On July 31, MFA submitted the attached cover letter and reply form to ESMA in response to its Consultation Paper on the trading obligation for derivatives (TO) under the Markets in Financial Instruments Regulation (MiFIR).
MFA’s main points in the comment submission are as follows:
- ESMA can achieve closer alignment of the TO with the US CFTC’s “made available to trade” (MAT) regime by using broader data sources, such as global data from CCPs, as well as data from US swap data repositories, to yield more accurate assessments of liquidity of interest rate derivatives at various benchmark tenors.
- For trades above the post-trade large in scale (LIS) threshold, ESMA should achieve closer alignment with the CFTC’s treatment of block trades by allowing such LIS trades to be privately negotiated and executed away from a trading venue (but still subject to the trading venue’s rules and procedures). For trades below the LIS threshold, MFA recommended that ESMA expressly prohibit such private negotiation or pre-arranged trading to ensure that counterparties do not evade the TO.
- ESMA has an important role in facilitating timely equivalence determinations by the European Commission of third country trading venues, such as US swap execution facilities and designated contract markets, to avoid market disruption and resulting losses of liquidity in the global derivatives markets.
- MFA supports ESMA’s decision to match the phase-in of the TO under MiFIR with the clearing obligation under EMIR.