Where must derivatives be traded and cleared, and how is portfolio compression treated?

The derivatives trading obligation moves standardised, liquid OTC derivatives onto organised venues. Under Article 28(1), as amended from 28 March 2024, financial and non-financial counterparties that are subject to the EMIR clearing obligation must conclude transactions with each other, in classes declared subject to the trading obligation, only on EU regulated markets, MTFs and OTFs, or on third-country trading venues covered by a Commission equivalence decision. ESMA keeps a public register of the declared classes. Derivatives that are exempt from the EMIR clearing obligation, or not subject to it, are outside the trading obligation. Eligible derivatives can be admitted to trading or traded on any such venue, on a non-exclusive basis and without discrimination. ESMA also monitors derivatives not declared subject to the obligation, to spot possible systemic risk and prevent regulatory arbitrage.

The exam material describes those bound as financial counterparties and non-financial counterparties that are, in its words, "permitted to clear futures contracts". The Regulation has never used that test. Until 27 March 2024 it bound financial counterparties and non-financial counterparties above the EMIR clearing threshold; since 28 March 2024 it binds only counterparties subject to the EMIR clearing obligation. The exam material also extends the obligation to contracts with a third-country element that have a "direct, substantial and foreseeable" effect in the EU, or where needed to prevent evasion. That extension was deleted on 28 March 2024. A new Article 32a lets the Commission, at a competent authority's request, suspend the trading obligation for certain financial counterparties without suspending the clearing obligation; it first used this power in June 2026.

The Commission decides whether a third country's framework for trading venues is equivalent. All four conditions in Article 28(4) must be met: the venues are authorised and effectively supervised, with enforcement, on an ongoing basis; they have clear, transparent rules under which derivatives trade fairly, in an orderly and efficient way, and remain freely negotiable (the exam material refers to rules on admitting instruments to trading, which was the wording until 27 March 2024); issuers must give periodic and ongoing information that ensures a high level of investor protection; and rules against insider dealing and market manipulation protect market transparency and integrity. The third country must also give EU venues an equivalent way to be recognised there.

Under Article 29(1), the operator of a regulated market ensures that all transactions in derivatives concluded on that market are cleared by a CCP. Cleared derivatives must be sent to and accepted by the CCP as quickly as technologically practicable, using automated systems. To make that happen, trading venues, CCPs and investment firms that are clearing members keep effective systems, procedures and arrangements. Cleared derivatives are those that must be cleared under the EMIR clearing obligation, those cleared under Article 29(1) because they are concluded on a regulated market, and any others the parties agree to clear. The exam material's definition leaves out the first group, which has been part of Article 29(2) since 3 January 2018. How regulated markets organise trading is covered in How do regulated markets admit instruments and members, and control algorithmic trading?

Indirect clearing means that a clearing member's client provides clearing services to its own clients. Under Article 30 it is permitted for exchange-traded derivatives, provided the arrangements do not increase counterparty risk and protect the counterparty's assets and positions to a standard equivalent to EMIR's (Articles 39 and 48).

Portfolio compression is a risk reduction service in which two or more counterparties terminate some or all of the derivatives they submit and replace them with a derivative of smaller combined notional value. Since 28 March 2024 Article 31 treats it as one of several post-trade risk reduction (PTRR) services. Transactions in OTC derivatives formed by PTRR services are exempt from the best-execution obligation (see What do best execution and client order handling require?), from the trading obligation and from pre-trade and post-trade transparency. Since 2 March 2026 Article 16a of Delegated Regulation (EU) 2017/567 defines these services: they are provided by a third party under non-discretionary rules, accepted by participants in full, reduce risk, are neutral to market risk and do not contribute to price formation. They include compression, rebalancing and basis-risk optimisation.

Providers keep complete and accurate records of PTRR transactions that are not already recorded or reported under EMIR, and make them available promptly to the competent authority or ESMA on request. The exam material says compression providers publish the volume and time of compressions through an APA, as near to real time as technically possible, and keep records of every compression. The APA publication duty was deleted from MiFIR on 28 March 2024, and the detailed publication rules in Delegated Regulation (EU) 2017/567 were deleted from 2 March 2026. The record-keeping duty now covers only transactions not already captured under EMIR. EMIR adds a duty of its own: under Delegated Regulation (EU) No 149/2013, financial and non-financial counterparties with 500 or more uncleared OTC derivative contracts outstanding with a counterparty must have procedures to analyse, at least twice a year, whether to carry out a compression exercise.