Council nears OTF agreement

The Council of the European Union could reach a common position on the scope of MiFID II’s organised trading facility regime by the end of this month, after broad consensus on the venue category was reached at a meeting yesterday.

The Council of the European Union could reach a common position on the scope of MiFID II’s organised trading facility (OTF) regime by the end of the month, after broad consensus on the venue category was reached in a meeting yesterday.

The OTF continues to be a flashpoint of debate for European policymakers throughout MiFID II negotiations. The venue type was initially proposed by the European Commission in its initial MiFID II draft in October 2011 as a way of capturing brokers’ internal crossing networks for equities, in addition to new markets for trading OTC derivatives that will emerge as a result of separate legislation.

Sources confirmed to theTRADEnews.com that member states have informally agreed the OTF category should be used for all asset classes, including equities, and should not allow any form of proprietary trading in them.

However, matched principal trading – the ability for brokers to use their own capital to match client orders in non equities – while permitted in the Council’s version of the OTF, could be narrowed so that it cannot be perceived as prop trading.

The Council’s stance runs counter to the European Parliament’s OTF position. The Parliament’s final draft of MiFID II prohibited the use of OTFs for equities and recommended broker crossing networks fall under existing multilateral trading facility or systematic internaliser categories.

The Council’s final position on OTFs could be settled at its next meeting scheduled for 26 March. While an agreement on a completed Council version of MiFID II is scheduled for 14 May, the sources added that this date remains optimistic.

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