The head of the London Stock Exchange Group, Xavier Rolet, has called on European regulators to stand by their plans to allow investors greater choice in trading derivatives as policy makers finalise their technical rules.
Market participants are awaiting the final draft rules that accompany a review of Europe’s main Markets in Financial Instruments Directive, completed earlier this year. Among the most controversial was a provision that enshrined open access in derivatives trading, which was supported by many fund managers, banks and traders. The decision 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.
The rules are also being balanced against policy makers desire to strengthen the market against systemic risk and the complexity of the rulemaking is such that some have worried the legislation may lose some of its impact during the drafting stage. Esma is due to publish its final versions of 175 rules before Christmas. Rivals have warned some interpretations of open access could fragment trading, raise costs for investors and hamper innovation.
Rolet described open access as underpinning all LSE’s products and compared it to the availability of generic drugs like paracetamol. “When these benchmarks are finally established, why should it be restricted to a single operator. This is not customer choice within an internet economy.” he said. “Mifid has plenty of safeguards and [the open access debate] confuses interoperability with open access.” Mr Rolet also indicated the LSE may look at more foreign exchange clearing. “The foreign exchange market is under intense scrutiny and we understand further mandates are likely,” he said. "We support the need for the clearing obligation."
Some of the world’s largest traders of swaps, such as JPMorgan, Pimco and Citigroup, have called for clearing houses to hold more of their own capital in their own default fund, to align their incentives with those of their users.
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