DTO is a G20 commitment to improve over-the-counter (OTC) derivatives markets.
The UK has implemented this commitment through Article 28 of UK Markets in Financial Instruments Regulation (MiFIR), under Article 28 MiFIR, transactions in certain classes of derivatives must be concluded on regulated trading venues.
New direction will only apply to transactions in classes of derivatives subject to DTO in both the UK and EU, to reflect changes to the scope of the UK and EU DTO following the transition from LIBOR to risk-free rates, UK Treasury has consented to direction.
FCA published a statement explaining the purpose of its direction, including how it prevents or mitigates disruption to financial markets and advances its objectives.
Impact on Firms
New direction will continue to allow firms subject to UK DTO, trading with (or on behalf of) EU clients subject to EU DTO, to transact or execute those trades on EU venues.
Subject to conditions in direction, which are same as from the transitional direction.
Direction does not affect requirements that the EU venue has the necessary regulatory status to do business in the UK, such venues include those that: are a recognized overseas investment exchange; have been granted the relevant permission.
Or activities meet all conditions required to benefit from Overseas Person Exclusion.
Direction will not apply to transactions: where client not established in EU; concluded on a proprietary basis; or concluded by 2 entities trading through their UK branches.
In comparison to transitional direction, new direction includes 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.
Effectiveness
The new direction will apply from 11.01pm on Dec. 31, 2024.
Dec. 2024 Reminded on DTO Dec. 31 Start
On Dec. 19, 2024, UK FCA reminded that on Dec. 31, 2024, it will replace Temporary Transitional Power (TTP) direction with new derivatives trading obligation (DTO).
UK FCA explained the TTP was used post-Brexit to avoid disruption to UK markets from conflicting UK and EU trading obligations in the absence of mutual equivalence.
The new direction maintains the outcomes of the original TTP direction.
Follows FCA consultation in Jul.2024 on the proposals, which received unanimous support (see #220888); the direction will automatically adjust as UK and EU trading mandates change to ensure it only applies to instruments with conflicting obligations.
