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MiFID II 

'On market trading' of OTC derivatives 

01 December 2011

Impact Red traffic light High impact for all persons trading OTC derivatives

Other areas to consider

MTFs; Organised Trading Facilities; SIs; Transaction Reporting; Pre-trade transparency

Current MiFID rules

There are currently no MiFID rules in this area

FSA rules

There are currently no FSA rules in this area

Proposed changes Draft Regulation Articles 24-27

The draft Regulation in line with G20 commitments requires:

Trading of standardised OTC derivatives on exchanges or electronic trading platforms where appropriate

  • All trading in classes of derivatives which are subject to the trading obligation in the draft Regulation (and listed in a register maintained by ESMA) will be required to move to either:
        • Regulated markets;
        • MTFs;
        • OFTs; or
        • third country trading venues that the Commission has confirmed meets an equivalency test and where the third country operates equivalent reciprocal recognition of MiFID authorised trading venues.
  • The requirement to trade derivatives on a trading venue applies to financial counterparties and certain non-financial counterparties (equivalent to those subject to clearing obligations under EMIR). There are avoidance measures which catch counterparties outside the EU who would have been subject to the obligation had they been EU entities.
  • ESMA will prepare technical standards to determine which classes of derivatives subject to the clearing obligation under EMIR should be subject to the trading obligation. These technical standards will consider whether a class of derivatives is sufficiently liquid, taking into account the average frequency of trades, size of trades, number of trades and type of active market participants.

Non-Discriminatory Access

  • Derivatives declared subject to the trading obligation shall be eligible for trading on any trading venue on a non-exclusive basis.
  • Any CCP must accept to clear financial instruments on a non-discriminatory and transparent basis – this means trading venues has the right to require any CCP to clear its products on the same basis as equivalent products.
  • Any trading venue shall be required to allow CCPs to clear financial transactions traded on that trading venue.
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