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Stuart Kaswell, general counsel for the Washington-based Managed Funds Association, said the guidance was a “smart regulatory development” and welcome news to investors.“ESMA’s decision will help improve transparency, increase liquidity, promote competition and provide greater access to trading platforms for many market participants,” Kaswell said in a statement. The association’s membership includes many of the world’s biggest hedge funds.
The potential for access limits and discriminatory policies has been a key concern for proprietary trading firms, which wager their own funds often by using computerized or high-speed technology, according to Piebe Teeboom, secretary general of the European Principal Traders Association. The guidance “will help ensure that MiFID II succeeds in dismantling existing access barriers, increasing competition and pre-trade transparency for all market participants,” he said.
The publication shows that while MiFID II has been years in the making, fine details and rules still being laid out by regulators months before it goes live in January are being watched closely by the industry. These adjustments may go a long way toward determining how much MiFID II will change a market currently dominated by banks.
In its release, ESMA spelled out types of policies that trading platforms shouldn’t have because they would be considered “non-objective and discriminatory” and “place unreasonable restraints” on certain firms’ access to trading.
Trading venues were told they shouldn’t require their members to also be direct members of clearinghouses, which guarantee transactions after they occur on the venues. Banks and brokerages, rather than asset managers, make up the vast majority of direct clearinghouse members.
The campaign also moved to Europe, where lobbying groups pressed for prohibitions against a “two-tier” system of trading: one tier in which a small and exclusive group of dealers trade with one another on inter-dealer venues, and a second for hedge funds and asset managers to trade with banks either bilaterally or on different platforms. Allowing more traders on the inter-dealer platforms, the funds argued, would make markets more competitive, improve prices and cut costs for firms that use derivatives to hedge risks.