On 16 December 2021, the European Securities and Markets Authority (ESMA) issued a public statement on the implementation of the changes to the clearing obligation (CO) and derivative trading obligation (DTO) in light of the benchmark transition. The statement clarifies the situation in which ESMA’s proposed draft regulatory technical standards (RTSs) on the CO and DTO (submitted to the European Commission on 18 November 2021) will not enter into force in time for the transition to alternative benchmarks of EONIA or LIBOR- based OTC derivative contracts by the end of 2021.

The statement notes that as EONIA, GBP and JPY LIBOR are due to cease by the end of the year, and in view of an earlier communication to stop referencing USD LIBOR as soon as practicable and in any event by 31 December 2021, ESMA does not expect the liquidity criteria for the CO and the DTO to be met for OTC IRD classes referencing EONIA, GBP, JPY and USD LIBOR beyond the end of the year.

The statement also notes that ESMA is mindful that the approval process for the above mentioned RTSs may take some time and thus that most probably the amendments proposed in the RTSs will not have entered into force by the end of the year, when the bulk of the liquidity of the classes referencing EONIA or LIBOR will have pivoted to other benchmarks. Therefore, from 3 January 2022, ESMA expects Member State competent authorities not to prioritise their supervisory actions in relation to the CO for IRD classes referencing EONIA, GBP LIBOR, JPY LIBOR or USD LIBOR and in relation to the DTO for IRD classes referencing GBP LIBOR or USD LIBOR and to generally apply their risk-based supervisory powers in their day-to-day enforcement of applicable legislation in this area in a proportionate manner. As to the classes being introduced to the scope of the CO, ESMA recommends voluntary clearing of those ahead of the CO start date.

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