By Sobia Hamid.
The European Securities and Markets Authority (ESMA) has published today a consultation paper regarding its draft technical standards specifying the trading obligation for derivatives under the Markets in Financial Instruments Regulation (MiFIR).
MiFIR, part of the second Markets in Financial Instruments Directive (MiFID II), due to take effect in January 2018, focuses on regulating the operation of trading venues/structures, while MiFID II builds the framework around those trading venues/structures.
MiFIR’s trading obligation will move over-the-counter (OTC) trading in liquid derivatives onto organised venues, and outlines the process for determining which derivatives should be traded on-venue.
MiFIR foresees two tests to determine the trading obligation: The venue test, in which a class of derivatives must be admitted to trading or traded on at least one admissible trading venue, and the liquidity test, determined by whether a derivative is ‘sufficiently liquid’ and there is sufficient third-party buying and selling interest.
ESMA is consulting with stakeholders to finalise its draft regulatory technical standards (RTS) on the trading obligation. Key areas covered by the published consultation include:
- liquidity analysis for interest rate derivatives and Index CDS based on a dataset covering the second half of 2016
- the proposal on how to phase-in the trading obligation for derivatives
- ESMA’s approach concerning the instrument register to be maintained by ESMA for the trading obligation; and
- a high-level cost-benefit-analysis.
The consultation is open for comments until 31 July 2017.
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