Leaked email reveals new assault on CCP open access rules

Largest group in European Parliament wants to shoehorn delay into crowdfunding legislation


The European People’s Party, a centre-right faction in the European Parliament, has requested a 24-month delay to an obligation requiring trading venues to allow listed derivatives traders the freedom of choice of where to clear their trades.

The request is outlined in a copy of an email from a member of the European Parliament (MEP) leaked to Risk.net. The email proposes to make the amendment to Europe’s open access rules via legislation currently being written to regulate crowdfunding platforms under the second Markets in Financial Instruments Directive (Mifid II).

“I wanted to bring a matter to your attention that it is very important and that could be addressed via the Mifid carve-out in the crowdfunding file: the issue of open access for exchange-traded derivatives,” states the email, signed off by EPP MEP Eva Maydell, who is shadow rapporteur for the party on the crowdfunding legislation.

It continues: “In order to have time to assess those issues properly and for the Commission to conduct a proper impact assessment weighing all the pros and cons, we should consider pushing the deadline by another 24 months.”

The email is addressed to Irene Tinagli, an MEP and chairperson of the European Parliament’s Economic and Monetary Affairs Committee (Econ) and Maydell’s fellow rapporteurs and shadow rapporteurs on the crowdfunding legislation.

The European Parliament has already agreed its own text of the crowdfunding legislation, and rapporteurs are currently negotiating a final text in a trilogue session with the Council of the EU and the European Commission. Maydell is suggesting the open access provision should be inserted during the trilogue negotiations. This is unusual, as trilogues do not generally introduce items that have not been included in any of the texts proposed separately by co-legislators.

Risk.net contacted Maydell, Tinagli and the two rapporteurs assigned to the crowdfunding legislation.

Eugen Jurzyca, one of the two rapporteurs, declined to comment on whether he had received the email.

“Before the end of the process of negotiation I would not like to publish internal positions of individual parties,” says Jurzyca in an emailed statement to Risk.net. “That could harm the final result. Generally, I am strongly in favour of lowering barriers to competition, thus to market entry.”

In an email to Risk.net, the second rapporteur, Caroline Nagtegaal, expressed concern about the attempt to shoehorn open access into the crowdfunding legislation.

“I consider the open access condition for ETDs as a totally separate topic, so in that sense it absolutely has nothing to do with crowdfunding…. Most important for me is that the file doesn’t get delayed as I am not sure whether there is agreement on prolonging the waiver for the open access condition.”

Maydell and Tinagli did not respond to Risk.net’s requests for comment.

Generally, I am strongly in favour of lowering barriers to competition, thus to market entry
Eugen Jurzyca, rapporteur on the crowdfunding legislation

Provisions within Mifid II and its accompanying regulation (Mifir) require exchanges to accept requests to clear exchange-traded derivatives (ETDs) executed on their platforms, from central counterparties that are part of rival companies. Currently, some exchanges in Europe operate exchange-and-clear silos whereby ETDs executed on their platforms can only be cleared by a CCP within the same corporate group.

Germany’s Deutsche Börse operates an exchange-and-clear silo, only allowing ETDs traded on Eurex Exchange to be cleared by Eurex Clear. Similarly, UK-based Ice Futures only allows traders to clear ETDs at Ice Clear.

For clearing members and their end-user clients, open access is desirable as a way of improving the efficiency of their collateral management by allowing greater netting of cleared positions.

The B word

Despite Mifid II entering into force in January 2018, Europe’s exchanges are benefitting from a 30 month exemption from the obligation, which expires on July 3, 2020. Mifid II doesn’t contain any further carve-outs that would allow exchanges to reject open access requests after that point.

Maydell’s email explains there is a need for the deadline to be pushed back due to uncertainties surrounding the UK’s departure from the EU.

“Those transitional provisions will expire next year, despite the issue of Brexit not being resolved,” states the email. “In fact, Brexit now brings an additional layer of complexity into the whole equation as we have still little clue about what the European trading and clearing landscape will look like in the future. Furthermore, from a Capital Markets Union perspective one could also question the wisdom of upholding a rule that was meant to primarily benefit a country that wants to leave the European Union.”

In the email, Maydell says CCP open access was pushed by the UK in order to “allow UK CCPs to scrape business from continental European trading venues”.

If open access was to enter into force, UK-based clearing house LCH would be expected to gain the most from being able to crack open Eurex Exchange and clear trades executed on its platform.

I consider the open access condition for ETDs as a totally separate topic, so in that sense it absolutely has nothing to do with crowdfunding
Caroline Nagtegaal, rapporteur on the crowdfunding legislation

Although the UK was the biggest proponent of the policy within the Mifid II negotiations, the policy stems back to a report written in November 2001 by Alberto Giovannini, an Italian economist. His report found exchange-and-clear silos prevented market participants from being able to centralise their clearing and settlement, hence creating barriers to more integrated European financial markets.

The email states it was sent on behalf of Markus Ferber, the Mifid II rapporteur and an MEP for the EPP. Ferber is known to be against the open access requirement.

Speaking at a conference held in Paris in October 2017, Ferber stated: “When we negotiated Mifid and Mifir, no-one knew the UK was going to leave the EU. If you try to understand how we have organised open access… you have to take that into account… I think that maybe we will come to a second round on that.”

An industry source had previously told Risk.net the German MEP was pushing for an amendment to Mifid II’s open access rules within the crowdfunding legislation. Ferber did not respond to Risk.net’s requests for comment on the claim at the time.

The German Ministry of Finance is currently looking to terminate the requirement as part of a short review of Mifid II expected to take place next year. If the EPP was able to get the Mifid II amendment into the crowdfunding legislation, it would give the finance ministry more time to reshape or delete the obligation before the exemptions expire.

If an extension to the exemption is not passed, then the earliest a rival CCP would be able to pry open an exchange and start clearing trades – given the need for systems integration between the venue and the rival CCP – is expected to be the second quarter of 2021. It would be difficult for the European Union to conclude the short review of Mifid II before then.

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