Derivatives and Structured Products Horizon Scanning 2021

Derivatives and Structured Products Horizon Scanning 2021

As we settle into 2021, we look at the key topics we expect to be relevant to derivatives and structured products over the course of the year. Explore the tabs below to see our high-level horizon scanner on interest rate reform, sustainable finance, the CLO market, EMIR/UK EMIR, CSDR/UK CSDR, Capital Markets Recovery Package and PRIIPs, the work under way on the UK’s future regulatory framework and reform to the Retail Prices Index.

Interest rate reform: the final countdown for LIBOR

Despite the global pandemic, developments in interest rate reform have continued, with the transition away from LIBOR by end-2021 remaining front and centre of the regulatory agenda. Industry-led developments and, in limited instances, potential legislative solutions, together with clear regulatory milestones, will be critical in achieving effective transition in the time remaining.

ESG: the outlook for derivatives and structured products

We have seen a wide range of sustainable derivatives and structured products being issued over the last couple of years and expect volume and variety to increase further in 2021 as investors actively seek more sustainable investment opportunities.

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The CLO market in 2021: grounds for optimism?

With overall European CLO volume and issuance size down in 2020 compared to prior years, the hope in the market is that 2021 will see the market rebound strongly.

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EMIR/UK EMIR and the year ahead

The turn of the year has seen “UK EMIR” come into force, meaning EMIR as amended by numerous statutory instruments, and the technical standards under EMIR as amended by binding technical standards made by the UK regulators. We set out developments expected during the course of the year, across both EMIR and UK EMIR.

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CSDR/UK CSDR: settlement discipline – an opportunity for reflection?

The CSDR settlement discipline regime has provoked significant lobbying efforts by firms and their industry associations, in particular the mandatory buy-in requirements. In the derivatives context, there is significant concern about the potential application of these rules in the context of margin transfers and physically-settled derivatives transactions.

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Capital Markets Recovery Package and PRIIPs

With the EU set to introduce a number of “quick fix” reforms to various parts of capital markets regulation and the UK already having announced plans to improve the functioning of its PRIIPs regime, manufacturers and users of structured products should begin to see regulatory divergence in these areas sooner rather than later.

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The UK’s Future Regulatory Framework

During 2021, we expect to see the UK’s approach to financial services emerge as the Government and Parliament shape the UK’s future regulatory framework. This work will have consequences for all financial institutions doing business in the UK, including those operating on a cross-border basis into the UK.

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Reform of RPI

In November 2020, the Government and the UK Statistics Authority (UKSA) confirmed that RPI will be aligned with the Consumer Prices Index including owner occupiers’ housing costs (CPIH) in February 2030. Supplementary and lower level indices of RPI, including RPIX, will be discontinued at that time. The change would see RPI continue to be published as an index but bring the methods and data of CPIH into RPI. With the road to reform now clear, it is time to take stock of RPI-linked instruments maturing later than February 2030.

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