On 27 October 2020, the European Securities and Markets Agency (ESMA) issued a public statement on the impact of Brexit on the continued application of MiFID II and MiFIR. The statement provided clarifications in respect of three aspects of MiFID II, namely:

  • The ESMA opinions on third-country trading venues for the purpose of post trade transparency;
  • The position limits regime and post-trade transparency for OTC transactions; and
  • The C(6) carve out;

ESMA opinions on third-country trading venues for the purpose of post-trade transparency

Articles 20 and 21 of MiFIR requires EU investment firms to publish transactions in instruments that are traded on a trading venue (TOTV) via an APA. While the UK was a member of the EU and during the transition period, ESMA did not assess any UK trading venue against the criteria set out in two opinions from 2017 on third-country trading venues (ESMA70-154-467, ESMA70-156466). ESMA has now stated however, that it intends on making these assessments before the end of the transition period and that “UK venues would be added to the respective lists of positively assessed third-country venues provided that they meet all the relevant criteria.”

This therefore means that after the end of the transition period:

  • EU investment firms would not be required to make transactions public in the EU via an EU APA if they are executed on a UK trading venue that has been positively assessed.
  • Commodity derivative contracts traded on those trading venues would not be considered as EEOTC contracts for the EU position limit regime.

Post-trade transparency for OTC transactions between EU investment firms and UK counterparties  

Articles 20 and 21 of MiFIR also require EU investment firms to disclose OTC-transactions involving an EU investment firm and a counterparty established in a third-country. Following the end of the transition period investment firms established in the UK will no longer be considered EU investment firms.

EU investment firms will be required to make public transactions concluded OTC with UK counterparties via an APA established in the EU.

The C(6) carve out

In its statement ESMA clarifies the application of the exemption set out in Section C(6) of Annex I of MiFID II, which determines whether or not a derivative contract could from the wholesale energy exemption and not be regarded as a financial instrument. In order to qualify for the C(6) exemption, the derivative contract must qualify as a wholesale energy product and be traded on at OTF (inter alia).

ESMA has clarified that a derivative contract related to electricity or natural gas that would be exclusively produced, traded and delivered in the UK would no longer qualify as wholesale energy product after the end of the transition period.

Furthermore, ESMA has stated that where a wholesale energy product would not be traded on an EU OTF after the end of the transition period, it would cease to be eligible to the C(6) carve-out under MiFID II. There is some additional detail in the statement on this point, which is not set out in this article.

You can read the full ESMA statement here.

If you would like to discuss any of the issues raised by the ESMA statement – please get in touch.