In an event of a no deal Brexit, transactions concluded on UK trading venues would be considered over-the-counter transactions (OTC), according to European Securities and Markets Authority (ESMA).
Therefore, UK venues would be subject to the post-trade transparency requirements pursuant to Articles 20 and 21 of Markets in Financial Instruments Regulation (MiFIR).
This would be in the case of a no-deal Brexit where trading venues established in the UK will no longer be considered EU trading venues, effective from 30 March this year.
ESMA noted this in a public statement, which among other things provided opinions on third-country trading venues for the purpose of post-trade transparency and position limits and
post-trade transparency for OTC transactions.
It was expressed that ESMA aims to avoid double-reporting including commodity derivatives contracts traded on third-country trading venues in the position limit regime.
In order to avoid this, In 2017, ESMA published two opinions on third-country trading venues in the context of the second Markets in Financial Instruments Directive (MiFID II)/MiFIR.
The first opinion clarified that investment firms trading on third-country trading venues meeting a set of criteria are not required to make transactions public in the EU via an approved publication arrangement (APA).
The second opinion clarified that commodity derivatives contracts traded on third-country trading venues meeting a set of criteria are not considered as economically equivalent over-the-counter (EEOTC) contracts for the position limit regime.
Since the UK is currently a member of the EU, ESMA has not assessed any UK trading venue against the criteria set out in the two opinions so far.
According to ESMA, they stand ready based on requests from EU27 market participants, to carry out such assessments.
Commenting on ESMA’s statement in a blog, Anne Plested, a regulatory expert at Fidessa noted that ESMA’s clarification that EU investment firms will have to publish their OTC trades via an EU APA if a UK counterparty is involved could be problematic.
Plested cited: “While in Europe this approach may serve to ensure post-trade transparency within the EU27, it is also true that the UK counterparty could be required to publish that trade to a UK APA.”
“This sounds to me like a recipe for a return to the problem of OTC duplicate reporting, despite MiFID II’s decade in the making efforts to improve on that situation.”
She added: “In case of a no-deal Brexit UK firms will become third country counterparties when facing the EU, and with no equivalence granted pan-European participants may end up shedding a bit too much light on OTC volumes.”
