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Global Trustee and Fiduciary Services News and Views | MiFID II Special Edition 2016
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The Commission may determine that a third country is
equivalent where the legal and supervisory framework
of that third country fulfils the following:
(a) trading venues in that third country are subject to
authorisation and to effective supervision and enforcement
on an ongoing basis;
(b) trading venues have clear and transparent rules regarding
admission of financial instruments to trading so that such
financial instruments are capable of being traded in a fair,
orderly and efficient manner, and are freely negotiable;
(c) issuers of financial instruments are subject to periodic
and ongoing information requirements ensuring a high level
of investor protection; and
(d) it ensures market transparency and integrity via rules
addressing market abuse in the form of insider dealing
and market manipulation.
counterparties whose derivatives trading
activity is above the clearing threshold set
under EMIR (NFC+s). It also applies to NFC+s
when they deal with FCs or other NFC+s.
The mandatory trading obligation also applies
to FCs and NFC+s when they enter into a
derivatives transaction with third country
financial institutions or other third country
entities that would be subject to the EMIR
clearing obligation if they were established in
the EU (TCEs) — for example, where a UK asset
manager deals with a US-based investment bank.
What will this mean for counterparties in practice?
The mandatory trading obligation for derivatives is
a significant new requirement that asset managers
will need to grapple with — it will potentially require
structural change to booking practices and models
(moving from OTC to venue trading), which, in turn,
may mean new trading terms and other knock-
on impacts for other MiFID obligations, such as
transaction reporting, transparency, etc.
How many and which classes of derivatives ESMA
may declare subject to mandatory trading has
yet to be seen. However, the mandatory trading
provisions in MiFIR rely to a considerable extent on
relevant provisions under EMIR (in particular, the
triggering of the mandatory clearing obligation).
So this is likely to provide a clear line of sight as to
the classes or sub-classes of derivatives that may
become subject to mandatory trading.
Peter Chapman
Senior Associate
Clifford Chance LLP
Jacqueline Jones
Senior Professional Support Lawyer
Clifford Chance LLP
Who is subject to mandatory trading?
Third
country
financial
institution
Third
country
financial
institution
or TCE
TCE
TCE
FC or
NFC+
Non-EU entity authorised
to carry on any of the
activities listed in BCD,
MiFID II, Solvency II, UCITS,
IORPS, and the AIFMD
TCE
Non-EU entity that would
have been subject to
the clearing obligation
if established in the EU
NFC+
Non-financial
counterparty over the
EMIR clearing threshold
FC
FC or
NFC+
FC or
NFC+
Financial counterparty
EU
Non-EU
Only if transaction has a direct, substantial and forseeable effect in the EU
or if necessary or appropriate to prevent evasion.
ESMA’s proposed RTS are aligned with EMIR.
OTC
derivative
OTC
derivative
OTC
derivative