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ISDA Commentary On August 31 Compromise Texts On MiFID2/MiFIR

Date 11/09/2012

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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