EU market watchdog confines derivative trading for EU firms to within the Union

Dec 01, 2020

The European Securities and Markets Authority (“ESMA”) has stated that most financial derivatives will no longer be able to trade on UK venues once the Brexit transition period ends. They announced in a statement last week that firms will be obliged to continue using EU-recognised venues under a rule known as the “derivatives* trading obligation”. Under the rules of the “derivatives trading obligation”, derivatives covered under this requirement must be traded on venues within the EU or in third-country venues that have been granted equivalence. UK trading platforms will not have that recognition when Brexit takes effect at the end of the year.

“At this point in time, ESMA does not consider that a change of its approach is warranted,” ESMA said in a latest statement. The UK will have a similar ban on EU27 venues as of 1 January 2021 but has called for mutual recognition of the equivalence of each other’s rules in order to avoid a crucial part of the cross-border financial market becoming unfeasible when the Brexit transition period expires on 31 December 2020.

*A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets. The most common examples for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes.