The latest version of Europe’s Markets in Financial Instruments Regulation (MiFIR) prohibits discriminatory fees for accessing central counterparties (CCPs) and trading venues, but some experts believe it also muddies the waters over criteria for denying admission.
A previous draft of the rules enforcing non-discriminatory access to a CCP, leaked in early September, had only provided that a CCP shall clear financial instruments on a non-discriminatory and transparent basis, regardless of the trading venue on which a transaction was executed. But the latest draft of the rules – obtained earlier this week by TheTRADEnews.com – now requires non-discrimination of fees related to access. The same non-discrimination of access fees also applies to CCPs wanting to access trading venues. The current draft is dated 7 October and only minimal further changes are expected before the European Commission presents its revisions to MiFID on October 19.
While MiFID II explicitly acknowledges the clearing provisions contained in the European market infrastructure regulation (EMIR) – dictating that MiFIR’s requirement do not apply to any over-the-counter derivative contract already subject to the access obligations under EMIR – insiders believe these preclusions are untenable. As regulations, MiFIR and EMIR are imposed directly on member states once approved at European level.
“MiFID trumps EMIR,” said one financial regulation expert. “Whatever ground was made in the negotiations over EMIR is lost as MiFID calls the shots.”
EMIR sets the rules for more transparent and competitive trading, clearing and reporting of cash and derivatives instruments in Europe. The version of the text agreed by the Council of the European Union last week will only ensure fair and open access to both trading venues and CCPs in the OTC derivatives space, not listed derivatives. EMIR is still subject to discussions to iron out differences between drafts agreed by the European Parliament and the Council of the European Union.
MiFIR has also introduced new hurdles for CCPs and trading venues to jump through to gain access to each other. While previously, requests for access of CCPs to venues – and visa versa – needed to be formally submitted to the CCP or trading venue, applications now must also be filed with the relevant regulatory authority. If such applications are denied, MiFIR now imposes a two-month time limit by which authorities must show why they have denied access to a CCP or trading venue.
Some commentators believe the European Commission has clouded the criteria under which organisations can be refused access. Under the previous draft, conditions for denying access included volume of transactions and number of users. However, organisations can now also be denied access because of “other factors creating undue risks” – a phrase which could be interpreted widely.
“This is a get out of jail free clause for anyone wanting to deny access,” said one commentator.
Additionally, where previously the regulation specified that a “trading venue shall only deny access under the conditions specified [in this directive]”, the latest draft has downgraded “shall” to “may”, potentially allowing more wiggle room for trading venues wishing to deny access.
The new rules also oblige regulators to explain why access is granted to a CCP or trading venue, outlining the non-discriminatory and transparent basis of access fees and the operational requirements regarding margining.
MiFIR imposes additional limits on non-European CCPs. Whereas the first draft of MiFIR allows non-EU CCPs to be granted access to a trading venue subject to that CCP being recognised under EMIR, now such CCPs must also provide “an equivalent reciprocal access right for central counterparties authorised under [EMIR] to trading venues established in that third country”.