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MiFID II – Day 1

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At last, and after years of preparation, Markets in Financial Instruments Directive II (MiFID II) has gone live – but not quite as expected, with both the UK Financial Conduct Authority (FCA) and the German regulator, BaFin, granting Europe’s largest futures exchanges an extra 30 months to comply with the directive’s rules on trading and clearing.

The FCA gave a last-minute reprieve to ICE Futures Europe and the London Metal Exchange today, saying that the 30-month extension to July 2019 was made to ensure that the ‘orderly functioning’ of the clearing market is maintained. The FCA’s decision follows yesterday’s move by BaFin to grant a similar extension to Eurex, the futures exchange owned by Deutsche Börse.

These cracks in compliance are unlikely to be the last as MiFID II moves into action, despite the European Commission and local regulators taking a hard line on compliance throughout 2017, an additional year for compliance granted by the Commission at the end of 2016 when it became clear that neither the market nor regulators would be ready to meet an early 2017 deadline.

They are also not the first last-minute deviation from the MiFID II mandate, following the European Securities and Markets Authority’s (ESMA) decision to pull back on the No LEI, No Trade rule less than two weeks before the compliance deadline. In a statement on December 20, 2017, ESMA acknowledged that not all firms would have the required LEIs needed for transaction reporting by January 3, 2018, and postponed the LEI compliance requirement for six months with a view to ensuring a smoother introduction of the rules. Another blow for the LEI, but hopefully one it will recover from during the postponement period.

Despite these extensions and today’s compliance deadline, for the vast majority of firms within the scope of MiFID II, Day 1 is just the beginning of fixing things that don’t quite work, dealing with information that is due to be published by the European Securities and Markets Authority (ESMA), such as a list of firms holding Organised Trading Facility (OTF) licences, and preparing to implement unfinished elements of the regulation such as the Financial Instruments Reference Data System (FIRDS).

The success of trading OTC derivatives on regulated markets using ISINs distributed by the Association of National Numbering Agencies’ (ANNA) Derivatives Service Bureau also hangs in the balance as trading goes live under MiFID II, while elements of the regulation such as the Systematic Internaliser plan will also be scrutinised as they come into play.

Considering the extent of MiFID II, the biggest financial market reform in over a decade, today appears to have been remarkably calm – long may it last!

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