ESMA proposal to align MiFIR trading obligation to clearing obligation

Following the entry into force of EMIR Refit in June 2019, one of the key uncertainties has been whether small financial counterparties (SFC) that benefitted from an exemption from the clearing obligation (CO) under EMIR would also benefit from an exemption from the derivatives trading obligation (DTO) under MiFIR.

A similar question also arose in respect of whether non-financial counterparties above the clearing threshold (NFC+), which are now only subject to the CO in respect of the asset classes for which they exceed the relevant clearing threshold, would also only be subject to the DTO in respect of those asset classes.

This led to ESMA’s public statement in July 2019, encouraging regulatory forbearance from national competent authorities on this potential misalignment until the European bodies consider, as mandated by the EMIR Refit, whether the DTO in MiFIR should be formally amended at legislative level to align with the CO under EMIR.

ESMA has today published its Final Report on Alignment of MiFIR with the changes introduced by EMIR Refit. In this Final Report, ESMA makes the following three recommendations:

• To align the scope of the DTO for SFC entities with the scope of the
  CO for SFC entities;
• To align the scope of the DTO for NFC+ entities with the scope of the
  CO for NFC+ entities; and
• To create under MiFIR a new mechanism to suspend the DTO, replicating
  the equivalent mechanism introduced in respect of the CO by the EMIR
  Refit.

The ESMA Final Report has been submitted to the European Commission, who have until 18 December 2020 to prepare its own report and proposals on this topic for submission to the European Parliament and the Council. However, the Final Report also notes that it has been submitted by ESMA ahead of the latter’s own deadline and encourages the European Commission to do the same.