European regulators are pushing for the removal of barriers to competition in derivatives traded on exchanges and for greater transparency in bond trading, as part of sweeping reforms to market structures in the region.
The move underlines the determination of Brussels to use post-2008 financial crisis reforms to break down what regulators believe are barriers that have prevented competition in exchange-traded or “listed” derivatives. It also marks a break with the way exchange-traded derivatives are regulated in the US, where there are plans to open up off-exchange derivatives to competition under the Dodd-Frank act – leaving exchange-traded derivatives largely intact.
Brussels has circulated a new regulation – an extension of its overhaul of the Markets in Financial Instruments Directive (MiFID) – that would require clearing houses in Europe to accept for clearing instruments “on a non-discriminatory and transparent basis, regardless of the trading venue on which the transaction is executed”. The regulation comes on top of a new version of MiFID, which emerged last week and separately calls for a similar opening up of access to clearing houses.
“It’s a groundbreaking proposal that could change the whole landscape”, said one Brussels-based industry expert. An EU regulation is a fast-track measure that is immediately binding and gives Member States no freedom to interpret the rules once they have been agreed by finance ministers and the European parliament. While it has the potential to introduce new rules sooner and more uniformly across Europe than a Directive, the draft regulation would face the same political barriers as any other legislation working through the Brussels system.
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