The introduction of true competition in derivatives clearing will be positive for the industry, despite a lengthy time-scale for implementation that has attracted criticism, according to Charlotte Crosswell, CEO of derivatives exchange NLX.
Among the many changes to numerous markets that are set to be introduced as part of MiFID II, open access to derivatives clearing has been one of the most controversial and hotly debated.
Following the political agreement in January, European legislators opted to introduce open access to listed-derivatives clearing houses, though it included clauses which could allow incumbent players to delay opening up their trading infrastructure until 2018.
Though this delay in implementation has been criticised, Crosswell said the industry should be pleased that competition is coming.
"What we have now is a pro-competition rule in the MiFID II text which is a very welcomed and positive development because there had been real concern that Germany might seek to protect domestic interests in derivatives clearing," she told theTRADEnews.com.
Currently, the two major European listed derivatives venues Eurex and Liffe only offer clearing of their products with their own clearing houses. MiFID II is seeking to open the market and introduce competition, by enabling market participants to choose the clearing house independently of the venue on which they execute.
With Eurex potentially standing to lose a significant revenue stream, there was concern that the open access requirements could be left behind to get a deal done on MiFID II before MEPs stand for re-election in May this year. In the end, a compromise has been reached, which will allow extra time for siloed derivatives clearing houses to change their systems and business model to enable open access.
"Of course it would have been good to see this implemented more quickly than it's likely to be, but the key thing is knowing that eventually this market will be opened up to competition,” Crosswell said. “The focus now has to be on making sure this continues into level two discussions with ESMA."
With so many rules to draft to prepare for MiFID II’s implementation in 2016, there will be considerable focus on ESMA to ensure it not only makes workable rules but also takes the time to ensure its regulation is designed in a way that prevents participants from manipulating the rules to their advantage.
On open access, Crosswell is concerned that some parties could try to get around the competition requirements to preserve their revenues.
“One thing regulators need to ensure is that incumbent exchanges aren't able to circumvent the rules and maintain these monopolies by switching the pricing between their clearing and execution fees. This would be a barrier to fair competition for new entrants and ESMA will need to ensure sensible rules are in place to prevent this from happening," she said.