The International Swaps and Derivatives Association has responded to an implementation timeline put forward in September by the European Securities and Markets Authority.
Esma proposed that interest-rate swaps denominated in G4 currencies, Swedish, Polish and Norwegian currencies, as well as credit derivatives, be forced onto exchanges and other platforms from January 3, 2018 – the day the EU’s revised Markets in Financial Instruments Directive, or Mifid II, comes into force.
Mifid II is Europe’s new trading rulebook that has been years in the making. It will bring widespread change to the way securities are traded across the region and bring with it a host of new trading and reporting obligations.
Esma’s timeline put forward for these OTC derivative obligations caught some off guard. Andrew Bowley, the head of regulatory response and market structure strategy at Nomura, told FN at the time: “This did not have to go in on day one.”
In its November 21 response to Esma’s proposals, Isda called for a “relatively short” phase-in, asking for a commencement date from January 21, 2018, that it said would help firms “to address operational issues”.
The trade body added: “In addition, we strongly believe that firms should have the ability to connect to venues and carry out the necessary testing of controls in order to ensure that trades that were previously not traded on venue will be traded on venue. We would welcome any confirmation regarding firms’ ability to do this.”
Moreover, Isda called for the trading obligation to include “much greater” granularity on the types of derivatives that would need to be traded on venues. It said this would ensure firms have a “clear and defined product list and would avoid confusion as to whether a product is in scope”.
Isda also wanted to “closely align” Europe’s derivatives trading obligation with similar rules in the US, where venues known as swap execution facilities, or Sefs, were introduced in 2013 as part of the US Dodd-Frank Act.
Firms will be able to meet the European obligation by trading on venues in a foreign country provided they are subject to rules deemed equivalent to Mifid II. Isda said a close alignment of the rules were “of fundamental importance”.