The UK Financial Conduct Authority (FCA) today issued a statement on the application of derivatives trading obligation to certain credit default swaps (CDS).
ICE Clear Europe has announced the cessation of clearing for all classes of CDS contracts from 27 October 2023. Counterparties will need to close out their CDS positions on ICE Clear Europe and establish equivalent ones on other central counterparties (CCPs) before 27 October 2023.
Some index CDS are subject to the derivatives trading obligation under article 28 of UK Markets in Financial Instruments Regulation (UK MiFIR), which requires certain financial and non-financial counterparties to conclude transactions in specified derivatives on trading venues.
To achieve an orderly migration of positions, market participants intend to execute trades outside a trading venue. To facilitate that migration, the FCA will not require counterparties subject to the trading obligation to apply that obligation to transactions in the relevant CDS which are concluded for the purpose of transferring existing positions to a new CCP.
The FCA does not expect counterparties to publicly report those trades in accordance with article 21 of UK MiFIR.
The regulator expects all such trades to have been completed by 27 October 2023 and may contact firms to validate that off venue trades in relevant instruments were executed for the purpose specified above.
The FCA says it is acting in coordination with the US Commodity Futures Trading Commission and the European Securities and Markets Authority that are also issuing statements on the application of their derivatives trading obligations to the migration of positions in CDS.
