Europe urged to safeguard spirit of derivatives regulation

Three of Europe's most senior markets executives have written a joint letter to regulators urging them not to undermine derivatives market reforms, arguing the current drafting of the laws also threatens Europe's economic growth.

Xavier Rolet, chief executive of the London Stock Exchange Group; Michael Spencer, chief executive of interdealer broker ICAP; and Hans-Ole Jochumsen, president of Nasdaq, have called on authorities to "safeguard the guiding spirit and vision of Mifid II", the region's flagship markets legislation currently in the final stages of a review in Brussels.

The trio have warned that Mifid regulation intended to introduce transparency and competition to listed derivatives in Europe may be rendered ineffective by the current drafting of technical standards for clearing houses.

"This is not an esoteric concern - getting this right is critical for the EU's financial markets and for the EU's economic growth," they warned Steven Maijoor, head of the European Securities and Markets Authority (Esma), the Paris-based regulator in a letter on Tuesday.

The executives' concerns are centred around plans to open up clearing houses to other derivatives trading venues. The controversial provision allows traders to clear their trades at a clearing house of their choice, and prevents exchanges and clearing houses linking trading, clearing and licensing of indices to a specific venue. Supporters of the moves have argued it would lower trading costs and encourage more competition.

Regulators are trying to balance market competition against potential systemic risk emanating from the risk management houses. The utilities, which act as a counterparty to a trade, are at the forefront of efforts to strengthen global markets.

Many countries around the world are preparing to mandate new banking and markets rules as agreed by the G20 after the financial crisis but Europe will go further in its reform of markets with the introduction of Mifid II, in early 2017.

Legislators want to introduce "open access", which would cut across the models of many of the world's big derivatives exchanges. Europe's largest operators of closed "vertical silos" - where contracts owned by the exchange and traded on it are only processed through the exchange's clearing house.

The trio have urged Mr Maijoor to ensure "that Esma's draft rules cannot be interpreted with the purpose of frustrating legislators' intent or preventing a genuine shift to open access in European derivatives markets".

The dominant market operators Deutsche Borse and Intercontinental Exchange, have argued opening up their markets could threaten market stability, hurt innovation and potentially lead to an exodus of business from Europe. At present Europe allows both vertical silos and the open access model, as run by the LSE-controlled LCH.Clearnet.

The letter was sent to Mr Maijoor; European financial services commissioner Lord Hill; antitrust commissioner Margrethe Vestager and the finance minister of Latvia, the current holder of the European presidency.

www.ft.com/tradingroom

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation