Mifid II, RFQs and the future of Europe’s G-Sibs

The week on Risk.net, August 11-17, 2018


Own goal: Mifid II reduces transparency in some EU markets

New rules replace voluntary arrangements in ETFs and Nordic bonds, fragmenting post-trade data

Buy side using two-way prices in bid to hide trade intent

Number of trades done via ‘request-for-market’ protocol leaps 510% in year

EU infighting blocks Basel recognition of banking union

Treating eurozone as single jurisdiction could slash G-Sib capital, but the 19 member nations have differences to settle first


COMMENTARY: Nothing is easy

Next month will see the 10-year anniversary of the collapse of Lehman Brothers, and every financial journalist in the world is asking themselves the same questions: first, should I write something about the anniversary given that everyone else is doing it; and second, isn’t it about time (perhaps looking nervously at the Turkish lira) that another crisis came along?

Meanwhile, implementing the regulatory response to the last crisis continues to be far from straightforward. Criticism of the Basel Committee’s Fundamental Review of the Trading Book has been mounting in the last two years; this week we publish a defence of why the FRTB remains critical by industry specialists John Beckwith and Sanjay Sharma. They argue that the FRTB’s opponents are missing the bigger picture.

Two other stories from this week come under the heading of “unintended consequences”.

Implementing the second Markets in Financial Instruments Directive (Mifid II) has scored something of an own goal: new rules on reporting post-trade data, intended to make financial markets more transparent, have in fact had the reverse effect, by undermining existing voluntary data aggregation arrangements and driving the data onto several incompatible platforms.

Meanwhile, infighting is blocking the possible recognition of the entire European Union as a single jurisdiction from the point of view of assessing cross-border asset holdings. If intra-eurozone trade is no longer classed as cross-border exposure, it could slash capital surcharges. That would be a momentous change, but there is disagreement between all concerned. A particular source of contention is the banking union’s missing pillar: a deposit insurance scheme.

As Beckwith and Sharma warn in the context of FRTB, it’s important not to let the details of implementation mask the bigger picture. The creation of a financial marketplace fairer or freer under normal trading conditions than it was before is really a secondary goal. The main aim has to be to prevent another catastrophically damaging financial crisis. The industry should be prepared to tolerate more on the way to this goal. 



Europe’s biggest banks have cut their total exposures by €2.8 trillion ($3.2 trillion) over the last five years, with just four firms – HSBC, Deutsche Bank, Barclays and BNP Paribas – accounting for over half the reduction. Barclays cut €680 billion, Deutsche Bank shed €339 billion, HSBC trimmed €246 billion and BNP Paribas dropped €212 billion. Top four EU banks have shed €1.5 trillion in assets since 2013



“It seems to be two disconnected initiatives, for want of a better word. You have people who have their heads buried in Ibor replacement work and people who are focused on the FRTB, but I don’t think many people are looking at the overlap of the two” – European bank market risk head

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