The largest regulatory shake-up in a generation finally hit markets across Europe yesterday, but got off to a more turbulent start than European authorities expected.
The UK's finanial regulator and its German counterpart began the day by allowing three of the world’s largest exchange groups to delay the implementation of new rules, designed to boost competition.
Deutsche Boerse, Hong Kong Exchanges and Clearing (which owns the London Metal Exchange) and Intercontinental Exchange (Ice) all applied for a reprieve from one element of the controversial new Markets in Financial Instruments Directive (Mifid II).
The rule is designed to ensure "open access", as it aims to allow investors to choose where to trade and clear their products by preventing exchanges and clearing houses tying this to a specific venue.
But Mifid II allowed exchanges to apply for a delay to this rule, meaning the open access requirements would not apply until July 2020.
“Brexit is a game-changer. We share industry concerns around financial stability with regards to the open access provisions,” said a Deutsche Boerse spokesperson, explaining why the exchange had asked for an extension.
The UK's Financial Conduct Authority (FCA) confirmed this morning that it had also granted a delay to Ice Futures Europe and the London Metal Exchange.
It said that "having taken into account the risks" to the "orderly functioning" of those venues, if the open access rule was applied immediately, it had "decided to agree a transitional arrangement for those entities".
Germany's financial watchdog, the Federal Financial Supervisory Authority (Bafin), made a similar decision with regards to Eurex Clearing, ultimately owned by Deutsche Boerse. The German exchange had cited the uncertainty caused by Brexit as a reason for wanting the extension.
The decision is a setback for the London Stock Exchange (LSE), which has been a fierce advocate of open access. It said that Mifid II would cause a "revolution" in European derivatives trading and clearing, making financial markets more "fair and transparent".
The LSE even set up an open access derivatives venture, CurveGlobal, along with Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Goldman Sachs, JP Morgan, Societe Generale and the Chicago Board Options Exchange.
Meanwhile, data provider Trax showed fixed income trading volumes were weak in the morning. Figures gathered by Reuters showed sterling corporate bond volumes were 46 per cent lower than their 30-day average, while euro sovereign bonds were down 24 per cent and sterling sovereign bonds 11 per cent.