March 29, 2012 / 5:25 PM / in 6 years

EU lawmaker wants curbs on competition in clearing

LONDON, March 29 (Reuters) - European Union plans to boost competition in clearing of financial market transactions, an area regulators want to see expanded to improve transparency, should be made more restrictive, a senior EU lawmaker has proposed.

The bloc’s securities markets reform, known as MiFID II, is before member states and the European Parliament for approval.

As written, it would open up “vertical silos” or exchanges like Germany’s Deutsche Boerse that cover the whole transaction chain, from trading to clearing and settlement.

But Markus Ferber, the German centre-right lawmaker responsible for the reform in parliament, wants to make the conditions for competition in clearing much tighter.

The right of a competing clearing house to clear products from any platform must not lead to “interoperability for derivatives clearing or create liquidity fragmentation”, Ferber says in his report on the reform obtained by Reuters.

Interoperability refers to linking of clearing houses to offer users “one stop shop” access rather than having to plug into every clearing house.

It is a step beyond a clearing house only having direct access to a trading platform.

The European Commission, which authored the draft reform, wants more competition in clearing to bring down cross-border trading fees and spur a more vibrant capital market. Regulators want more off-exchange traded derivatives centrally cleared to inject more transparency.

Brussels vetoed a merger between Deutsche Boerse and NYSE Euronext because it would create an effective monopoly in trading and clearing listed derivatives in Europe.

Britain is likely to contest Ferber’s amendment and already has backing from EU finance ministers for more competition in clearing.

The Nasdaq OMX stock exchange said this week it had delayed introducing interoperability in Europe for clearing share trades, citing regulatory uncertainty.

Paul Swann, president of ICE Clear Europe, which clears oil futures traded on a platform that is part of the group, said allowing access for rival clearing houses would fragment markets and damage the quality and depth of prices.

Ferber’s report says supervisors need to be able to intervene to limit clearing competition to bring the reform in line with a separate law to usher in clearing of off-exchange traded derivatives, which the European Parliament voted through on Thursday. It only allows interoperability for shares.

Ferber also wants to strengthen powers for regulators to ban products that harm consumers by broadening their scope to include structured products, and allow supervisors to slap restrictions or even a ban on products at the design stage.

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