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British multinational markets operator and provider of post trade risk mitigation ICAP plc (LON:IAP) has written to Steven Maijoor, Chair of the European Securities and Markets Authority, regarding open access provisions within the MiFID II Regulatory Technical Standards, co-signed by Michael Spencer, chief executive of ICAP, Xavier Rolet, chief executive of the London Stock Exchange Group, and Hans-Ole Jochumsen, president of NASDAQ.
Why open access is important:
ICAP considers that in an age characterized by transparency and consumer choice, it welcomes the EU’s determination to show global leadership in introducing this framework. The company believes investors and market participants will embrace and reward European leadership in this area.
The letter continues to explain that access provisions, properly implemented, will stimulate choice in the execution and clearing of products where it does not currently exist, create deeper pools of liquidity, reduce costs and lead to better risk management in the financial system, through netting and cross-margining. It has great potential to deliver margin and collateral efficiency, and spur responsible innovation which will benefit the EU‘s economy.
A balanced framework and a model that works:
MiFID II includes proportionate safeguards such as transitional periods to ensure a smooth transition to an “open access” world for entities that need to adapt to this framework.
The concept of open access, however, is not new. For a number of years, ICAP has been operating safe and robust infrastructures in a competitive and open access environment, notably in cash equities, fixed income, some exchange-traded and OTC derivative markets. Some closed infrastructure providers are slowly recognizing the benefits of this model as well, taking steps towards open access in some parts of the world.
Need for ESMA’s RTS to be clear and objective:
Despite MiFID’s well-balanced framework, ICAP shares the concern that the technical standards, as currently drafted, may limit the effectiveness of the access provisions. In ICAP’s view, ESMA’s draft rules should not be able to be interpreted with the purpose of frustrating the intention of the colegislators or preventing a genuine request for access.
ICAP supports ESMA’s approach whereby access can be denied only if it leads to undue risks that cannot be mitigated by infrastructures working together, and it is essential that ESMA avoids including grounds for denial that are spurious, duplicative or lack objectivity. ESMA should also ensure that the process to determine economically equivalent contracts for netting by a CCP leads to a harmonisation of standards in the EU, with the right balance in terms of the discretion of a central counterparties (CCP).
The firm considers it to be important for CCPs to be consistent and transparent about how they determine contracts to be economically equivalent and which particular netting processes apply, so that the access provisions can be applied fairly. ICAP also suggests that a rapid appeal process overseen by ESMA, to deal with disputes over access would be critical.
To conclude, ICAP would like to recall that the majority of participants in the capital markets ecosystem have been unequivocal in their support for open access in MiFIR, including the world‘s largest asset managers, investors, sell-side participants and trade associations. It is in the interest of the economy of the European Union to ensure that the open access framework comes to fruition through clear, effective and well drafted rules.
Our suggestions in the Annex that follows explains how we believe this can be best achieved.
For the complete letter, click here.