ESMA to Change Clearing and Derivative Trading Obligations


The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has published its final report on the clearing (CO) and derivative trading (DTO) obligations to accompany the benchmark transition.

The Report sets out proposed draft Regulatory Technical Standards (RTS) amending the scope of the CO and DTO for OTC interest rate derivatives (IRD) denominated in EUR, GBP, JPY and USD, as part of the transition away from EONIA and LIBOR and onto alternative benchmarks, primarily Risk-Free Rates such as €STR. It also presents a timeline for when these changes should come into effect.

ESMA is proposing to remove IRD classes referencing GBP and USD LIBOR from both the CO and DTO, remove IRD classes referencing EONIA and JPY LIBOR from the CO and introduce IRD classes referencing €STER, SONIA and SOFR to the CO. The latter with a longer phase-in.

ESMA’s proposed amendments aim to ensure a smooth benchmark transition while maintaining an effective scope for these two obligations, in line with the G20 objectives.

In preparing the report, ESMA worked closely with the authorities from third country jurisdictions, who are currently also revising their respective CO and DTO in order to facilitate international convergence as far as possible.

Next steps

The draft RTS have been submitted to the European Commission for endorsement in the form of Commission Delegated Regulations. While the adoption process may take some time, it would be beneficial for the new provisions to enter into force as soon as possible and ahead of the actual benchmark transition.

Source: ESMA

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