MiFID II: not only the launch date has changed

Last week, European regulators confirmed their anticipated move to put the implementation date of the Markets in Financial Instruments Directive
(MiFID II) back by one year to January 2018.

Although the spotlight has been on this delay – and what it means for the financial services industry – in the midst of this there has been an additional amendment to the MiFID II text which is of great significance; the removal of non-financial corporates from MiFID II obligations.

This agreed clarification to the text impacting corporates is a significant step forward for fair and efficient derivatives markets. Prior to this move, corporates accessing multi-dealer platforms to undertake hedging activity – either directly or via direct electronic access -carried a requirement to be an authorised financial firm.

For non-financial firms, authorisation would have had a severe effect on their balance sheets as they would have been subject to the capital requirements in Basel III. In addition they would have become classed as financial counterparties under the European Markets Infrastructure Regulation (EMIR) and therefore subject to the full panoply of requirements, such as the clearing mandates and bilateral margining.

Lobbying for change

A large number of industry participants expressed their concern regarding this situation. Thomson Reuters led discussions for some time with the European Commission (EC), the Parliament, and the member states to present a clear argument for this change. Fortunately, they have listened. MiFID II and Basel obligations would have seen those firms exiting regulated trading venues, impairing their ability to hedge effectively and significantly increasing their cost of capital. Together, the lobbyists have ensured that MiFID II is once again in line with the G20 goal of moving over-the-counter (OTC) trading onto authorised platforms.

In the spirit of the Capital Markets Union (CMU), the European Union (EU) has opted to help safeguard jobs and investment in the real economy; any firm dealing on own account specifically for the purposes of hedging, and where they do not undertake algorithmic trading strategies, will not have to apply the authorisation requirement. In terms of the next steps, it’s likely that the vote in plenary will be held in the first half of June, paving the way for the changes to be published in the Official Journal from the end of July.

What governments have set out to achieve with MiFID regulation is bold and ambitious. These latest amendments are a positive step for financial markets, avoiding what were clearly unintended consequences. The changes will help to drive transparent and liquid markets and also help to ensure that corporate firms can continue to invest in economic growth and job creation.


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Dominic Mac