Banks warned against plans to network SIs

Kay Swinburne MEP told delegates at The TRADE’s MiFID II pop-up event she is aware of plans to use SI networking as a loophole to get around rules on equities trading.

Banks have been warned against using the systematic internaliser (SI) regime to create broker crossing networks (BCNs) via the back door.

Kay Swinburne MEP explained at The TRADE’s MiFID II pop-up event this week she has been made aware of banks plotting to network SIs together, which could enable them to effectively act much like BCNs, which are banned under the new regulations.

“It’s disappointing with less than a year to go, to be told how some market players are seeking ways around the rules, seemingly using grey areas to avoid giving investors the best price,” she said.

The European Securities and Market Authority (ESMA) recently urged the European Commission to adopt delegated acts to close the loophole in the SI regime under MiFID II.

Chair at ESMA, Steven Maijoor, explained in a letter to the Commission: “Certain investment firms, that currently operate broker-crossing networks, might be seeking to circumvent the MiFID II requirements by setting up networks of interconnected SIs and other liquidity providers.”

Swinburne added the European Parliament expects the Commission to respond to the letter and explain the networking of SIs is already prohibited under MiFID.

“Politicians do not see this as a loophole, but the financial industry seeking a new way to line its pockets at the expense of investors,” she told delegates.

“Networks of SIs are against the spirit of the MiFID II framework and this is the message delivered by all policy groups.”

Swinburne also said any amendments to the regime could be implemented within one month after approval and in the ‘unlikely’ event the Commission allows the networking of SIs, she expects level one texts to be changed by the European Parliament.

“If policy makers have to make such changes, the industry can expect higher costs and no extension to the implementation deadline,” she concluded.

The event, sponsored by Bloomberg Tradebook and Trax, saw over 200 industry professionals gather at Bloomberg’s London HQ to discuss the systematic internaliser regime and how it will impact their business.