The European Securities and Markets Authority (ESMA) has published a statement on its approach of Markets in Financial Instruments Directive and Regulation (MiFID II/MiFIR) and Benchmark (BMR) provisions under a no-deal Brexit.
It aims to inform stakeholders on the approach it will take in relation to these provisions.
The MiFID II “C(6) carve-out”
A no-deal Brexit will have an impact on the first two conditions of exemption set out in Section C(6) of Annex I of MiFID II and not to be considered as a financial instrument, wholesale energy product and traded on an over-thecounter (OTC).
Firstly, derivative contracts related to electricity or natural gas that would be exclusively produced, traded and delivered in the UK would no longer qualify as wholesale energy product post-Brexit and would no longer be eligible to the C(6) carve-out under MiFID II, even if traded on an EU27 OTC.
Secondly, where a wholesale energy product would not be traded on an EU27 OTF post-Brexit, it would cease to be eligible to the C(6) carve-out under MiFID II..
Trading obligation for derivatives
ESMA does not have any evidence that market participants will not be able to continue meeting their obligations under the trading obligation for derivatives in case of a no-deal Brexit and in the absence of an equivalence decision by the Commission covering UK trading venues.
ESMA opinions on post-trade transparency and position limits
In case of a no-deal Brexit, trading venues established in the UK will with effect from 30 March 2019 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 pursuant to Articles 20 and 21 of MiFIR. Furthermore, commodity derivatives traded on UK trading venues could, subject to meeting certain conditions, be considered as economically equivalent over-the-counter (EEOTC) contracts for the EU27 position
Post-trade transparency for OTC transactions between EU investment firms and UK counterparties
In case of a no-deal Brexit investment firms established in the UK will no longer be considered EU investment firms but will fall into the category of counterparties established in a third country. In consequence, EU investment firms are required to make public transactions concluded OTC with UK counterparties via an APA established in the EU27.
BMR: ESMA register of administrators and 3rd country benchmarks
In case of a no-deal Brexit, UK administrators included in the “ESMA register of administrators and third-country benchmarks” (ESMA register) before the date of the no-deal Brexit will be deleted from the ESMA register and will be qualified as 3rd country administrators.
There is still uncertainty as to the final timing and conditions of Brexit. Should the timing and conditions of Brexit change, ESMA may adjust its approach.
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Please Note: This publication is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying the information contained in this publication to specific issues or transactions.