David Wright, the official in charge of the European Commission's policy on financial markets, speaking at the EPDA's European Government Bond Summit, warned the post-trading sector to forge better interconnectivity between exchanges and clearing houses or face possible antitrust intervention. 

He also signalled that governments not implementing the new MiFID legislation – due to come in on 1 November and set to redraw the trading map – will not be treated lightly. Meanwhile, commodity derivatives and transparency provision for trades in non-equities are also attracting the regulator's attention. 

The European Commission has long had Europe's inefficient patchwork of exchanges and clearing houses under the microscope, opting for a 'Code of Conduct' in November 2006 to impose obligations of price transparency, interoperability and account separation on those active in the post-trade sector. 

While price transparency has already been instigated, industry players are just getting into their stride on interoperability, issuing each other with formal requests for access to trading platforms and services. 

Wright stated that the 'code' was “working well” but that these requests were in part “offensive” and in part “defensive”. 

“We will be watching very carefully to see that these legitimate requests result in agreements and business flowing,” stated Wright, warning that he would notify the commission's antitrust department if anything untoward was unearthed.

The code's most controversial provisions – on accounting separation – are expected to be discussed and implemented by the end of the year. 

More broadly, the industry is preparing for the arrival of MiFID – the Market in Financial Instruments Directive – which comes into force in November and seeks to introduce a single market and regulatory regime for investment services across the EU. 

It is set to open up trading beyond the usual confines of traditional exchanges and is heralded as one of the most profound changes to financial markets in decades. Its aim is to respond to changes in the securities markets and abolish the provision whereby member states required investment firms to route client orders through regulated exchanges. 

“A few member states will be regretfully late in implementing [the legislation],” said Wright. “They will have a lot of explaining to do to their firms.”

The Spanish and Dutch governments are thought to be among those likely to miss the implementation deadline despite repeated warnings from the commission.

Wright also highlighted that the commission is considering the next market sectors where corrective measures may be necessary. These include transparency requirements for financial instruments beyond equities, where there may be a need for greater transparency in the retail space. The commission will come forward with a draft report in the next month. 

More broadly, the commission will also be looking at commodity derivatives. At present, not all commodity firms will be affected by MiFID, since the legislation does allow exemptions for firms offering this as “an ancillary activity to their main business”. However, the commission has indicated it will review the exemptions this year 2007 with a view to their possible removal. 

By Lewis Crofts