This paper has been produced by the International Swaps and Derivatives Association (ISDA) in order to help inform on-going European Council discussions on MiFID2/MiFIR. Some of these points will be familiar from previous ISDA commentaries; new points are therefore shaded in grey. In summary, we make the following points:
Pre-trade transparency for non-equities trading venues (MiFIR Articles 7 and 8)
- We strongly welcome the clear link that is now made between the scope of transparency requirements under Article 7 and OTC derivatives contracts that are subject to the derivatives trading obligation.
- We are supportive of the new provisions allowing for suspension of transparency requirements in certain situations.
- There should be a clearer recognition of the importance of Request-For-Quote or voice trading for OTC derivatives markets, in support of the move to exchange and electronic trading.
Systematic internalisation in non-equities instruments (MiFIR Article 17)
- Uncleared OTC derivatives transactions should not be subject to the provisions of Article 17, particularly sharing of quotes with multiple clients, given that uncleared OTC derivatives transactions are priced according to the credit risk of an individual client.
- The purpose of new Article 17.1 language regarding quoting on illiquid instruments is not clear; the new language should therefore be removed.
Derivatives trading obligation (MiFIR recital 21, Articles 24 and 26;)
- We welcome the proposed approach to assessing liquidity, including the reference to “the nature and lifecycle of products within the class of derivatives”.
- Transactions that are large in scale should not be subject to the trading obligation.
Organised Trading Facility (MiFIR Recital 8; MiFID Article 20)
- The ban on use by the OTF operator of its proprietary capital should be removed or, alternatively, allowance should be made for client facilitation.
- Rules governing the interaction of an OTF and SI within the same firm are overly restrictive and should be amended.
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