The implementation of Mifid II has suffered a setback on the day it was due to be implemented, as German and UK regulators confirmed at the last minute that clearing houses have been granted a 30 month extension.
The exception applies to ICE Futures Europe and the London Metal Exchange (LME), as British regulator FCA confirmed, and Frankfurt-based Eurex clearing, according to German Bafin. The clearing houses will now have until July 2020 to implement the new Mifid II regulations on clearing activities outlined in Mifid II.
Being a directive, rather than a regulation, Mifid II leaves member states in charge with its implementation; member states retain a certain amount of leeway with regards to the implementation of rules. Moreover, article 54 of the Mifid II directive included a provision allowing trading venues to apply for traditional arrangements.
According to the local regulators, article 35 and article 36 of Mifid II in particular represented stumbling blocks for clearing houses. Article 35 outlines detailed requirements for non-discriminatory clearing access for financial instruments, which requires clearing houses to streamline all contracts issued and fees being charged.
Article 36 of the Mifid II directive specifies that investment firms from other member states have the right of access to other EU markets, which involves setting up branches or remote access to other EU markets without having to be established in the respective market.
The FCA justified its decision to delay the implementation by stating that the application of article 36 in particular constituted a risk to the “orderly functioning of the trading venues..”.
Bafin on the other hand did not comment on the implementation of article 36 but stressed that for Eurex, the application of article 35 will not apply until the end of the transitional period in July 2020.
The decision to delay the implementation of Mifid II comes at a politically sensitive time, given the ongoing Brexit negotiations, as Eurex in particular has been campaigning to attract business which is set to leave Britain in the aftermath of a British exit from the EU. Deutsche Boerse Group, which owns Eurex, has recently amended its clearing rules in a bid to attract business from London .