LONDON, Sept 12 (IFR) - Europe’s biggest electronic trading venues have warned regulators that the new European Union requirements from this January under MiFID II, for counterparties to give clients’ personal details on trades, could drive most of this business off exchanges into less onerous regimes.
Chief executives of Tradeweb, owned by IFR’s parent Thomson Reuters, NEX, MTS and MarketAxess, said in a joint letter to chairman of the European Securities and Markets Authority Steven Maijoor that this would particularly hit fixed income trading.
At present such trading does not have to be conducted on a regulated venue and no equivalent data collection is required where bilateral trades are done or if they are executed on venues outside the European Economic Area, such as Singapore, Hong Kong or New York.
Collecting client data would undermine the overall aim of the reforms, which intend to make trading more transparent and ultimately cheaper for clients, the letter said.
“An overly zealous application of these requirements, and the technical impediments to finding a more flexible solution and a level playing field when compared with bilateral trading within the EEA, is incentivising the opposite behaviour to that intended by the regulation,” the CEOs said.
The new rules will require counterparties to say who is executing trades and who is making the ultimate investment decision. Most buyside firms, even if based in the EU, do not have to comply with the MiFID II rules but these trade reporting requirements will effectively force them to do so.
“These firms constitute a sizeable portion of capital markets’ activity in the EEA today and they will either trade OTC or outside of Europe; in each case beyond the reach of the EU regulators,” the chief executives said.
The hefty requirements would see trade information having to be provided “to multiple regulated venues on every order” creating “significant operational, compliance and data protection challenges simply by choosing to trade on an EU regulated venue”.
If this led to electronic debt trading moving outside the EU “this would be contrary to the objectives of MiFID II ... making European financial markets less competitive and more opaque,” they warned. It would also give regulators less information and make the market less liquid.
That could lead to borrowing costs rising for all users of European capital markets. “The migration of capital markets’ activity away from regulated venues will put investors, public finances and economic growth more at risk,” they said.
The electronic exchanges say it is too late to implement changes to client reporting systems before the end of the year. Instead they suggest that only the platforms be required to give trade information and not that of end-users.
If this does not happen debt trading could “move quickly, and irreversibly, to more opaque and remote markets“, the letter said. ”It is not clear that the regulators intended to make it more onerous to trade on a venue than OTC within Europe, but that is, in practice, the most likely outcome.” (Reporting by Christopher Spink)