The Prudential Regulation Authority (PRA), which is part of the Bank of England, and the FCA are the UK regulators with primary responsibility for the supervision and oversight of derivatives market participants in the UK. The PRA’s primary role is the authorisation and prudential regulation of banks, building societies and credit unions. In contrast, the FCA's primary role is to establish the business conduct standards that apply to derivatives market participants as well as the trading venues that list derivatives products for trading. The FCA is also responsible for the prudential supervision of firms that are not PRA-regulated.

Other UK regulators also have significant responsibilities. The Bank of England supervises essential market infrastructures crucial to the derivatives markets, including CCPs and payment and settlement systems. Additionally, the UK's energy regulator, the Office of Gas and Electricity Markets (Ofgem), oversees the registration of market participants in the wholesale energy market, which encompasses wholesale energy derivatives under UK REMIT.

There are two independent derivatives-clearing obligations under UK law. Under the first obligation, all derivatives concluded on a UK-regulated market must be cleared at a CCP without exception.

Separately, the Bank of England is responsible for determining which standardised OTC derivatives must be cleared at a CCP; this list currently includes a number of interest rate and index credit default products. Whether the clearing obligation applies to an in-scope product depends on the nature of the counterparties to the transaction. Generally, transactions between some combination of financial counterparties (FCs) and/or non-financial counterparties (NFCs) that exceed the clearing threshold applicable to the relevant asset class (NFC+s) must be cleared unless an exemption applies. Relevant exemptions include qualifying intra-group transactions, which are subject to an application process with the FCA, as well as transactions by certain qualifying UK and EEA pension schemes, which the FCA has recently made permanent. In addition, certain “small” FCs are not required to clear OTC derivatives transactions that are otherwise subject to mandatory clearing, provided they do not exceed the relevant clearing threshold.

FCs and NFCs must therefore determine on an annual basis whether, for a given asset class, their cleared and uncleared derivatives not executed on a UK-regulated market or a third-country exchange deemed to be equivalent by the FCA, exceed the threshold applicable to a given asset class (currently EUR3 billion for interest rate, FX and commodities products, and EUR1 billion for credit and equity products). If a threshold is exceeded, the FC or NFC must begin clearing the relevant in-scope OTC derivatives within four months of crossing the relevant threshold(s). NFCs are permitted to exclude hedging transactions from the UK EMIR clearing threshold calculation. NFC+s are only required to clear OTC derivatives in the asset classes where they exceed the relevant threshold, whereas a “small” FC that exceeds the relevant threshold in any asset class must then clear OTC derivatives subject to a clearing obligation in all asset classes.

The Bank of England has the authority to suspend the clearing obligation in respect of one or more OTC derivatives, initially for a period not exceeding three months, where certain conditions are met. The suspension period may be renewed for successive three-month periods, up to a maximum of 12 months.

ETDs must by definition be concluded on a UK-regulated market or an equivalent third-country market.

Additionally, the FCA may decide that an OTC derivative, which is subject to a UK clearing obligation, is also subject to a UK trading obligation. This applies if the OTC derivative is traded or admitted for trading on at least one UK trading venue, or on a third-country trading venue deemed equivalent for the trading obligation. Furthermore, there must be adequate third-party buying and selling interest to facilitate trading in the product. Where the UK trading obligation applies to an OTC derivative, in-scope FCs and NFC+s must conclude all transactions in such an OTC derivative on a UK or equivalent third-country trading venue. Currently, only venues in Singapore and the United States regulated by the Commodity Futures Trading Commission benefit from such equivalence, although the FCA has used its powers in relation to the UK trading obligation to permit firms to transact on EU trading venues in certain circumstances.

The UK's rules require that derivatives' clearing and trading obligations operate together. This means that if the clearing obligation is suspended, the related trading obligation is also suspended.

The FCA has recently published its final rules overhauling the UK’s position limits regime for commodity derivatives. The FCA’s reforms are intended to enhance the flexibility and effectiveness of the limits, while maintaining the competitiveness of the UK market. 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 practices in such contracts, and the FCA’s determination 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 previous 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 derivative should be added to the list of critical contracts, market participants will have a 45-day notice period to submit comments, following which the determination 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 critical contract.

Eligible firms may apply to the FCA for an exemption from an applicable position limit. The revised UK framework maintains the so-called “hedging” exemption for non-financial firms in relation to positions that qualify as reducing risks relating to their commercial 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 accountability 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 regulations that empower it to require the participant to provide information. This includes details about the participant's OTC activities and any trading involving clients. The UK trading venue also has the authority to require the market participant to reduce its position to below the accountability threshold.

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 concluded, 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 responsible and legally liable for reporting their side of the derivative with the exception that, due to the changes 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- determines 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 it to be established in the UK, where an equivalence decision for reporting has been made for that jurisdiction. In addition, UK EMIR, as amended by UK EMIR Refit, requires an alternative investment fund manager (AIFM) to report on behalf of its alternative investment fund (AIF), and the management company of a UCITS to report on behalf of UCITS. Due to the fact that UK EMIR Refit has modified the definition of an FC to include both an AIFM and an AIF, a UK AIFM is required to report the OTC derivatives entered into by any of the third-country AIFs it manages, as well as for its UK AIFs. Delegated reporting is permitted under UK EMIR, but the UK counterparty with the UK EMIR reporting obligation remains solely responsible and legally liable for the reporting.

Due to the UK's back-to-back clearing model, an ETD can be required to be reported by multiple counterparties. For example, if an investment firm engages in an ETD through its clearing firm, which a CCP then clears, all parties involved - namely the investment firm, the clearing firm, and the CCP - will be required to report the ETD. This will result in a total of four reports, as each entity must document its respective part of the transaction.

UK EMIR provides an exemption from the reporting obligation for intra-group transactions, which requires at least one counterparty to be an NFC (or that it would be if it were established in the UK) and notification to the FCA. The exemption additionally requires that:

• both counterparties are included in the same consolidation on a full basis;
• both counterparties are subject to appropriate centralised risk evaluation, measurement and control procedures; and
• the parent undertaking is not an FC.

UK MiFIR Transaction Reporting

UK MiFIR requires all UK investment firms to report transactions they execute in certain financial instruments to the FCA. Such reports must be made as soon as possible, and no later than the close of the next working day. The requirement applies to trades in financial instruments, including derivatives, to which any of the following criteria apply:

• they are admitted to trading or are traded on a UK, Gibraltar or EU trading venue;
• the underlying is a financial instrument traded on a UK, Gibraltar or EU trading venue; or
• the underlying is an index or basket composed of financial instruments traded on a UK, Gibraltar or EU trading venue.

“Transaction” and “execution” each have specific definitions for the purposes of the transaction reporting regime:

• “Transaction”:
1. includes the purchase/sale of a financial instrument, entering into/closing out a derivative contract or an increase/decrease in the notional amount of a derivative contract; and
2. specifically excludes certain post-trade and settlement-related actions, including contracts arising exclusively for clearing or settlement purposes, the post-trade assignment or novation of a derivative contract and portfolio compressions.
• "Execution" includes the reception and transmission of orders (unless made under certain specified requirements), the execution of orders on behalf of clients, dealing on one's own account and making an investment decision in accordance with a discretionary mandate given by a client.

In November 2024, the FCA published a discussion paper on improving the UK's transaction reporting regime, including removing unnecessary burdens for reporting firms. A follow-on consultation paper is expected in 2025.

A number of business conduct requirements can apply to parties engaged in derivatives trading in the UK, depending on their status under UK EMIR (eg, FC or NFC) and their regulatory status.

The key conduct requirements under UK EMIR include the following.

• Margin requirements: Subject to certain exemptions and exceptions, UK EMIR margin requirements (VM and IM) generally apply where an FC or an NFC+ established in the UK enters into non-centrally cleared OTC derivative contracts with either another FC or NFC+, or a third-country counterparty that would be an FC or NFC+ if it were established in the UK.
• Risk mitigation techniques: FCs and NFCs must implement risk mitigation techniques for OTC derivative contracts not cleared by a CCP. These techniques include timely confirmation, portfolio reconciliation, portfolio compression, and dispute resolution processes.
• Mark-to-market and mark-to-model valuations: FCs and NFCs must perform daily mark-to-market valuations of their derivative positions. If market conditions prevent this, they must use reliable and prudent mark-to-model valuations.
• Reporting obligations: as discussed in 3.1.5 Reporting.
• Clearing obligations: as discussed in 3.1.2 Clearing.
• UK FCs, as authorised entities, can also be subject to the full range of requirements under, among other things, UK MiFID II and the FCA’s Handbook. This includes the FCA’s high-level principles, as well as specific requirements relating to, for instance:
1. financial promotions and client communications;
2. client classification and suitability;
3. conflicts of interest;
4. business continuity and outsourcing;
5. the FCA’s Senior Managers and Certification Regime;
6. market conduct;
7. anti-money laundering, bribery and fraud; and
8. record-keeping.

It would be prohibitively expensive for many end-users to have the middle- and back-office infrastructure to support compliance with the UK EMIR reporting, clearing and risk management obligations and the UK MiFID II trading obligations. Therefore, UK EMIR, as amended by UK EMIR Refit, provides substantial relief for those end users who are NFC-s. UK FCs must now report, on behalf of the NFC-, any OTC derivative transaction they enter into with an NFC-, unless the NFC- determines to do its own reporting. Further, NFC-s are no longer required to report the OTC derivatives transactions they enter into with third-country entities that would be FCs were they established in the UK, provided a reporting equivalence decision has been made for that jurisdiction. NFC-s are exempt from both UK EMIR clearing and UMRs. NFC-s are, however, subject to the UK EMIR risk mitigation obligation, which requires portfolio reconciliation, dispute resolution and portfolio compression (if certain thresholds are met). However, such compliance obligations in general are more burdensome to the FC than to an NFC-; for instance, an NFC- can elect to be a receiving entity and not a sending entity for the purposes of the portfolio reconciliation obligation.

In contrast, NFC+s are equally subject to all UK EMIR obligations as an FC above one or more clearing thresholds (FC+). However, certain UK EMIR exemptions apply for NFC groups, regardless of whether the NFC is an NFC-. As discussed in 3.1.5 Reporting, an exemption from UK EMIR reporting exists when, among other conditions, one party to the OTC derivative transaction is an NFC and the parent undertaking of the group is not an FC. An intra-group exemption from both the UK EMIR clearing obligation and margin obligation for uncleared OTC derivatives exists for NFCs (and FCs) provided an application is filed with and granted by the FCA.

Uncleared OTC Derivatives

Uncleared OTC derivatives are commonly governed by the standard agreements published by the International Swaps and Derivatives Association, Inc. (ISDA), regardless of product type or counterparty, and are generally governed by either English or New York law.

As part of ISDA’s aim to streamline derivatives documentation, it has developed a standardised framework of documentation for derivatives transactions. Such documents include:

• the 1992 and 2002 master agreements – a preprinted framework document comprised of boilerplate provisions;
• the schedule to the master agreement – amends the terms of the master agreement as agreed by the parties;
• the credit support document – an optional document that offers each party security against the other party’s credit risk, either in the form of:
1. a credit support annex (CSA); or
2. a credit support deed (CSD); and
• the confirmation – sets out the economic terms of an individual trade.

The master agreement, schedule, CSA (if any), and all confirmations form one single contract. The CSD (if any) is a standalone document.

Cleared OTC Derivatives

Cleared OTC derivatives can also be documented under standard ISDA documentation. However, frequently, a Futures Industry Association (FIA)–ISDA Cleared Derivatives Execution Agreement is used instead of negotiating a full ISDA. Additionally, an FIA–ISDA Cleared Derivatives Addendum is generally used to document the relationship between a clearing member and its client. However, there can be practical differences between the documentation process for cleared and uncleared OTC derivatives. For example, the cleared OTC derivatives documentation process is generally heavily dependent on automated information technology processes. Additionally, the terms of cleared OTC derivatives documents must conform to the relevant clearing house’s contract specifications.

ETDs

The parties involved in ETDs do not execute bilateral derivatives documentation, such as the standard ISDA documentation, but are subject to the rules of the underlying exchange.

ETDs are generally governed by standard documentation in line with the exchange’s contract specifications, as applied through the exchange’s rules. If a party to an ETD is not itself a member of the exchange, it will be required by its clearing firm and/or brokerage firm to negotiate a clearing/brokerage agreement, which is generally bespoke to each such firm.

ISDA has produced standard credit support documents that take the form of either a CSA or a CSD. Generally, the governing law of the credit support document matches the governing law of the ISDA master agreement (although this is not mandatory).

VM

In 2016, ISDA introduced a new CSA for VM that is used for documenting the posting of VM under English law (2016 VM CSA). The 2016 VM CSA forms part of a suite of credit support documents introduced to aid compliance with margin requirements for derivatives that are not subject to mandatory clearing under UK EMIR and comparable legislation in other major financial jurisdictions.

The 2016 VM CSA revises the 1995 ISDA CSA (Bilateral Form–Transfer) (1995 CSA) to allow parties to determine VM arrangements that meet the regulatory requirements for uncleared derivatives (ie, UMRs) that entered into force in March 2017. The structure of the 2016 VM CSA remains consistent with the 1995 CSA. The updates in the 2016 VM CSA relate solely to VM. ISDA has also published a 2016 VM CSA under New York law.

ISDA has also published the 2016 Variation Margin Protocol to help market participants comply with the VM requirements of the UMRs. This enables market participants to amend their CSAs with multiple counterparties to comply with the UMRs.

IM

Under UK EMIR, as further detailed in the UMRs, parties to a derivatives agreement are required to post IM if they have uncleared derivatives portfolios with an aggregate average notional amount exceeding certain thresholds.

At a minimum, parties will likely need the following suite of documentation regarding the posting of IM:

• a collateral agreement between the parties – the relevant CSA, CSD or collateral transfer agreement and security agreement (where posted collateral is held outside the UK or with Euroclear/Clearstream);
• an account control agreement – a tripartite agreement between the parties and the custodian, which sets out control and access provisions in accordance with the relevant segregation requirements under the applicable margin rules;
• an eligible collateral schedule between the parties;
• a custody agreement between a party and the custodian; and
• a Euroclear/Clearstream representative agreement – required where the counterparty posts IM via Euroclear/Clearstream.

Global Master Repurchase Agreement (GMRA)

Repurchase (repo) transactions can be documented individually, but they are typically recorded under a master agreement. The International Capital Market Association (ICMA) and the Securities Industry and Financial Markets Association (SIFMA) have published standard forms of the repo master agreement, specifically the GMRA.

The 2011 version of the GMRA is generally used to document non-US repo transactions.

The GMRA is comprised of three parts:

• standard boilerplate legal and credit provisions: these include warranties, events of default, margining provisions and netting provisions;
• annexes: Annex I allows the parties to modify the boilerplate provisions of the GMRA, and certain other annexes can be added to cover particular types of security; and
• confirmation: this contains the commercial terms of each repo transaction.

Global Master Securities Lending Agreement (GMSLA)

Securities lending transactions are usually documented by the GMSLA, which is a market standard master agreement produced by the International Securities Lending Association (ISLA). The ISLA is a trade association representing the interests of participants in the securities lending market.

The GMSLA was originally drafted to comply with English law on securities lending. It has been developed as a market standard for securities lending and sets out the obligations of the borrower and the lender. It is now recognised as the most-used agreement in the UK and EU bilateral securities lending market. While various versions of the GMSLA exist, the 2010 version is the most widely used for new trading relationships.

The GMSLA is comprised of the following parts:

• master agreement – the preprinted form;
• schedule – where the parties can amend the preprinted form;
• confirmation – sets out the economic terms of individual securities lending transactions; and
• annexes and addendums – there are various annexes and addendums that the parties might agree to attach to the GMSLA (eg, the agency annex and an addendum for pooled principal agency loans).

Master Repurchase Agreement (MRA)

The MRA, published by SIFMA, is the primary form of standardised repo agreement used for US repo transactions. The latest version of the MRA was published in 1996 by SIFMA.

Master Securities Lending Agreement (MSLA)

The MSLA, published by SIFMA, is the primary form of standardised agreement used for US securities or stock lending transactions.

Master Securities Forward Transaction Agreement (MSFTA)

The MSFTA, published by SIFMA, is the primary form of standardised agreement used to document a US securities forward transaction that is subject to margin requirements under Financial Industry Regulatory Authority Rule 4210.