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Derivatives: All clear for building societies to participate directly in CCPs

Derivatives: All clear for building societies to participate directly in CCPs
  • United Kingdom
  • Derivatives
  • Financial services and markets regulation


The Building Societies (Restricted Transactions) (Amendment to the Prohibition on Entering into Derivatives Transactions) Order 2018 (the “Order”) comes into force today, 6 April 2018. The Order clears the way for building societies to participate directly in CCPs1.


Section 9A(1) of the Building Societies Act 1986 (the “Act”) contains an express prohibition on building societies, or subsidiary undertakings of building societies, entering into derivatives. This prohibition is subject to a number of exemptions (including, for example, an exemption for derivatives entered into by a building society to hedge certain of its risks).

Prior to the Order coming into force, the available exemptions did not extend to derivatives entered into to comply with obligations imposed on CCP members to bid on the portfolio of a defaulting member2. The Order extends the exemptions to the prohibition on entering into derivatives in the Act to cover this scenario.


The obligation for participants to take part in auctions of a defaulting CCP member’s positions is generally a condition of direct CCP participation. In practice, therefore, the prohibition in the Act prevented building societies from complying with the membership rules of CCPs and meant that building societies were required to clear indirectly through a third party clearing broker permitted to participate in a CCP.

Building societies are now able to participate directly in CCPs, provided of course that they meet all other applicable participation requirements.

How Eversheds Sutherland can help

Eversheds Sutherland regularly advises clients, including building societies, on all aspects of EMIR compliance including derivatives clearing. We are well placed to advise on the relative merits of direct and indirect clearing and the related documentation for both types of clearing relationship.

1. A CCP is an entity that interposes itself between the counterparties to contracts to the contracts traded on one or more financial markets, becoming the buyer to every seller and the seller to every buyer.

2. Such obligations may be imposed by CCPs pursuant to Article 37 of Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories (“EMIR”).