Bank of England consults on exempting post-trade risk reduction transactions from the UK EMIR derivatives clearing obligation

The Bank of England has launched a consultation on draft rules that would exempt transactions arising from post-trade risk reduction (PTRR) services from the derivatives clearing obligation under Article 4 of UK EMIR. The Bank argues that PTRR outputs are non-price forming and market-risk neutral, and that a clearing requirement can constrain the effectiveness and take-up of PTRR by pushing firms towards more complex alternatives such as swaptions. PTRR services include portfolio compression, portfolio rebalancing and basis risk optimisation, which can amend, terminate or insert new transactions to reduce counterparty, operational and basis risk. The proposal would define a PTRR service as one provided to two or more counterparties to reduce non-market risks and that does not give rise to transactions contributing to the price discovery process. Eligibility conditions include use of an independent third-party provider, non-discretionary rules set in advance, outcomes binding on all participants, an “eligible agreement” that specifies when the exercise becomes legally binding and includes supporting legal documentation, and a requirement that transactions are not designed to circumvent the clearing obligation. PTRR providers would also need to notify the Bank when first offering eligible PTRR services and commit to notify changes or cessation. The Bank proposes an implementation period of three months after publication of final rules and estimates one-off costs of about GBP 15,000 to GBP 20,000 per PTRR provider and under GBP 5,000 per participant, with fewer than five UK PTRR providers expected. The consultation closes on 11 March 2026. The Bank intends the exemption to come into force three months after final rules are published.