On 5 April 2019, the International Swaps and Derivatives Association published a letter it had sent jointly with a number of UK and international financial services trade bodies (including AFME, the FIA and AIMA) to HM Treasury regarding the recognition of EEA derivatives trading venues under EMIR and MiFIR as they apply in the UK after Brexit.
In the letter, the trade bodies express concern about the disruptive impact on UK market participants and European derivatives markets if HM Treasury does not take action with respect to the recognition of EEA derivatives trading venues under EMIR and MiFIR as they apply in the UK in a ‘no-deal’ scenario or if the FCA does not grant transitional relief in this regard using its proposed temporary transitional powers.
Specific concerns noted by the trade bodies are centred around two core issues, in that:
- in the absence of an equivalence determination by HM Treasury under Article 2a of EMIR UK with respect to EEA regulated markets, EEA exchange-traded derivatives will be reclassified as over-the-counter (OTC) derivatives under UK EMIR after the UK leaves the EU in a ‘no-deal’ scenario; and
- in the absence of an equivalence determination by HM Treasury under Article 28(4) of UK MiFIR with respect to EEA multilateral trading facilities and organised trading facilities, UK financial counterparties and UK non-financial counterparties would, in a ‘no-deal’ scenario, cease to be able to execute transactions in OTC derivatives subject to the trading obligation under MiFIR on those venues.
Consequently, the trade bodies urge HM Treasury to prepare the necessary measures to recognise the equivalence of EEA derivative trading venues under UK EMIR and UK MiFIR with a view to those measures taking effect at or very shortly after the UK leaves the EU in a no deal scenario.