This is the second in our series of briefings on MiFID and MiFIR. Below, we describe new obligations to trade certain derivatives on regulated markets, MTFs or OTFs and the Commission's proposals for the best execution regime.
Trading Derivatives On-Exchange
sufficiently liquid derivatives contracts between financial counterparties/non financial counterparties (as defined in EMIR1) must be traded on a regulated market, MTF or OTF; ESMA will submit draft implementing technical standards within three months of the adoption by the European Commission of EMIR implementing technical standards; trading of derivative contracts captured by MiFIR may take place on third country trading venues provided those venues meet certain criteria; trading with third country entities may be captured if those entities would have been subject to EMIR's clearing obligations if established in Europe; and trading between third country entities may be captured if the contracts involve "a direct, substantial and foreseeable effect" within the European Union. Legislative Provisions
MiFIR Article 24 (Obligation to trade on regulated markets, MTFs or OTFs): Derivatives counterparties designated as "financial counterparties" and "non financial counterparties" according to EMIR and trading in a class of derivative declared subject to a trading obligation via the procedure set out in Article 26 (see below) must trade on a regulated market, MTF, OTF or third country trading venue. Appropriate third country trading venues are those that the European Commission has determined: (i) require participants to comply with legally binding requirements that are equivalent to European requirements; (ii) are subject to "effective supervision and enforcement in that third country"; and (iii) give equivalent reciprocal recognition to MiFID-authorised European trading venues.
The trading obligation also applies to: (i) financial counterparties or non financial counterparties entering into derivatives that are subject to the obligation with third country entities that would be subject to the clearing obligation set out in EMIR if the third country entity were established in Europe; and (ii) third country entities that would be subject to the clearing obligation if they were established in Europe. This obligation arises where the third country entities are trading derivatives that are subject to the trading obligation and which have a "direct, substantial and foreseeable...