EU-US Mifid II accord will go down to the wire, official warns
European authorities reveal they have hit a stumbling block due to rules’ reach
An agreement between EU and US authorities to prevent new European rules from fragmenting global markets may only be reached with weeks to spare, a senior EU official has warned.
Regulators on both sides of the Atlantic are racing to secure a deal on so-called equivalence before a big overhaul of European markets, known as Mifid II, comes into force at the start of next year.
Without agreement on equivalence — in which regulators recognise each other’s markets standards are broadly the same — EU-based investment firms will be forced to use European-listed instruments and markets even if they are less popular and liquid. European fund managers, for example, would be required to buy or sell shares in Amazon via their less liquid listings in Frankfurt, rather than the main listing in New York.
European authorities said on Wednesday that they had hit a stumbling block in the negotiations because the Mifid II markets rules had greater reach than regulations in other parts of the world. Therefore regulators would have to strike two separate deals: one for share trading and the other for derivatives.
An agreement with the US regulators over derivatives is being held up because Brussels was negotiating a mechanism for recognising all EU swaps trading venues, said Tilman Lüder, head of the securities markets unit at the European Commission.
“The rest of the world simply doesn’t have Mifid . . . the rest of the world has sometimes, despite the financial crisis, followed a different path,” he told a conference held by Afme, the trade association, in London.
“The aim, and this is a very volatile political environment, is that we will have an equivalence decision ready around November,” he added. “Maybe we will announce a general framework before that to give the market more information.”
Investors and corporations also use benchmarks, credit indices and interest rate swaps priced on liquid US dollar markets, to hedge exposures in their portfolios.
Elisa Menardo, director of public policy at Credit Suisse, said the derivatives agreement was the tougher of the two, because it required a reciprocal agreement.
The commission is “negotiating intensely” with its US counterpart, the Commodity Futures Trading Commission, Mr Lüder said.
The talks come as the CFTC, under new chairman Chris Giancarlo, explores making changes to its electronic trading rules for swaps. Standards are currently modelled too much on the futures industry, and restrict market innovation, Mr Giancarlo said.
“This is an exercise that is ongoing. We are also talking to Asian jurisdictions, to Japan, to Singapore and to Australia.” He added that he expected the rules to take effect on January 3. Some market participants had speculated there would be a delay because of the short timeframe.