Europe's biggest markets regulatory shake-up for a decade has suffered a setback after the UK and Germany granted last-minute reprieves to the continent's biggest futures exchanges to implement the rules.
Underlining the complexity of the Mifid II reforms that touch on everything from the cost of analysts’ research to the trading of equities, London’s Liffe derivatives exchange and the London Metal Exchange were given an extra 30 months to comply with rules related to clearing on the very day they were due to come into force.
Eurex, the Frankfurt-based futures exchange owned by Deutsche Börse, was given a similar late reprieve on Tuesday by BaFin, Germany’s national regulator.
The UK's Financial Conduct Authority said on Wednesday that it had granted the extension to ensure the "orderly function" of a clearing market that the reforms are designed to open up.
The proposed changes to the clearing industry are part of the sprawling Mifid II legislation that has been almost a decade in the works and is designed to offer more protection for investors and force more competition in financial markets in Europe. The FCA only assumed the powers to grant a delay today.
Brokers have said the changes may depress trading volumes in January as the reforms take effect.
Banks and brokers have sought to upgrade their IT systems in advance of Mifid II, which will require far more detailed reporting of trades. Mifid II is expected to cost the finance industry more than €2.5 billion to implement, with the largest banks spending more than €40 million each on compliance, according to estimates by Opimas, the consultancy.
In securing its late delay, Eurex argued that the exit of the UK - Europe’s largest market for clearing derivatives - from the EU introduced too much uncertainty given that Britain may not be bound by the rules once it leaves.
The proposed changes would also potentially increase the links between clearing houses at a time when the shape of the UK’s relationship with the EU is unclear.
Many City institutions had lobbied for the changes, especially the London Stock Exchange Group, which owns the LCH clearing house.
“Brexit is a game changer,” Eurex said following BaFin’s decision. “We share industry concerns around financial stability regarding the open access provisions of Mifid II.”
Eurex will only have to apply the rules from July 3 2020.
The delay from BaFin came just hours before Mifid II takes effect and as the financial services industry worked to ensure that IT systems were ready.
Waivers in Mifid II allow national regulators to apply a one-off delay in certain areas. France’s Autorité des Marchés Financiers has also been weighing a similar delay on clearing, according to two people who have been involved in the discussions.
– Copyright The Financial Times Limited 2018
