UK Law and Practice Contributed by: Carolyn Jackson, Nathaniel Lalone, Christopher Collins and Ciara McBrien, Katten Muchin Rosenman UK LLP (Katten)
enhance the flexibility and effectiveness of the limits, while maintaining the competitiveness of the UK mar - ket. Key aspects of the new framework, which takes effect on 6 July 2026, are summarised below. • The scope of the FCA’s upcoming regime is limited to a prescribed set of 14 “critical contracts” listed for trading on the LME and ICE Futures Europe, which have been designated based on the risks associated with abusive or disorderly trading prac - tices in such contracts, and the FCA’s determina - tion that position limits are most likely to mitigate such risks. Responsibility for setting the relevant position limits rests with the venues themselves rather than the FCA; however, venues are required to satisfy the criteria and standards set by the FCA when establishing their limits. • The new framework also establishes a mechanism for identifying certain contracts that are “closely related” to the identified “critical contracts”; such “closely related” contracts will then be included within the applicable position limit calculations. The closely related contracts replace the economically equivalent OTC (EEOTC) contracts from the previ - ous regime. • The UK position limits apply regardless of the location of the person at the time of entering into a position, or the location of execution. Where the FCA determines that a commodity deriva - tive should be added to the list of critical contracts, market participants will have a 45-day notice period to submit comments, following which the determina - tion will be amended or finalised. Trading venues must then establish and apply the relevant limits no later than the date on which the contract becomes a criti - cal contract. Eligible firms may apply to the FCA for an exemp - tion from an applicable position limit. The revised UK framework maintains the so-called “hedging” exemp - tion for non-financial firms in relation to positions that qualify as reducing risks relating to their com - mercial activities. The FCA has also added a new “pass-through” hedging exemption for financial firms that facilitate hedging activities, as well as a further exemption for liquidity providers in critical contracts.
UK trading venues must establish position account - ability thresholds in the spot month, which are set below the applicable position limit to monitor activity in the contract. Trading venues are also afforded a measure of discretion when determining whether to establish position accountability thresholds in non- spot months for critical contracts. When a market participant exceeds an accountability threshold, a trading venue in the UK must have rules that empower it to require the market participant to provide information. This includes details about the market participant’s OTC activities and any client- related trading. The UK trading venue also has the authority to require the market participant to reduce its position to below the accountability threshold. 3.1.5 Reporting Both UK EMIR and UK MiFIR impose reporting requirements on OTC derivatives transactions. UK EMIR Derivatives Transaction Reporting Article 9 of UK EMIR requires UK counterparties and CCPs to report all ETDs and OTC derivatives con - cluded, modified or terminated to a trade repository registered or recognised by the FCA by the following working day. As of 30 September 2024, due to UK EMIR Refit, all UK counterparties (including those that are unregulated) that are required to report under UK EMIR must notify the FCA (or in the case of CCPs, the Bank of England) of any material errors or omissions in their reporting as soon as they become aware of them. UK EMIR previously required 129 reporting fields for each transaction reported, but this was increased to 204 on 30 September 2024 due to the requirements under UK EMIR Refit. UK EMIR requires double reporting. This means that both counterparties to a derivative are solely respon - sible and legally liable for reporting their side of the derivative with the exception that, due to the chang - es brought in by UK EMIR Refit, an FC is obliged to report both sides of the OTC derivatives it enters into with an end user that is an NFC below all UK EMIR clearing thresholds (NFC-), unless such NFC- deter - mines to do its own reporting. Further, an NFC- is not required to report any OTC derivative transaction with a third-country entity that would be an FC were
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