Leading financial markets trade associations have written to the European Commission expressing concern at the potential for a lack of clearing choice following the introduction of the European markets infrastructure regulation (EMIR).
The trade bodies, which include UK buy-side representative organisation the Investment Management Association and the European Fund and Asset Management Association, highlighted their unease in a letter sent to Michel Barnier, the European commissioner for internal markets and services.
“We are concerned that EMIR does not take proper account of the likely concentration of clearing provision,” read the letter. “We urge the Commission to introduce explicit and detailed open access requirements – governing clearing of all financial instruments – in EMIR now, and in MiFID in due course.”
Market participants' fears stem from the ability of vertically-integrated exchange groups to gain market dominance via control of their own clearing houses. The debate has been fuelled by the possible merger of Deutsche Börse and NYSE Euronext, and their respective derivatives exchanges Eurex and NYSE Liffe, which combined would control over 95% of listed European futures and options trading and clearing.
“We consider that choice and efficiency in clearing services in the EU may diminish dramatically if the current trend towards concentration in the provision of clearing (and trading) services continues,” read the letter. “Amongst other things, this is likely to act as a drag on EU growth.”
Jane Lowe, director of markets at the IMA, said that EMIR proposals in their present form were “too high level” and that the market required more detail.
“While the intent of the regulation is clear, it is still open to interpretation. Concentration in the clearing space would limit choice for investors and raises the potential for monopolistic behaviour,” Lowe told theTRADEnews.com.
She added that it was still unclear whether the open access rules in EMIR would even apply to listed derivatives, an aspect that has been a major sticking point during discussions between European politicians.
However, Lowe added that the new draft EC regulation that is expected to accompany the second version of MiFID is a step in the right direction. The regulation, tentatively named MiFIR, contains a clause that would compel clearers to accept trade feeds from all trading venues.
“The draft has not been formally published and will be subject to change but we think it addresses the issues reasonably well and is a good starting point,” said Lowe. “But it is important to note that the timelines for MiFID and EMIR are not aligned, which could benefit incumbent providers.”
STOXX, the index provider joint-owned by Deutsche Börse and SIX Swiss Exchange recently refused Turquoise Derivatives, the multilateral trading facility (MTF) majority-owned by the London Stock Exchange, to offer derivatives products based on the EURO STOXX set of indices.
Furthermore, NYSE Liffe has reportedly declined to permit LCH.Clearnet, the Anglo-French clearing house used by Turquoise Derivatives, to offset margins for market participants that trade correlated instruments across both NYSE Liffe and the MTF.
European finance ministers will discuss EMIR this week, focusing on how far the regulation should go to force clearers and trading venues to provide open access to competing providers in the derivatives space.
A final draft of MiFID II is expected in mid-October with a view to adoption in 2014.