A draft copy of the Markets in Financial Instruments Regulation, the new European legislation covering the financial markets due to be released next month, reveals that the European Commission will significantly increase the regulation of derivative trading in Europe. 

Read the full text of the draft directive here.

Read the full text of the draft regulation here.

The regulation, an update on Mifid will mandate open access to clearing and expand current equities transparency regulation to include all financial instruments.

The draft regulation centralises and enhances the ability of the new European regulator, Esma, to take action to curb market practices. Under the legislation, local regulators in co-ordination with Esma have the power to set permanent bans on financial products or activities and impose position limits.

“Previously held assumptions that minimal transparency, oversight and investor protection in relation to [the trading of instruments other than shares] is more conductive to market efficiency no longer hold,” the legislation said.

Included in the regulation are measures that will significantly increase the amount of data that both exchanges and brokers will have to hold on their clients positions.

The draft regulation raises a number of questions such as what impact the mandated open access to clearing in conjunction with the open access to the price data and reference to a benchmark also mandated will have on the exchange ownership of derivative products.

Also currently in circulation around Brussels is a draft directive to accompany the regulation. Contained within this are proposals central to HFT and transparency.

The draft is still subject to amendments and will be subject to more debate and then approval by all the member states before coming into force.

For more, see Fointelligence.com and next month’s FOW.

Mifir: key points

· Transparency requirements set out in Mifid to apply to all financial instruments

· Committed to minimise discretions available to member states across the EU

· Only OTFs can refuse access to clients

· Pre-trade transparency waivers to Large in Scale orders but ESMA to be informed

· Establishment of a consolidated tape for shares and then derivatives in two years

· Data storage of all transactions to be kept for five years and made available to regulators

· Some allowances for illiquid and non-standardised contracts to be traded OTC

· All commercial barriers to clearing access to be removed

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