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MiFID II — some 1.7m paragraphs of regulation covering trading and the clearing of trades — has been seven years in the making. Banks, brokers and clearing houses have been preparing for 12 months. Cumulatively, they have spent €2.5bn on systems and compliance, say consultants. Doubtless a few euros on consultants, too. Yet, after seven years, 12 months, and €2.5bn, at the eleventh hour two exchanges say they are not able to meet the “open access” rule, allowing customers who trade futures through them to clear the contracts elsewhere. How can that be possible? Four reasons: one farcical, one factual, one political, one practical.
First, Mifid II has been so long in the drafting that rules that made sense in 2014 — such as open access — ceased to do so after 2016’s Brexit vote . . . but, in the finest traditions of European farce, all the actors felt compelled to play out every single line as written. Second, the fact is that ICE Europe and LME had sought an open access waiver last September and first lobbied for it in 2013 — but the FCA did not gain power to grant it until January 3. Third, it is a wider EU political issue, as an identical waiver granted by the German regulator to Eurex proves — Eurex had argued that Brexit would make open access to other clearing venues too difficult to guarantee, leaving only the French clearing houses in unamused compliance. Fourth, adopting flexibility over EU regulation is simply practical — and what pragmatic Europeans do. Last week, the European Securities and Markets Authority gave institutions another six months to gain the reference numbers they need to keep trading under Mifid.
Full article on Financial Times (subscription required)