The Short Read
In line with the European Union (EU) European Market Infrastructure Regulation (“EU EMIR”) refit reporting changes introduced on 30 April 2024, the Financial Conduct Authority (“FCA”) and the Bank of England have, together, published similar regulatory changes on the reporting of derivative transactions applicable in the UK, coming into effect on 30 September 2024.
These changes generally follow the EU changes, subject to certain differences – in particular, regarding the scope and thresholds of the notification obligation. This news article outlines the context and implications of these changes, as well as who is affected and the differences between the EU and UK regulations.
The Short Read
As the size of the digital assets market, and the range of available digital assets, has grown in recent years, so too has the number of interested market participants. On the buy side, demand has been growing for derivatives on digital assets, and on the sell side, dealers have been assessing what role they wish to play in this market. The growth of the asset class has also piqued the interest of regulators, policy makers and central banks.
Thus far, to document over-the-counter (OTC) digital asset derivatives, market participants have used either an ISDA Master Agreement with adapted confirmations and adapted versions of existing ISDA definitions, or their own bespoke agreement which may not be based on ISDA documentation at all.
The Short Read
It was announced in November 2021 that the implementation of controversial mandatory buy-in provisions under the Regulation on Central Securities Depositories (“CSDR”) has been postponed.
However, other aspects of the settlement discipline measures of CSDR (the “Settlement Discipline Regime”) will take effect as planned from 1 February 2022 – specifically, implementing new arrangements for confirming transactions and communicating allocations of securities, as well as the imposition of cash penalties in respect of settlement fails.
The Settlement Discipline Regime applies to transactions in certain financial instruments settling through a central securities depository based in the European Union (“EU”). The rules apply to all transacting parties – in other words, wherever located in the world.
The ISDA SBS Protocols
Parties are currently considering whether or not to adhere to the ISDA 2021 SBS Protocol (“SBS Full Protocol”) or the ISDA 2021 SBS Top-Up Protocol (“SBS Top-Up Protocol”, together, the “SBS Protocols”), in anticipation of relevant US Securities and Exchange Commission (SEC) rules governing security-based swaps coming into force on 1 November 2021.
Background
The International Swaps and Derivatives Association (ISDA) developed the SBS Full Protocol and the SBS Top-Up Protocol in response to new SEC rules affecting security-based swaps and related products. These rules follow those previously introduced by the US Commodity Futures Trading Commission (CFTC) in relation to other types of swaps.
The Short Read
Pursuant to (1) the European Market Infrastructure Regulation (“EU EMIR”) and/or (2) EU EMIR in effect in the United Kingdom (“UK”) as UK-onshored EMIR (“UK EMIR”), counterparties may calculate their aggregate month-end average positions in OTC derivatives for the previous 12 months to determine whether the applicable clearing thresholds are exceeded.
Under EU EMIR, the calculation (if being performed) must be conducted every 12 months. For many, the anniversary since the last calculation date will be 17 June 2021.
Under UK EMIR, the first calculation and notification to the UK Financial Conduct Authority (“FCA”) must be made by 17 June 2021.
The Short Read
The United Kingdom (“UK”) became a “third country” for the purposes of European Union (“EU”) law following the expiry of the Brexit transition period at 11:00pm on 31 December 2020 (“Transition Period End Date”), whereupon UK law is treated by the EU as a “third country” law. Equally, for the purposes of UK law, each EU member state became a “third country” and the law of any EU member state is now treated as a “third country” law.
The International Swaps and Derivatives Association, Inc. (“ISDA”) has published two protocols to assist market participants in meeting certain obligations which may have arisen after the Transaction Period End Date.
The Short Read
When the Brexit transition period comes to an end at 11:00pm on 31 December 2020 (the “Transition Period End Date”), the United Kingdom (“UK”) will become a “third country” for the purposes of European Union (“EU”) law.
Pursuant to the European Union (Withdrawal) Act 2018 (as amended by the European Union (Withdrawal Agreement) Act 2020) (the “Withdrawal Act”), directly applicable EU law will be “onshored” into domestic UK law as “retained EU law” subject to further amendments by secondary legislation to ensure that such retained law can operate and function correctly in a UK-specific context and to remedy any deficiencies as a result of the UK no longer being a member state of the EU.
The Short Read
The anticipated demise of the London Inter-Bank Offered Rate (“LIBOR”) from the end of 2021 will have a significant impact on financial markets and market participants in a number of ways, including:
The Short Read
The United States (“U.S.”) Commodity Futures Trading Commission (“CFTC”) final rule on the cross-border application of certain swap provisions under the U.S. Commodity Exchange Act (the “CEA”) (the “Final Rule”) was published in the Federal Register on 14 September 2020.
Amongst other changes, the Final Rule replaces the previous definition of “U.S. Person” set out in the much-criticised Interpretative Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations (the “Guidance”). Significantly, from a cross-border application perspective, the beneficial ownership prong is removed in respect of the CFTC requirements covered by the Final Rule.
The Short Read
Extensive transaction reporting obligations under the SFTR regime will apply to certain buy-side firms, beginning on either 11 October 2020 or 11 January 2021.
Firms will need to: (a) determine if they will have a reporting obligation; (b) if so, determine the relevant start date applicable to them; and (c) have a delegated reporting agreement in place or be ready to report themselves.
The Short Read
On 17 June 2020, the legislation known as EMIR REFIT (also known as EMIR 2.1) will have been in force for one year. EMIR REFIT made a number of material changes to the provisions of EMIR, with the intention of reducing the burdens on, and cost of compliance to, less systemically important market participants. Whilst the majority of EMIR REFIT’s provisions were effective from the date it entered into force, certain provisions were subject to a one year phase in period. With that one year period expiring in June 2020, now is an appropriate time for market participants to consider those soon-to-be phased in obligations, as well as annual obligations imposed by EMIR REFIT.
What You Need To Know
Smaller, less systematically important, in-scope firms have (subject to confirmation by the relevant regulators) been given additional time – until 1 September 2021 – to comply with the mandatory exchange and segregation of initial margin under global uncleared margin rule regimes.
The Short Read
On 28 May 2019, EMIR 2.1 (also known as EMIR REFIT) was published in the Official Journal and (subject to some phase-in provisions detailed below) will come into effect on 17 June 2019 (the “Effective Date”). EMIR 2.1 makes a number of material amendments to the provisions of The European Markets Infrastructure Regulation (“EMIR”) which are intended to reduce the burdens on, and cost of compliance to, less systemically important market participants.
Article 4 of the Securities Financing Transactions Regulation (“SFTR”) requires that in-scope counterparties to securities financing transactions (“SFTs”; being (i) repurchase transactions, (ii) securities or commodities lending and securities or commodities borrowing, (iii) buy/sell-back transactions and (iv) margin lending transactions) must report the details of ...
Do You Need to Take Action?
Yes, you will need to sign up to the ISDA 2018 U.S. Resolution Stay Protocol (the “US Protocol”) in order to trade with applicable entities with a United States (“US”) nexus (see below). We expect broadly all of our buy side clients to sign up to the US Protocol.
The Short Read
In our November edition of Briefs for the Buy side], we reported that the International Swaps and Derivatives Association, Inc. (“ISDA”) was seeking comment on whether a further two governing law options should be made available for the ISDA Master Agreement, which hitherto has been dominated by English and New York governing law.
The Court of Appeal’s decision of 11 April 2018 in LBI EHF v Raiffeisen Bank International AG considered the scope of a non-Defaulting Party’s discretion in ascribing a “fair market value” to securities pursuant to the close-out mechanics of the industry standard Global Master Repurchase Agreement (2000 version) (the “GMRA”).
What is the 2018 ISDA Choice of Court and Governing Law Guide?
The International Swaps and Derivatives Association, Inc. (“ISDA”) has published its 2018 ISDA Choice of Court and Governing Law Guide[1] (the “Guide”) which contains substitute model clauses for the “Governing Law” and “Jurisdiction” provisions of Section 13(a) and (b) of the ISDA 1992 Master Agreement (Multicurrency – Cross Border) and the ISDA 2002 Master Agreement (each, an “ISDA Master Agreement”) and guidance on the use of these new model ‘choice of law’ and ‘choice of court’ clauses.
As covered in our December 2017 edition of Briefs for the Buy side (the “December Brief”), there was a last-minute change of heart by the European Supervisory Authorities (the “ESAs”) as to which market counterparties should be required to exchange variation margin with respect to physically settled FX forward contracts (“FFX”) pursuant to the EMIR Margin RTS (regulatory technical standards). Further to a news statement published on 24 November 2017, the ESAs stated that: (i) they are reviewing the EMIR Margin RTS
The European Markets Infrastructure Regulation (“EMIR”) requires that certain counterparties have “risk-management procedures that require the timely, accurate and appropriately segregated exchange of collateral with respect to OTC derivative contracts”. The regulatory technical standards developed in this regard, the EMIR Margin RTS, were published on 15 December 2016 and, inter alia, contained requirements relating to the collection of variation margin
As reported in our last Briefs for the Buy side, the European Securities and Markets Authority (“ESMA”) has issued its final report containing draft Regulatory Technical Standards (the “RTS”) specifying which OTC (over-the-counter) derivative contracts will be subject to the mandatory trading obligation for derivatives under the Markets in Financial Instruments Regulation (“MiFIR”).
On 28 September 2017, the European Securities and Markets Authority (“ESMA”) issued its final report containing draft Regulatory Technical Standards[1] (the “RTS”) in respect of the trading obligation for derivatives under the Markets in Financial Instruments Regulation[2] (“MiFIR”). MiFIR implements part of the MiFID II framework. Consequently, assuming that the RTS are published in their current form, certain interest rate swaps (“IRS”) and certain credit default swaps (“CDS”)
In our AB Brief from June 2016, we summarised the requirements of Regulation (EU) 2015/2365 of the European Parliament and of the Council of 25 November 2015 on transparency of securities financing transactions and of reuse, also known as the Securities Financing Transactions Regulation (“SFTR”), with our AB Brief focusing on ‘information statements’.
In order to facilitate compliance with the upcoming VM requirements, the International Swaps and Derivatives Association (“ISDA”) has published new regulatory compliant VM credit support annexes (“VM CSAs”) which market participants can enter into, to ensure compliance. ISDA has also launched the ISDA 2016 Variation Margin Protocol (the “VM Protocol”)
We really enjoy working with Antony and his team – amongst lawyers we have come across, Antony himself has unrivalled experience in counterparty documentation and associated regulation. He responds quickly and often pre-empts our further questions. And his new firm’s rates are lower than competitors, as well.
Senior legal counsel at London-based hedge fund
