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The amendment to a working draft of the European Markets Infrastructure Regulation, which aims to increase the robustness and transparency of the European over-the-counter derivatives industry, could allow exchanges to monopolise trading of derivatives by restricting access to the clearing houses they operate.
Most clearing houses are owned by exchanges in an exclusive relationship that obliges institutions wishing to access the clearing house to execute their trade on the exchange first. This “vertical silo” model has been condemned by lobbyists as anti-competitive. In the draft EMIR proposal paper published in September, the European Commission appeared to reject this model by mandating “non-discriminatory” access, stating under Article 5: “A CCP that has been authorised to clear eligible OTC derivative contracts shall accept clearing such contracts on a non-discriminatory basis, regardless of the venue of execution.”
However, according to a November 17 working draft of the legislation, seen by Financial News, an additional clause has been added to this which states: “...to the extent that those venues comply with the operational and technical requirements established by the CCP.”
According to a source at a European clearing house, the additional clause is very contentious. Dealers and trade execution platforms fear it will provide a loophole that will allow exchange-owned clearing houses to reject derivative trades that take place on rival execution venues. This would force trading of derivatives onto the exchange.