Heads of Nasdaq, London Stock Exchange and ICAP: MiFID II Rules Won’t Work

Michael Spencer, chief executive of ICAP, Xavier Rolet, chief executive of the London Stock Exchange Group, and Hans-Ole Jochumsen, president

It has been made public today that a number of trading venue leaders have sent a letter to Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), regarding open access provisions within the MiFID II Regulatory Technical Standards.

Co-signed by Michael Spencer, chief executive of ICAP, Xavier Rolet, chief executive of the London Stock Exchange Group, and Hans-Ole Jochumsen, president of Nasdaq, the letter contain serious criticism and warning about failures in Open Access implementation.

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Dear ESMA

“As the implementing measures of the MiFID II package are being finalised, ICAP, LCH.Clearnet Group, London Stock Exchange Group (LSEG) and Nasdaq, reiterate our support for the open access provisions in the Regulation, and stress the need to ensure that Level II Regulatory Technical Standards (RTS) reflect fully the principles and spirit of text agreed by the co-legislators.

Why open access is important: In an age characterised by transparency and consumer choice, we welcome the EU’s determination to show global leadership in introducing this framework. We believe investors and market participants will embrace and reward European leadership in this area.

Access provisions, properly implemented, will stimulate choice in the execution and clearing of products where it does not currently exist, create deeper pools of liquidity, reduce costs and lead to better risk management in the financial system, through netting and cross-margining. It has great potential to deliver margin and collateral efficiency, and spur responsible innovation which will benefit the EU‘s economy.

A balanced framework and a model that works: MiFID II includes proportionate safeguards such as transitional periods to ensure a smooth transition to an “open access” world for entities that need to adapt to this framework.

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The concept of open access, however, is not new. For a number of years, we have been operating safe and robust infrastructures in a competitive and open access environment, notably in cash equities, fixed income, some exchange-traded and OTC derivative markets. And some closed infrastructure providers are slowly recognising the benefits of this model as well, taking steps towards open access in some parts of the world.

Need for ESMA’s RTS to be clear and objective: Despite MiFID’s well-balanced framework, we share the concern that the technical standards, as currently drafted, may limit the effectiveness of the access provisions. In our view, ESMA’s draft rules should not be able to be interpreted with the purpose of frustrating the intention of the colegislators or preventing a genuine request for access.

We support ESMA’s approach whereby access can be denied only if it leads to undue risks that cannot be mitigated by infrastructures working together, and it is essential that ESMA avoids including grounds for denial that are spurious, duplicative or lack objectivity.

ESMA should also ensure that the process to determine economically equivalent contracts for netting by a CCP leads to a harmonisation of standards in the EU, with the right balance in terms of the discretion of a CCP.

It is important for CCPs to be consistent and transparent about how they determine contracts to be economically equivalent and which particular netting processes apply, so that the access provisions can be applied fairly. We also suggest that a rapid appeal process overseen by ESMA, to deal with disputes over access would be critical.

To conclude, we would like to recall that the majority of participants in the capital markets ecosystem have been unequivocal in their support for open access in MiFIR, including the world‘s largest asset managers, investors, sell-side participants and trade associations. It is in the interest of the economy of the European Union to ensure that the open access framework comes to fruition through clear, effective and well drafted rules.”

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