Put regulation in the hands of politicians and, well, it becomes politicised.
That, anyway, is what Europe’s new kid on lobbying block, the Association for Financial Markets in Europe (AFME’s), told the Reuters Regulation Summit about EU plans to crack down on opaque derivatives markets by insisting on central clearing of standardised contracts, trade reporting and even exchange trading.
The European Commission will propose its draft European Markets Infrastructure Legislation (EMIL) in June which should make for some pointy headed pool side reading during the summer consulation period.
EMIL implements the G20 pledge to shine a light on derivatives but there is one additional aspect that is already coming under pressure — an idea to force clearing houses to link up with each other so that users are not limited in their choice of clearer — and hence trading platform. It’s part of wider efforts to create a cheaper bloc-wide securities market.
But there are already whispers that Germany and France feel this may be a step too far — cynics would no doubt speak about shielding Clearnet in France and Eurex in Germany. Europe’s exchanges may well soon call for the European Commission to ditch the interoperability idea from EMIL and make it part of the review of EU MiFID share trading rules.
With such background maneouvres, it’s not surprising that AFME’s acting CEO Mark Austen thinks the market can and should move ahead with creating an integrated pan-EU clearing and settlement system.
Legislation is too unpredictable.
“Decisions would be made on trade-offs between which member-states benefit, not whether it’s in the interests of market participants in general,” he added.
Trouble is, the approach Austen wants has already been tried and failed miserably.
On the settlement side, it spurred an unprecedented move by the European Central Bank to set up its own pan-European settlement system for shares, T2S which goes live in late 2014.
On the clearing side, a voluntary code of conduct has clocked up over 80 applications for “interoperability” between clearers and so far you only need two fingers to count how many have gone live.
T2S and EMIL are the result of the market’s failure to sort itself out and probably represent progress of sorts after years of deadlock.