Non-discriminatory access by central counterparties (CCPs) to trading venues, proposed as part of the reform of the market in financial instruments known as MiFID II-MiFIR, is highly controversial in the industry. A number of traditional exchanges that control such central counterparties are opposed to the idea. The measure, which eliminates obstacles to competition in the area of financial instrument clearing, could create serious risks on markets, they argue.
The question seems to be rekindling the war between banks and securities exchanges that has raged since trading venues were opened to competition. The MiFiD Directive (2004/39/EC), in force since 2007, put an end to the concentration of orders on securities exchanges (regulated markets), creating competition between traditional exchanges and other trading venues by establishing multilateral trading facilities (MTFs). Banks, with their capacity to create 'alternative exchanges' via MTFs, thus appear to have won the first round.
What does such competition amount to in practice? Opinions differ but all observers tend to agree that the MiFID has indeed led to such competition. "Three and a half years after its entry into force, there is more competition between venues in the trading of financial instruments and more choice for investors in terms of service providers and available financial instruments," sums up the European Commission. It concludes: "Overall, transaction costs have decreased and integration [of financial markets] has increased".
By proposing non-discriminatory access to financial instrument clearing in the MiFID II-MiFIR reform, the Commission intends to boost competition in post-trade services. This question sparked heated debate in the Council and European Parliament as part of the negotiations on the recently adopted regulation on over-the-counter derivatives, central counterparties and trade repositories, referred to as EMIR (European Market Infrastructure Regulation, see Europolitics 4459).
The Commission had hoped to promote the idea but the Council and EP agreed to limit access to clearing to over-the-counter derivatives, thus excluding standardised derivatives traded on organised markets. "The European Parliament sent a clear signal: in the wake of the financial crisis, more competition risked destabilising financial markets further," Europolitics learned from a source speaking for a regulated market, on condition of anonymity. However, "some at DG...