Industry leaders are concerned Europe-wide regulation may fall short of the mark on clearing rules and interoperability, further delaying the reduction of post-trade costs.
During a six-member panel discussion on clearing practices in Europe at a post-trade forum held in London on Thursday, fears were raised that MiFID II and its accompanying regulation may not achieve their original aims for clearing in Europe.
Panel member Stephen McGoldrick, director of market structure, Deutsche Bank, said important aspects of articles 28-30 of the European Commission’s (EC) original draft may be softened.
Under the EC’s MiFIR draft, CCPs would be required to clear all financial instruments – except those explicitly mentioned in the European market infrastructure regulation – regardless of the venue of execution while trading venues would have to accept clearers on a non-discriminatory basis.
“Alarmingly, the ideas around open access and access to feeds have been eroded through the legislative process and there’s still a large swath of people in Brussels who want to take it out,” McGoldrick said.
The voluntary nature of the European Commission’s approach to lowering clearing costs in its 2006 Code of Conduct ultimately did not reach the intended goal, as major clearing houses and venues didn’t opt in, for fear of losing business, an outcome McGoldrick said MiFID II should avoid.
“I hope MiFIR will bring change, but this will only happen if the new rules are fiercely enforced by the regulators, because the commercial side will need to be forced every single step of the way,” McGoldrick said.
These concerns were mirrored by fellow panel member Mark Hemsley, CEO of BATS Chi-X Europe, who told the audience regulators should focus on creating rules that foster business, rather than restricting it.
“You’ve got to think about the best way to get business off the ground and create a network to make that happen.
“Ideally we’d like to see that concentrated in a few clearing houses. We take the view that Europe would benefit from three to four clearing houses and two to three central securities depositories,” Hemsley said at the forum, which was sponsored by SIX Securities Services.
The development of an interoperability framework in Europe was not borne out of regulation, but driven by four European clearing houses that sought and received regulatory approval in 2010.
Clearing houses EuroCCP, EMCF, SIX x-clear, and LCH.Clearnet pioneered the framework, which focused on managing the systemic risks prompted by linkages between CCPs.
Discussions on MiFID II and MiFIR between MEPs in the European Parliament’s Economic and Monetary Affairs Committee have finished and a formal vote will take place on 26 September.
After MEPs vote, the Council of the European Union will agree a separate version of the text, before both versions are reconciled, with input from the European Commission, with an implementation date of 2014 at the earliest.