The European Systemic Risk Board (ESRB) has published its opinion on the temporary exclusion of exchange-traded derivatives (ETDs) from Articles 35 and 36 of the Markets in Financial Instruments Regulation (MiFIR).
Pursuant to Article 52(12) of MiFIR, the Commission is required to submit a report to the European Parliament and the Council by 3 July 2016 assessing the need to temporarily exclude ETDs that require open and non-discriminatory access to central counterparties (CCPs) and trading venues from the scope of Articles 35 and 36 of MiFIR.
This report must be based on a risk assessment carried out by the European Securities and Markets Authority (ESMA) in consultation with ESRB. The report must take account of any risks that such open access provisions pose to the overall stability and orderly functioning of financial markets across the European Union. Depending on the conclusions of the report, the Commission may adopt a delegated legal act to exempt ETDs from the scope of Articles 35 and 36 for up to 30 months following MiFIR’s entry into force.
The ESRB has now prepared an opinion in line with the mandate for the ESMA risk assessment, particularly as regards the narrow scope of the assessment, i.e. the temporary exclusion of ETDs from the open access provisions in MiFIR and the potential consequences.
The ESRB makes the following conclusions:
- the open and non-discriminatory access provisions are intended to increase competition in the clearing and trading of financial instruments by ensuring a level playing field among CCPs and trading venues;
- in terms of the market structure of CCP clearing services, different outcomes can be reasonably expected: these provisions could lead to further concentration in the EU market for clearing services, as a larger number of financial instruments may be cleared by one or a few CCPs;
- the open access provisions may also provide an incentive for the establishment of new interoperability arrangements to allow participants at CCPs to benefit from the cost reduction and netting benefits associated with only being a member of one or a few CCPs while clearing with members of other, linked CCPs;
- with regard to interoperability arrangements, the ESRB notes that a competent authority is only required to grant access where such access would not require an interoperability arrangement;
- the ESRB also notes that such arrangements must always be assessed and approved by NCAs and be subject to the opinion of the relevant colleges of supervisors;
- from a financial stability perspective, however, the ESRB notes that, given the potential for a significant expansion of such arrangements, there is a need for further analysis of the extent to which the current regulatory framework for interoperability arrangements sufficiently covers the risks that are specific to ETDs, as well as analysis of where adjustments may be necessary; and
- furthermore, the ESRB acknowledges the current scarcity of relevant data on the trading and clearing of ETDs and notes that it is not currently possible to perform a quantitative analysis of the potential impact, e.g. in terms of the scope of the netting of the open access provisions under consideration.
Against this background, the ESRB is of the opinion that the balance between the different financial stability implications, in the light of the relevant risk containment measures, does not lead to the identification of significant macro-prudential risks or benefits that would clearly argue either in favour of or against a temporary exclusion of ETDs from Articles 35 and 36 of MiFIR.
View ESRB response to ESMA on the temporary exclusion of exchange-traded derivatives from Article 35 and 36 of MiFIR, 9 February 2016