We’re updating the direction modifying the UK’s derivatives trading obligation (DTO) from 31 December 2024.
This will replace the transitional direction which is expiring.
The DTO is a G20 commitment to improve over-the-counter derivatives markets.
The UK has implemented this commitment through Article 28 of the UK Markets in Financial Instruments Regulation (MiFIR). Under Article 28 MiFIR, transactions in certain classes of derivatives must be concluded on regulated trading venues.
We are modifying the UK’s DTO using our new power of direction under Article 28a of the UK MiFIRLink is external, granted by the Financial Services and Markets Act (FSMA) 2023.
The new direction will apply from 11.01pm on 31 December 2024.
It will only apply to transactions in classes of derivatives subject to the DTO in both the UK and EU. This is to reflect changes to the scope of the UK and EU DTO following the transition from LIBOR to risk-free rates.
Read the direction (PDF)
The Treasury consented to our direction on 28 November 2024.
We have also published a statement (PDF) explaining the purpose of our direction, including how it prevents or mitigates disruption to financial markets and advances our operational objectives.
What firms need to know
The new direction will continue to allow firms subject to the UK DTO, trading with, or on behalf of, EU clients subject to the EU DTO, to transact or execute those trades on EU venues, providing they meet certain conditions.
The same conditions set out in the transitional direction apply. This includes that firms must take reasonable steps to be satisfied the client does not have arrangements in place to execute the trade on a trading venue to which both the UK and EU have granted equivalence.
The direction does not affect the requirement that the EU venue has the necessary regulatory status to do business in the UK – such venues include those that:
are a Recognised Overseas Investment Exchange
have been granted the relevant permission, or
whose activities meet all the conditions required to benefit from the Overseas Person Exclusion
Our direction will not apply to transactions:
where the client is not established in the EU
concluded on a proprietary basis or
concluded by 2 EU entities trading through their UK branches
Our new direction, in comparison to the transitional direction, includes the technical change that it automatically adjusts to only apply to transactions in classes of derivatives subject to the DTO in both the UK and in the EU.
