European Parliament Launches MiFID Consultation

Terry Flanagan

Responses to six-page questionnaire are due by Jan. 13, 2012.

The European Parliament has launched a consultation on Markets in Financial Instruments Directive/Regulation (MiFID/MiFIR), or MiFID II, one month after the legislation was unveiled by the European Commission.

Markus Ferber, a German Member of Parliament who is acting as the rapporteur for the review of MiFID, on Monday published a questionnaire to inform the Parliament’s Economic and Monetary Affairs Committee’s work on the review. The responses, which are due by Jan. 13, 2012, will be made available to all members working on the MiFID review.

The six-page questionnaire includes a series of questions on organization of markets and trading. Questions in this section deal with the newly-defined organized trading facility (OTF), and whether the proposals will lead to the channeling of trades which are currently OTC into organized venues, including OTFs.

The section seeks input on provisions on non-discriminatory access to market infrastructure and promoting competition between providers, as well as whether the proposal comport with European Market Infrastructure Regulation (EMIR).

Earlier this year, Mark Hoban, financial secretary to HM Treasury, stated that the new EMIR standards should not be allowed to embed monopolies in clearing and that “vertical silos” must be subject to fair and open access requirements.

MiFID will require many OTC derivatives to be traded on organized venues, while EMIR will require mandate that OTC derivatives be centrally cleared and reported to trade repositories. In the U.S., these requirements are made via the Dodd-Frank Act.

“While the industry is facing sweeping changes from a number of sources, I believe Dodd-Frank in the U.S. and the European Market Infrastructure Regulation (EMIR) in Europe will have the greatest impacts on derivatives users as central clearing becomes mandated for specific derivatives transactions,” Ted Leveroni, executive director of derivatives strategy and external relations at Omgeo, told Markets Media.

Under MIFID II, OTC derivatives can be traded on regulated markets, multilateral trading facilities (MTFs), or on a new category of trading venue–organized trading facilities (OTFs).

OTFs would include both bilateral and multilateral systems, capturing all types of organized execution and trading arrangements not captured by regulated markets or MTFs, including broker crossing systems and single-dealer platforms for trading OTC derivatives.

Under the EU’s bifurcated approach to derivatives reform, EMIR would apply to OTC derivatives, which would be defined as derivatives not executed on a regulated market as defined under MIFID.

Under MIFID II, a greater portion of the derivatives market in Europe will move to regulated markets going forward.  Therefore, based on the current EMIR OTC derivatives definition, those derivatives moving to these regulated markets would escape the EMIR clearing requirement.

Therefore, derivatives transacted on trading platforms governed by MIFID would not be covered by EMIR and would not be subject to mandatory clearing.

At the same time, however, MiFID II will require exchanges that also operate clearinghouses to provide access to their services on a non-discriminatory basis.

“Members states shall not prevent investment firms and market operators operating a multilateral trading facility from entering into appropriate arrangements with a central counterparty or clearing house and a settlement system of another member state with a view to providing for the clearing and/or settlement of some or all trades concluded by market participants under their systems,” according to the MiFID II proposal.

The questionnaire also covers requirements related to algorithmic trading, direct electronic access and co-location, position limits, and pre- and post-trade transparency.


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