MiFID Reprieve Delays Open Access for Derivatives to 2020

(Bloomberg) -- Call it a 12th-hour MiFID II punt.

On the day the law started, U.K. regulators granted a 30-month reprieve to Intercontinental Exchange Inc. and London Metal Exchange venues from having to comply with a key provision intended to inject more competition and end discriminatory practices in the market.

The U.K. announcement on exchange-traded derivatives followed a move on Tuesday by Germany's financial supervisor, BaFin, to grant a similar delay until July 2020 for Deutsche Boerse AG's Eurex clearing unit. The goal of the requirements is to open access in the market by enabling traders to transact a deal on one venue and have it guaranteed at a separate clearinghouse.

The French markets regulator AMF also granted a 30-month deferral to exchange operator Euronext NV, according to spokeswoman Florence Gaubert.

Steven Maijoor, chair of the European Securities and Markets Authority, told reporters on Wednesday that the requirement to improve access between trading platforms and clearinghouses is “very important.” Maijoor said the U.K. and German decisions to delay the requirements, steps allowed by the law, “is an indication of the expected impact of these open access provisions.”

Brexit Impact

The three firms applied for the delay, and some industry executives have said Britain's decision to leave the European Union may have contributed to the need for the deferrals. The rules say national authorities should weigh the risks to the “orderly functioning” of trading platforms and clearinghouses when considering requests for a deferral of the open-access requirement for 30 months.

ICE Chief Executive Officer Jeffrey Sprecher told analysts in November that exchanges and regulators were discussing whether the requirement made sense in the context of Brexit.

“If we think of MiFID II as being essentially forced fragmentation of markets in order to stimulate competition, you've got this overlay now of a population that voted for fragmentation,” Sprecher said. “And is there still a role right now for government to implement forced fragmentation when the market itself is fragmenting the market in ways that none of us sitting here today can fully comprehend?”

A spokesperson for Eurex said “Brexit is a game changer” and that the open-access rules raised financial stability concerns. The LME said in a statement that the regulatory decisions are a recognition of “the current risks open access applications could pose to the orderly functioning of financial markets.”

The London Stock Exchange Group Plc has supported open access requirements in recent years. A spokesperson said the company “will continue, working in partnership with our customers to promote greater choice, transparency and innovation in financial markets, in order to reduce risk and maximize capital and operational efficiencies.”

--With assistance from Mark Burton Will Hadfield and Fabio Benedetti-Valentini

To contact the reporter on this story: Silla Brush in London at sbrush@bloomberg.net.

To contact the editors responsible for this story: Patrick Henry at phenry8@bloomberg.net, Jon Menon

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