Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (“MiFIR”) and the related Commission Delegated Regulation (EU) 2017/567 of 18 May 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to definitions, transparency, portfolio compression and supervisory measures on product intervention and positions (the “Delegated Regulation”) contain a number of provisions that relate to the provision of, and participation in, portfolio compression services by investment firms and market operators.
From January 3, 2018, investment firms and market operators that provide portfolio compression services will be required by Article 17 of the Delegated Regulation to conclude an agreement with the participants in that service. The ISDA 2017 Portfolio Compression Agreement is a template for use by market participants to comply with these requirements.
The ISDA 2017 Portfolio Compression Agreement addresses bilateral compression only, whereby two parties are seeking to compress their existing transactions. It does not address compression arrangements where participants are seeking to submit transactions to a third-party service provider (whether an affiliate or on a commercial basis). It is expected that third-party service providers will arrange their own form of compression agreement or will make necessary amendments to their existing platform documentation.