ISDA Commentary on Presidency Compromise Texts on MiFID II/MiFIR

02 July 2012

ISDA says that legislative reform should support liquidity in the interests of systemic resilience, should protect the funding requirement,and should advance the principle of strong risk management.

ISDA welcomes the following developments in the Compromise text:

• The effort to strike an appropriate balance between liquidity and transparency in the context of non‐equities markets.
• The streamlining of the pre‐trade transparency waiver process.
• The move to align the SI regime with the approach to trading venues, as well as the strengthening of commercial policy provisions in line with the approach to the equities regime.

ISDA however, believes there is some way to go before the text fully balances regulatory objectives with the need to preserve the functioning of OTC derivatives markets:

• Further changes are needed in respect of the derivatives trading obligation; there is a need for an explicit block trade exemption above which the trading obligation would not apply.
• Given the sheer breadth of non‐equity instruments that are available, it is not feasible –or indeed helpful to investors – to require a venue to make indicative prices in every single available contract.
• The proposed changes to the OTF category do not yet address the problem posed by the ban on use of proprietary capital by the operator of the OTF.

Full Commentary

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