, but this was pushed back by a year due to legal uncertainties and potential market disruptions.