Non-Discriminatory Access to Clearing Sought

Terry Flanagan

Industry groups warn against concentration of clearing business.

Choice and efficiency in clearing services in the EU may diminish dramatically if the current trend towards concentration in the provision of clearing and trading services remains essentially unchecked by regulation that ensures access to such infrastructures by other infrastructures, industry groups have warned.

The groups, including the International Swaps and Derivatives Association and the Association for Financial Markets in Europe, said in a letter to the European Commission that they’re concerned that the forthcoming European Market Infrastructure
Regulation (EMIR) does not take proper account of the likely concentration of clearing provision.

It may thus inadvertently, through legislation, embed lack of choice in European financial markets, the groups said.

The groups are urging the EC to introduce explicit and detailed open access requirements, governing clearing of all financial instruments, in EMIR now, and in MiFID in due course.

Open access requirements should ensure that a clearinghouse must accept instruments for clearing regardless of the venue on which they are traded, and that a venue must provide data feeds and other assistance to any clearing house that wants to clear the instrument in question.

“Non-discriminatory access to clearing is critical to promote fair competition in the electronic trading space, so any venue has the ability to submit trades to clearinghouses,” Richard McVey, CEO of MarketAxess, told Markets Media. “We take seriously our responsibility to provide impartial access to our trading; system. Impartial access is a key principle to fair competition.”

The trading and clearing landscape in Europe is being changed dramatically through a number of new legislative proposals, including EMIR, MiFID2 and CRDIV. These proposals aim to make financial markets safer for all participants, in line with commitments made by the G20.

A fundamental shortcoming in the EMIR text is that such safeguards as exist are not applied across all financial instruments but only to a limited set of OTC derivatives, the groups said.

EMIR mandates central clearing for OTC derivatives and over time it is expected that cleared derivatives will be the dominant model, with no more than a fringe of bilateral trades remaining.

Furthermore, the MiFID review looks set to require many derivatives to be traded on organized trading facilities, MTFs or exchanges.  Users are therefore likely to have very limited choice between clearing houses and choice will be further curtailed in regard to the limited number of venues on which to trade.

A mismatch in implementation deadlines means that the clearing landscape is likely to have re-organized itself by the time MIFID2 rules are in force. This time delay will also unduly favor incumbents in the clearing space and thus impact on choice.

MiFID (which consists of both a directive and a regulation, the latter known as MiFIR) was proposed by the European Commission in October, and EMIR is still undergoing trialogue discussions involving the European Parliament, the European Commission, and the Council of the European Union.

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