On 15 October 2021, the FCA published Policy Statement 21/13: LIBOR transition and the derivatives trading obligation (PS21/13). PS21/13 follows Consultation Paper 21/22: LIBOR transition and the derivatives trading obligation.
In PS21/13 the FCA sets out its finalised amendments to the UK Regulatory Technical Standards (RTS) on the derivatives trading obligation (DTO) (onshored Commission Delegated Regulation (EU) 2017/2417) exercising the FCA’s powers under Article 32(5) of UK MiFIR and section 138P of the Financial Services and Markets Act 2000. The amendments to the RTS will come into force on 20 December 2021.
The headlines from PS21/13 include:
- The FCA is removing derivatives referencing GBP LIBOR under the current DTO and replacing them with OIS referencing SONIA.
- The DTO for SONIA OIS will apply to trade start types spot-starting and IMM (next 2 IMM dates) in the following tenors: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 15, 20, 25 and 30 years.
- The DTO implementation date is aligned with that for the modified DCO, chosen by the Bank of England: 20 December 2021.
- EURIBOR-based swaps remain subject to the DTO.
- There is insufficient liquidity for a DTO for €STR OIS, but the FCA will monitor liquidity and impose a DTO should sufficient liquidity become manifest.
- Aligning with the Bank of England approach on the DCO, no change is made to the DTO for USD LIBOR.
- SOFR OIS is not yet sufficiently liquid to justify a DTO.
The FCA recognises that relevant deadlines and milestones are likely to increase liquidity in SOFR OIS products as the year progresses. Activity in €STR OIS products may also increase. The FCA will therefore continue to monitor market developments and liquidity in these products and consider making further changes to the scope of the DTO in due course, once it is satisfied that the class of derivatives is sufficiently liquid for inclusion in the DTO.