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The head of ESMA has called the revision the biggest change ever for EU markets as it toughens up rules for share trading, and pulls bonds, derivatives and commodities under the regulatory net: "We should realise how big the change is as a result of MiFID II", ESMA Chairman Steven Maijoor said. "This all contributes to a better functioning capital market. In terms of the longer-term wish to improve non-bank funding, the real big development will be MiFID II", he added.
The proposals are likely to put banks and bourses into conflict over curbs that will be imposed on off-exchange or anonymous trading. Banks and big investors often prefer this "dark" trading for large orders and say trading on an exchange will be more costly and make such orders harder to execute. How the limits are put in place will shape business models at big cross-border banks and trading platforms as exchanges push for the toughest rules possible. Another contentious issue is how the proposals will increase competition in the clearing of derivatives like credit default swaps, to make the market less risky. The EU plans would allow banks to shop around for clearing houses rather than being limited to the house of the exchange they have traded upon. ESMA will also have to develop limits on how big a slice of the market a trading house can have in commodities in order to avoid "speculation" or undue influence on prices.
The law was rushed through in the European Parliament before it went into recess ahead of this week's elections. "The new open access to clearing provision, which was a highly contentions point during the drafting of MiFID II, is one area that we should expect to see pressure to change", said Sean Tuffy, a senior vice president at Brown Brothers Harriman. ESMA is bracing itself against attempts to reopen old battles and will not be keen to stray beyond the primary law otherwise it could be challenged by the European Parliament and EU states, who can veto the implementing measures. Banks and others who want to tweak the draft rules will be told to come up with actual data to back their case, which may be a tough challenge given the likely short consultation period.