Open Access is the principle at the heart of free, fair and competitive markets, such as labour, intellectual property, food and industrial goods. But for too long European derivatives trading and clearing, the backbone of a trillion Euro industry, has been an outlier.
By turning their back on Open Access, large derivatives venues have been able to operate a "closed" silo model, which ties the trading, clearing and licensing of products to a specific venue. We believe customers should have the ultimate choice in where they take their business. That’s why we welcome the introduction of the Open Access provisions in MiFID II that give investors transparency, competition and better risk management.
Broader, deeper pools of liquidity, that seek to reduce risk
Increased transparency and safety within an environment in which clearing houses are free to compete
Risks are dispersed rather than concentrated through imposed and artificial barriers
If we are to learn anything from the tumult a decade ago, it is that concentrated, poorly-lit and undiversified pools of risk are the genesis of financial crises. It was for precisely this reason that the G20 made the bold decision to mandate the clearing of a wide array of financial products, to shed more light on previously opaque markets.
One of the largest drivers of efficiency in any market is competition. While silo-operating derivatives venues might argue that they provide sufficient innovation or service levels, competition always reveals more that can be done to better serve customers.
Why are we so certain of this? Because we have lived through an almost identical market transformation when MiFID I introduced competition to the world of cash equities. In equity trading and clearing, competition has significantly reduced costs while at the same time improving speed and technology as well as customer service.
Open Access and interoperability: huh?
Open Access means ensuring non-discriminatory access to trading and clearing – allowing investors to trade on multiple platforms and benefit from lower trading fees across asset classes.
CCPs should have non-discriminatory access to trading venues – offering investors the opportunity potentially to benefit from reduction/netting of their clearing margin within an aggregated and enhanced liquidity pool.
Interoperability means allowing products traded on separate venues to be fully fungible. In other words, it obliges clearing houses to interconnect, sharing their open interest pool and helping market participants reduce costs by netting and cross-margining trades taking place on different venues.
Our position is clear. We firmly believe that Open Access is the only right choice for European markets and that interoperability should be permitted but not mandated, particularly in respect to OTC derivatives where nothing should stop CCPs and trading venues seeking to cooperate to meet the needs of investors.