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ESF’s Angheben Warns Firms to Keep a Close Eye on Post-Trade Transparency Regime Progress

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Firms need to keep a close eye on what is shaping up to be MiFID II, under the auspices of the Committee of European Securities Regulators’ (CESR) consultation on post-trade transparency, warned Marco Angheben, director of the Association for Financial Markets in Europe (AFME) and the European Securitisation Forum (ESF) at last week’s Thomson Reuters Global Pricing Forum in London. The increase in scope of the MiFID transparency requirements will place additional data pressures on financial institutions operating in Europe, he noted.

CESR issued its consultancy paper on post-trade transparency last month, which indicates that European firms may soon face a whole host of new data requirements for structured products, and it is due to issue advice to the European Commission over the summer on the subject. Angheben indicated that the regulator should closely examine evidence of trends within these markets before it calibrates an appropriate solution, and the same advice should be given to firms themselves. “There should not be a one size fits all approach to this space,” he cautioned.

The regulatory community has become much more open to participating in dialogue with the industry, said Angheben, but it will not be easy to find a global solution to the reform process. The move towards mandatory central counterparty clearing (CCP) in the derivatives market is another area that needs to be carefully considered by the regulators and industry participants alike. “They need to look at the real facts of the situation – the liquidity of a product over a certain length of time – and understand the costs and benefits of moving to CCP clearing for each individual product,” cautioned Angheben.

The idea of a standardised product definition is particularly tricky for these markets as any such definition needs to keep up with the innovation of new product types. Angheben noted that this generally means the need for two types of transparency: that around price for regulatory requirements such as those around MiFID and for data transparency.

The advent of Basel III is also aimed at increasing the level of data around risk modelling, said Angheben, although he added that regulators need to increase their level of understanding around products. The focus will therefore move from credit risk modelling to scrutiny of firms’ internal risk models.

Many of the attendees to the Thomson Reuters event, however, were not convinced that either Basel III or MiFID II would make much of a difference in the long run. During an interactive poll, 46% indicated they thought neither would improve the financial markets, with 13% opting for MiFID, 17% for Basel, and 24% said both were part of a necessary approach to the market.

As for CCPs, the majority were in favour of their introduction but said that each product should be considered separately before being pushed down the clearing route. A total of 55% opted for this answer, with only 9% in favour of CCPs across the board, 27% indicating that they were unsure about the idea and 9% against the idea of CCPs altogether.

The majority of attendees also indicated that they felt the regulatory community should focus on institutions rather than regulating products, at 42%. Whereas 26% opted for a product focused approach and 32% said both should be considered, which is generally reflective of the focus of Basel III.

However, attendees were not hopeful about the prospect of global harmonisation, with only 32% indicating it should be a priority. The majority either wished to retain regulatory arbitrage opportunities, at 20%, or thought that global regulatory agreement was “impossible”. Not a great portent for progress this year…

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