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ESMA Statement : No Deal Brexit guidelines for MiFID II/MiFIR and BMR Provisions

Yesterday, the European Securities and Markets Authority (ESMA)  issued a statement on its approach to MiFID II/MiFIR and Benchmark (BMR) provisions in the event that the United Kingdom leaves the European Union on the 29th March, with no withdrawal agreement in place (no-deal Brexit).

The following aspects are assessed by ESMA under a no-deal Brexit:

  • The MiFID II C(6) carve-out

The conditions under which a derivative contract are considered eligible for exemption and is not be considered a financial instrument. Specifically ESMA assesses the carve-out provisions for wholesale energy products.

  • Trading obligation for derivatives

ESMA confirms that there is currently no evidence to suggest that market participants will not be able to continue meeting their trading obligations for derivatives on regulated markets (“RMs”), multilateral trading facilities (“MTFs”), organised trading facilities (“OTFs”) or third-country venues with equivalence.

  • ESMA opinions on post-trade transparency and position limits

In case of a no-deal Brexit, trading venues established in the UK will, following exit day, no longer be considered EU trading venues. Consequently, transactions concluded on UK trading venues would be considered OTC-transactions and would be subject to the post-trade transparency requirements.

  • Post-trade transparency for OTC transactions between EU investment firms and UK counterparties; and UK counterparties.

Under a no-deal Brexit, UK investment firms will be considered third-county counterparties. Therefore, any OTC transaction concluded with UK counterparties must be made public by EU investment firms. This ensures that all transactions where at least one counterparty is an EU investment firm will be made post-trade transparent in the EU27.

  • BMR: ESMA register of administrators and 3rd country benchmarks.

Finally, UK administrators after a no-deal brexit will be deleted from the ESMA register. However, during the BMR transitional period, EU supervised entities can use 3rd country benchmarks even if they are not included in the ESMA register.

As there is still much uncertainty surrounding the final plans for the withdrawal and with the political situation in daily flux, ESMA warns that any position taken may be subject to further change, with subsequent communications likely to feature in the coming days and weeks.