The Financial Conduct Authority (FCA) has modified the list of derivatives subject to the derivatives trading obligation (DTO) in line with Articles 28 and 32 of UK MiFIR in the newly released PS13/21 in response to the consultation it launched in CP21/22.
These changes have been made in light of the interest rate benchmark reform and the recent Bank of England policy statement modifying the derivatives clearing obligation in line with Article 5 of UK EMIR.
The DTO requires that financial and certain non-financial counterparties conclude
transactions in standardised and liquid over-the-counter (OTC) derivatives only on
regulated trading venues such as regulated markets (RMs), multilateral
trading facilities (MTFs), organised trading facilities (OTFs) and third country trading
venues considered to be equivalent for the purposes of the DTO.
The modifications reflect changes in the liquidity profile of certain interest rate swaps (IRS) which are subject to the DTO as a result of the interest rate benchmark reform. They also took account of the Bank of England’s (BoE) proposal to modify the contracts which are subject to the derivatives clearing obligation (DCO).
The amendments to the DTO take account of BoE’s changes to the scope of the DCO, FCA’s updated liquidity analysis covering the period between January and July 2021 and the responses received to CP21/22.
The changes apply to:
- financial counterparties; and
- non-financial counterparties that are, or may become, subject to the DTO.
The changes are also of concern to:
- trading venues, including third country trading venues considered equivalent for the purposes of the DTO; and
- central counterparties (CCPs).