09 September 2011

FN: The ten things we learnt from the MiFID leak

The latest draft of the revised Markets in Financial Instruments Directive that has been circulating in Brussels in recent days may be more radical than anticipated, but there are some welcome surprises for those in the derivatives industry concerned about lack of competition.

MiFID II, which was published as a consultation document last October, aims to build on the reforms introduced by the 2007 Directive. The consultation proposal proved to be far more extensive and radical than market-watchers anticipated, by proposing to overhaul secondary trading in several asset classes including fixed income, commodities and derivatives.

The EC is leaving nothing to chance. It plans to introduce key elements of the MiFID II reforms as regulation rather than as a Directive. Transparency is a key theme of the MiFID documents, with the main rules around transparency, including pre- and post-trade transparency, data reporting, and derivatives trading rules, coming under the regulation part of the rules. The Commission plans to overhaul the European clearing market by forcing exchanges to allow clearing houses to access their clearing flows. The European Commission has pushed ahead with a more stringent version of its controversial proposal to create an additional trading category, an 'organised trading facility'. In the leaked rules, banks will not be able to put their own capital to work in the OTF category, which will make it very difficult for investment banks, which use their own capital in a variety of ways throughout the business, to implement.

The industry expects the final legislative proposal to emerge in October, but rumours are already circulating that it could be much later than this. It is also clear that, by pushing much of the meat of the new rules into the regulation, the final decision on key aspects of the rules could take a further year to emerge since policymakers are required to debate regulation in far more detail than a Directive.

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