The European Securities and Markets Authority has published a statement on the open access provisions for exchange-traded derivatives under the Markets in Financial Instruments Regulation.
MiFIR requires a trading venue to provide open and non-discriminatory access to a CCP so that a CCP can clear trades in transferable securities, money market instruments and ETDs concluded on a trading venue of their choice, which will in turn allow the members of a trading venue to select the CCP they wish to use for clearing. There is a reciprocal requirement on CCPs to provide open and non-discriminatory access to a trading venue that wishes to clear financial instruments through a particular CCP. These provisions are controversial since they mean that valuable intellectual property and IT systems developed by exchanges effectively must be made available to competitors or new market entrants. It has been argued that the open access requirements make the EU unattractive as a location for exchange businesses due to the commercial disadvantages that result for those exchanges which have successfully invested in innovation.
These provisions have been in force for over-the-counter products (i.e. those not traded on a regulated market) for some time. However, MiFIR provided a transitional opt-out from the open access requirements for trading venues and clearing houses in relation to ETDs, provided that certain criteria are met. Numerous trading venues and CCPs were granted the temporary exemption, which expires on July 3, 2020. There is no further extension option.
In this statement, ESMA notes that trading venues and CCPs receiving a request for access may refuse access on the grounds that granting the access would lead to unmanageable risks in the circumstances. National regulators may deny access where either interoperable arrangements are needed for access to be achieved or access would impact the orderly functioning of the markets or adversely impact systemic risk.
ESMA states that the COVID-19 pandemic has caused market volatility and uncertainty which could impact the operational integrity of trading venues and CCPs, including constraining their ability to deal with an access request. ESMA also states that national regulators should consider the impact on the orderly operation of markets and financial stability if access is provided in these circumstances and whether the CCP or trading venue could implement the necessary changes to its risk management procedures and models. ESMA states that it expects national regulators to take all of these factors into account when assessing any access requests.
The U.K. Financial Conduct Authority, the national regulator of U.K. trading venues, published a statement stating that trading venues making or assessing an open access request should prioritize maintaining orderly markets and the provision of critical services to the market, even if that causes a delay to the request. Any delays to assessments should be communicated promptly to the venue requesting access.
The efficacy of the open access provisions have also come under the spotlight in the legislative debates around the EU CCP Recovery & Resolution Regulation, particularly by the publication of a non-paper by the Croatian Presidency in April, which called for a delay. In addition, in the MiFID II review consultation, the European Commission asks for feedback on the impact of the open access measures. Any changes arising from either of these procedures would not however be made before July 3, 2020.
View ESMA’s statement.
View the FCA’s statement.
View details of the MiFID II review.