Position on MiFIR Non-discriminatory Access for ETDs

Key issue & request:

• The “Non-discriminatory” Access provisions under MiFIR constitute a serious risk to the EU financial stability and competitiveness as they undermine the ability of market infrastructures to ensure transparent and orderly trading, liquidity and clearing when applied to Exchange-Traded Derivatives (ETDs).
• We very much welcomed ESMA’s no action letter (here) and the delay of the entry into force of the MiFIR provisions by an additional year, until 4^th July 2021, in respect of ETDs. This was included as part of the finalisation of the CCP Recovery and Resolution dossier in order to preserve financial stability in the Union. 
• This temporary relief, however, will soon elapse and will not solve the inherent Level 1 risks that the provisions will create, if applied in July 2021.

How to resolve this?

• An additional extension to the exemptions should be adopted to allow for a thorough consideration of the Level 1 framework, particularly on the relevance of maintaining the scope on ETDs.
• In our view, in the upcoming review of the MiFIR framework, ETDs should be removed from the “Non-discriminatory” Access provisions and this short memo summarises the justification for such a move.

The justification for legislative change:

• The provisions would force artificial competition via regulatory intervention, neglecting the fact that the integrated system of trading and clearing ETDs has fostered intra-EU competition and product innovation.
• ETDs function very differently to OTC derivatives. Decoupling trading from clearing would effectively reduce the role of exchanges to the benefit of dealers. This would increase intermediation at the expense of price transparency and orderly trading, which would translate into higher costs for smaller market participants. Clients/investment firms which could not withstand the increase in costs would be prevented from entering new positions, thereby diminishing the overall activity and liquidity of these markets.
• Furthermore, EU infrastructures’ global competitiveness should not be undermined by access requests from within or outside the EU: the “Non-discriminatory” Access provisions were advocated by the UK and the London Stock Exchange which are no longer part of the EU Single Market. With the UK having left the Union, we are concerned that there will be insufficient protection against requests from third countries that are deemed equivalent.

In addition, once the transitional provision elapses in July 2021, access requests may also be expected from competitors from within the EU which could pose a risk to financial stability and price formation, and cause fragmentation. The EU would be the only jurisdiction in the world to propose such an experiment and there is no use case or business case which would back it up.