Following the release of the Markets in Financial Instruments Regulation (Mifir) last week, Deutsch Borse released a statement welcoming the new regulations. It praised the move to bring derivative trading onto organised trading platforms as well as proposals to increase transparency of the market. However, it is clear that the new rules are a double edged sword for the exchange as its merger with NYSE Euronext moves forward.

Notably absent from comment in the DB statement were comments on the proposals to open up competition to clearing and trading in the European derivatives markets. Two clauses in particular, if passed, would be nothing short of a revolution of competition in the market.

Added to the document since the draft of Mifir was leaked in September, are clauses that would have turned the stomachs of executives at DB and Liffe, NYSE Euronext’s derivative exchange. While the leaked draft set out proposals to open up clearing for competition, it did so only by barring CCPs from preventing access to other trading platforms.

Under the new rules, CCPs must offer “non-discriminatory treatment in terms of how contracts traded on its platforms are treated in terms of collateral requirements and netting of economically equivalent contracts and cross-margining with correlated contracts cleared by the same CCP”.

This one sentence represents a sea change in the implications for the vertical silo clearing model and a significant victory for the London Stock Exchange, which has campaigned for the inclusion of open access to cross margining.

The rationale is clear to see. Without open access to cross margining, any attempts to open up access to clearing would likely be ineffective. However, that is only half the story. Indeed, the inclusion of one word in the draft documents will have greater implications for the traditional business model of derivatives trading in Europe.

That word: “licences”.

Inserted into Article 30 of the regulations since the draft was leaked is the inclusion of “licences” in the section of open access to benchmarks. The new proposals mandate that CCPs and trading venues are granted access to licenses on “a reasonable commercial basis within three months...at a price no higher than the lowest price at which access to the benchmark is grated or the intellectual property rights are licensed to another CCP, trading venue or any related person for clearing and trading purposes”.

Ouch! The implications of this are massive. On current reading, under the new regime, exchanges will not be able to exclusively own licences to derivative contracts. This, in addition to the open access to clearing, could revolutionise the market.

Should Deutsche Borse and NYSE Liffe be worried? As Garry Jones, global head of Liffe correctly pointed out at FIA Expo, the fight is not purely about open access to clearing and licences to benchmarks.

However, Mifir does seemingly create fungibility that means that the market is far more open to new entrants than ever before and that fees will inevitably fall and margins on derivatives trading and clearing will inevitably narrow. It is hard to see how such a radical change in business model will not impact on the value of the merger between NYSE Euronext and Deutsche Borse.

Why DB declined to comment on provisions so central to its traditional business model is unclear. However, it did include an interesting caveat in its statement:

“Deutsche Börse also pointed out that publication of this proposal today marked only the starting point. In the coming two years, the MiFID will be subject to an extensive review within the ordinary legislative procedure, i.e. the proposal will be reviewed and amended by the European Parliament and European Council,” it said.

No prizes for guessing what will be top of its list for review.