A letter demanding greater transparency in derivatives markets from European commissioner Michael Barnier lacks clarity and is unrealistic, according to industry association the Wholesale Markets and Brokers Association (WMBA).
In a letter to Markus Ferber, the MEP who is representing the European Parliament (EP) in trialogue discussions on the final form of MiFID II, Barnier criticised progress on the regulation, saying it is failing to make derivatives and fixed income markets more transparent.
“I am concerned about how the texts are currently evolving as far as the transparency requirements are concerned,” Barnier wrote.
“Should wholesale market participants and trading models such as request for quote or voice trading systems be exempt from the transparency regime, as set out in the Council and EP amendments, most derivatives would continue to be traded in the dark.”
But David Clark, chairman of the WMBA, said Barnier’s definition of dark trading is incorrect and his expectation that request for quote and voice trade systems be completely outlawed is unrealistic.
“Just because something is not on-exchange it doesn’t mean it’s ‘dark’,” said Clark. “§You can’t standardise everything and there are always going to be some OTC products that have to be traded bilaterally.”
He also criticised the lack of clarity provided by Barnier and said he should provide greater detail on what he expects MiFID II to achieve.
Clark added: “It would appear that Barnier does not make clear which aspects of transparency he is referring to, nor what measures he expects Markus Ferber to introduce.”
He argues that new trade reporting requirements for the derivatives market will provide sufficient clarity and transparency to regulators.
Under current MiFID II proposals, a new type of authorised trading venue called an organised trading facility (OTF) will be created to facilitate trading that does not take place on a multilateral trading facility or regulated exchange, though it would exclude pure OTC trading.
The aim is to increase transparency in the derivatives market in line with Group of 20 agreements on how to improve safety in financial markets following the collapse of Lehman Brothers in 2008.