EU watchdog backs more competition in derivatives clearing

By Huw Jones

LONDON, April 4 (Reuters) - Nasdaq Inc (NasdaqGS: NDAQ - news) , broker ICAP (Amsterdam: IA6.AS - news) Plc and London Stock Exchange Group Plc won regulatory backing on Monday for their efforts to ensure more customer choice in the trading and clearing of financial derivatives in the European Union.

New (KOSDAQ: 160550.KQ - news) trading rules known as MiFID II come into force in January 2018 and require the bloc's securities watchdog to say whether derivatives traded on exchanges should be temporarily exempt from a key section aimed at promoting competition.

The section introduces so-called open access, meaning a market user who trades on one exchange is allowed to clear that trade at a clearing house or central counterparty (CCP) owned by someone else.

The European Securities and Markets Authority (ESMA) regulator said open access to exchange-traded derivatives does not create undue risks to market stability and should not be temporarily excluded.

It (Other OTC: ITGL - news) marks a victory for the LSE and its clearing house LCH.Clearnet, along with ICAP (LSE: IAP.L - news) and Nasdaq, who wrote to the ESMA in March last year asking it to back open access for exchange-traded derivatives.

Currently market participants who trade derivatives on the Eurex platform owned by Deutsche Boerse (LSE: 0H3T.L - news) are effectively obliged to clear using its in-house Eurex Clearing platform.

"Strengthening competition and choice between venues and CCPs is an important step to further the integration of the EU's capital markets," ESMA Chairman Steven Maijoor said in a statement.

"The open access provisions of MiFID II will help to achieve these goals for all instruments without creating undue risks to stability," Maijoor said.

The issue has become politically sensitive since laws were introduced to mandate trading of derivatives on an exchange where possible, along with mandatory clearing from June of large swathes of the market, thus making the issue of choice more pressing.

The LSE and Deutsche Boerse have announced plans to merge, which would involve linking their respective clearing houses to save on the amount of margin or cash banks have to post against trades in case of defaults.

The LSE has said the merger would not affect its commitment to open access in the derivatives market. Open access has been available in equities trading and clearing for several years. (Editing by David Holmes)