(1)

Commission Delegated Regulation (EU) 2017/2417 (2) specifies, among others, the classes of over-the-counter (OTC) derivatives denominated in EURO (EUR), the Pound Sterling (GBP) and US dollar (USD) that are subject to the derivatives trading obligation referred to in Article 28 of Regulation (EU) No 600/2014. The classes denominated in GBP and USD reference the London Inter-Bank Offered Rate (LIBOR) benchmarks.

(2)

ICE Benchmark Administration (IBA), the administrator for LIBOR, announced that GBP and JPY LIBOR settings will cease publication at the end of 2021, whereas the publication of certain settings of USD LIBOR will cease in June 2023. On 5 March 2021, the United Kingdom Financial Conduct Authority confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative. In addition, the Commission, the European Central Bank in its banking supervisory capacity (ECB Banking Supervision), the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) issued a joint statement to strongly encourage counterparties to stop using any of the LIBOR settings, including USD LIBOR, as a reference rate in new contracts as soon as practicable and in any event by 31 December 2021.

(3)

After 31 December 2021, counterparties will hence no longer be able to enter into OTC interest rate derivatives contracts referencing GBP LIBOR as that benchmark will have ceased and counterparties are expected to no longer enter into OTC interest rate derivatives contracts referencing USD LIBOR. As a result, the remaining traded volumes in those derivatives are expected to be non-existent to very low, as is their liquidity. The same holds for the volume of trades in those derivatives that will be cleared by central counterparties (CCPs) or traded on trading venues and decreasing volume or liquidity is expected for derivatives referencing USD LIBOR. Those events warrant a change in the scope of the clearing obligation and a subsequent amendment in Commission Delegated Regulation (EU) 2015/2205 (3), whereby derivatives referencing GBP LIBOR and USD LIBOR are to be removed from the scope of the clearing obligation. As a consequence, the classes of derivatives currently in scope of the derivatives trading obligation that reference GBP LIBOR or USD LIBOR will no longer meet the condition laid down in Article 32(1) of Regulation (EU) No 600/2014 for making derivatives subject to the derivatives trading obligation as of 3 January 2022. Those classes of derivatives therefore need to be removed from the scope of the trading obligation.

(4)

As the planned cessation of GBP LIBOR is scheduled for the end of 2021, and regulatory expectations expressed by the Commission, ECB Banking Supervision, ESMA and EBA are for counterparties to stop using any of the LIBOR settings as a reference rate in new contracts as soon as practicable and in any event by 31 December 2021, the move away from LIBOR-based interest rate derivatives is expected to take place swiftly. Instead, after 31 December 2021, counterparties are expected to trade or clear other OTC interest rate derivatives, in particular OTC interest rate derivatives, referencing the risk-free rates for GBP or USD. This Regulation should thus enter into force without delay after its publication.

(5)

Delegated Regulation (EU) 2017/2417 should therefore be amended accordingly.

(6)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Securities and Markets Authority (ESMA).

(7)

ESMA has conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the advice of the Security and Markets Stakeholder Group established by Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (4),