Revocation of retained EU law Transitional amendments Amendments to the Markets in Financial Instruments Regulation (MiFIR) and the European Market Infrastructure Regulation (EMIR) 6. Exempting for post-trade risk reduction services from the DTO
Post-trade risk reduction services are types of trades that are made to reduce risks in derivatives portfolios without changing the market risk of those portfolios.
	For example, portfolio compression is where counterparties simplify derivative portfolios by terminating derivative contracts and replacing them with other derivative contract(s) of equivalent value to reduce exposure and lower costs.
	Currently, transactions resulting from portfolio compression are exempt from complying with the DTO; the best execution requirement (which obliges firms carrying out investment business to obtain the best possible deal for their clients); transparency obligations; and a requirement in the FCA’s Market Conduct sourcebook about the operation of multilateral systems. Although the last requirements are unrelated to the DTO, they are also contained in Article 31 of MiFIR.
	Exempting more post-trade risk reduction services from the DTO, and the other obligations that portfolio compression trades are currently exempt from, could encourage their use and help reduce systemic risk. Doing so should not negatively impact price formation, because these trades are non-price forming. The Act therefore expands the exemptions that currently apply to portfolio compression to other risk reduction services. To ensure that the right services are covered by the exemption, the Act gives the FCA a new rule-making power to specify which post-trade risk reduction services can benefit from the exemptions listed above as well as the conditions attached to their use.
	The Act also gives the Bank of England (the Bank) a similar rule-making power, so that the same types of services can, if appropriate, be exempted from the CO as well. The Bank will be able to specify the post-trade risk reduction services that are to benefit from an exemption from the CO. The Bank and the FCA will be required to consult each other before making changes to their respective exemptions. This change aims to incentivise the uptake of post-trade risk reduction services and is intended to support market stability.