OSTTRA’s post-trade risk reduction (PTRR) services have been granted exemptions from key EU and UK regulatory requirements, removing previous barriers to the use of standard instruments in portfolio optimisation.
OSTTRA states in a press release that the European Securities and Markets Authority (ESMA) confirmed that OSTTRA triBalance is exempt from the EMIR clearing obligation, making it the only provider in the EU currently authorised to run post-trade risk reduction services under such an exemption. In the UK, the Financial Conduct Authority (FCA) has issued a corresponding set of exemptions, effective 30 June, removing obligations related to the Derivatives Trading Obligation (DTO), post-trade transparency, and best execution requirements.
Shift away
The EMIR clearing obligation, introduced to reduce systemic risk, had the unintended consequence of limiting the use of vanilla swaps in multilateral risk-reduction exercises. As a result, firms often resorted to more complex and costly instruments such as swaptions to rebalance portfolios, an approach that constrained broader market participation and limited the effectiveness of counterparty risk reduction.
With the exemptions now in place, OSTTRA’s service can incorporate vanilla swaps into its optimisation process, potentially allowing for more efficient and scalable portfolio compression. Market participants in the EU and UK can now access a wider range of instruments without triggering clearing or reporting requirements.
Further decisions pending
While the EU’s MiFIR 3 reforms already provided a similar framework for exemption as early as 2024, the recent UK ruling brings alignment between the two markets. A decision from the Bank of England’s Prudential Regulation Authority (PRA) is still under consideration, which could further ease the path for market participants. Efforts are also underway to secure equivalent exemptions from US regulators under the Dodd-Frank Act.
