Disagreement between the Council of the European Union and the European Parliament on new organised trading facilities (OTF) are likely to dominate the final stages of MiFID II development.
MEP Kay Swinburne said the breadth and functionality of the new trading venues would form the largest divergence between the two legislative bodies as the MiFID review process nears completion.
Swinburne said the Council wanted OTFs to be used to trade all asset classes including equities, whereas the Parliament has restricted usage to non-equities in their final version of MiFID II, agreed upon by MEPs in October. The exclusion of equities from OTFs in the Parliament document – a move to push more equity trading back onto stock exchanges – would oblige broker crossing networks to register as systemic internalisers (SIs) or multilateral trading facilities.
The MEP also noted that, while MEPs had banned OTFs from allowing any principal trading, the Council was leaning toward accepting the practice in the new trading venues as long as it was for client facilitation purposes.
“The parliament’s final text says there can be no proprietary capital used within any venues other than the systemic internaliser (SI) which suggests you wouldn’t be able to facilitate a trade between your clients, and that of course is how the market currently works,” Swinburne said.
Speaking at the Mondo Visione Exchange Forum 12 in London on Wednesday, Swinburne stated this division would dominate negotiations during the trialogue stage, where the Council and Parliament come together to agree a final version of the text.
“The Parliament doesn’t want that model to continue except within an SI, but we are seeing a lot of pushback from the Council,” she said.
Instruments to be traded on OTFs, according to the Parliament’s text, include bonds, structured finance products, emissions allowances and derivatives. The document states OTFs should offer non-discriminatory access and makes clear that proprietary flow will not be permitted in OTFs to avoid possible conflicts of interest.
Swinburne, a member of the Parliament’s Economic and Monetary Affairs Committee, said the 500 millisecond resting time in the Parliament’s text will also likely be removed from the final version.
Although a provisional 13 December date has been set for the start of the trialogue between the Council and Parliament, with input from the Commission, the heavy workload of Brussels legislators will add further delays. In particular, finalising rules on the banking union will take up more time than expected although Swinburne believed the hand-over of the presidency from Cyprus to Ireland next year could speed up the process.
Swinburne also predicted that the roll-out of MiFID II would be staggered with no new rules coming into force before 2015.