UK Law and Practice Contributed by: Carolyn Jackson, Nathaniel Lalone, Christopher Collins and Ciara McBrien, Katten Muchin Rosenman UK LLP (Katten)
Katten Muchin Rosenman UK LLP Paternoster House 65 St Paul’s Churchyard London EC4M 8AB Tel: +44 020 7776 7620 Fax: +44 020 7776 7621 Email: carolyn.jackson@katten.co.uk Web: www.katten.com/futuresandderivatives
1. General 1.1 Overview of Derivatives Markets
derivatives to trade repositories, and implementa - tion of risk mitigation techniques for non-cleared OTC derivatives. UK EMIR and EU EMIR have also been amended over the years, including by the UK and EU EMIR Refit. • The European Markets in Financial Instruments Directive II and Markets in Financial Instruments Regulation (EU MiFIR) (together, EU MiFID II) - Similar to EU EMIR, EU MiFID II was also onshored in the UK (primarily through amendments to the FSMA and an assimilated version of EU MiFIR (UK MiFIR; together, UK MiFID II)). These cover invest - ment services and activities conducted in relation to financial instruments, including derivatives. UK MiFID II contains a number of significant measures relevant to derivatives, including requiring stand - ardised derivatives to be executed on a trading venue, pre- and post-trade transparency require - ments, and position limits for certain commodity derivatives. UK MiFIR also mandates the reporting of certain derivatives transactions. • Regulation on Wholesale Energy Market Integrity and Transparency (UK REMIT) – UK REMIT applies to wholesale energy markets, covering contracts for the supply and transportation of electricity and natural gas, including derivatives. It includes obli - gations relating to registration, market abuse and reporting. Derivatives can also fall within, or be affected by, a number of other legislative frameworks in the UK, including the Short Selling Regulation, Market Abuse Regulation, Benchmarks Regulation, Packaged Retail and Insurance-based Investment Products Regula - tion, Undertakings for Collective Investment in Trans -
The UK’s regulatory framework over the derivatives markets and products is currently comprised of a mix - ture of UK domestic and EU-derived rules and regu - lations. The key pieces of legislation and regulations that impact the UK derivatives markets include the following. • Financial Services and Markets Act 2000 (FSMA) – This is the cornerstone of UK financial regulation. The “general prohibition” therein states that a per - son carrying out particular activities in relation to specified investments (including derivatives) must be authorised to do so or have an exemption. The FSMA also places restrictions on financial promo - tions (ie, invitations or inducements to engage in investment activity). • Financial Services and Markets Act 2000 (Regulat - ed Activities) Order 2001 (RAO) – This sets out the specified activities (eg, dealing as principal, arrang - ing deals in investments) and specified investments that fall within the scope of the FSMA. Schedule 2 of the RAO lists 11 categories of financial instru - ments, with paragraphs 4–10 covering derivatives. • European Market Infrastructure Regulation (EU EMIR) – Although initially an EU regulation, post- Brexit, the UK adopted EU EMIR into domestic law (UK EMIR). UK EMIR and EU EMIR focus on the regulation of derivatives and introduced several requirements relating to over-the-counter (OTC) derivatives. Among other things, UK EMIR and EU EMIR require the central clearing of standardised OTC derivatives, reporting of transactions in all
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