Trading venues and clearing houses have been handed temporary relief from incoming rules aimed at increasing competition within the derivatives market under MiFID II, due to disruption across the industry caused by the coronavirus.
The open access regime aims to increase competition in the futures market by removing the vertical silo model of trading and clearing at the same location. It requires trading venues and clearing houses to allow non-discriminatory access to their services, meaning traders can trade a future on one exchange and clear it at a central counterparty (CCP) owned by a completely separate group.
Regulators will take into consideration the impact of the coronavirus pandemic on business operations in terms of the industry’s ability to comply with the rules, as they come into force in July, the European Securities and Markets Authority (ESMA) said. Although, central counterparties (CCPs) and trading venues are expected to have the operational capacity to process open access requests.
The UK’s Financial Conduct Authority (FCA) backed ESMA’s statement, adding that firms must prioritise maintenance of markets and ensure continuity of their services, even if that results in delays to an open access request.
“ESMA considers that the current market environment, with a high degree of uncertainty and volatility driven by the COVID-19 pandemic, may negatively impact CCPs and TVs operations and increase their operational risk,” ESMA stated. “These increased risks, combined with limited capacity for assessing access requests and for managing the migration of transactions flows, may impact the orderly functioning of markets or financial stability.”
The regime suffered delays just prior to the planned implementation date in January 2018, and has proved controversial for some in the industry. The open access model is the foundation of LCH, the world’s largest clearing house for derivatives, whereas other CCPs such as ICE and Eurex operate under a vertical model, meaning derivatives traded on their exchanges have to be cleared through their own CCPs.