10/24/2011
Tradeweb supports the European Commission's objectives
reflected in MiFID II/MiFIR of promoting transparency, fostering competition among
trading venues, improving market efficiency and moving the execution of standardised
derivatives onto multilateral regulated venues.
We are concerned, however, that:
1. the proposals do not sufficiently reflect the G20
commitment relating to the execution of standardised derivatives on electronic trading
platforms; and
2. the requirements regarding public distribution of
pre-trade data, as proposed, could adversely impact liquidity in the fixed income and
derivatives markets.
Electronic Trading of Derivatives
Tradeweb supports the MiFIR proposal to require the trading
of designated derivatives on multilateral regulated venues (exchanges, MTFs or OTFs).
Furthermore, while we believe it is important that market participants retain
sufficient flexibility in how they trade derivatives to reflect the varying levels of
liquidity available for different instruments, we believe that the proposals could go
further to reflect the G20 commitment to move the trading of standardised derivatives
onto exchanges or electronic trading platforms, where appropriate. To that end, as a
general guideline, we believe that the vast majority of derivatives that are currently
cleared are suitable for electronic trading.
Pre-Trade Transparency
Since 1998, Tradeweb has brought greater transparency to
the fixed income markets and has offered trading of derivatives globally since 2005.
Based on this experience, we are concerned that the MiFIR proposal to require
publication on a continuous basis of pre-trade prices and depth of related trading
interests may result in liquidity providers choosing not to make markets in certain
instruments or widening their bid-offer spreads so as to price in the risk associated
with such information being broadcast to the entire market.
Moreover, this reduced liquidity in the secondary markets
could lead to increased costs of funding for governments and corporate issuers in the
primary markets. Whereas the proposed pre-trade transparency requirements may be
beneficial in the equities markets with their high levels of liquidity and retail
investor participation, such obligations in the less liquid and overwhelmingly
institutional fixed income/derivatives markets would be counterproductive.
Tradeweb supports the Commission's proposals that pre-trade
transparency requirements be identical across exchanges, MTFs and OTFs.
Post-Trade Transparency
Tradeweb agrees that appropriate levels of post-trade
transparency could benefit participants. However, we would urge that any requirements
be implemented on a gradual basis (e.g., starting with smaller trade sizes in more
liquid instruments) or that there is an appropriate delay built into the proposals so
that the rules do not adversely impact liquidity available to buy-side
institutions.
Equal Access to CCPs
Tradeweb strongly supports the Commission's efforts to
ensure that central counterparties be required to provide non-discriminatory access to
trading venues. We have already established automated links, both directly and
indirectly through middleware vendors, to major CCPs to facilitate the clearing
services chosen by our clients and intend to connect to other CCPs in the future, where
appropriate. Equal access to these CCPs is critical to ensure competition among trading
venues. Such competition, in turn, is necessary to foster choice of execution methods
and price efficiencies for buy-side market participants.
Scope of Covered Derivatives
Tradeweb also strongly supports the Commission's efforts to
ensure that the clearing mandate for derivatives includes transactions regardless of
the trading venue where they are executed. Discriminating based on the venue of
execution (i.e., requiring clearing if an instrument is traded on an MTF/OTF but not if
the same instrument is traded on an exchange) threatens to undermine the regulators'
goal of reducing systemic risk by promoting central clearing and could damage
competition by unfairly favouring exchanges over other regulated venues. However, the
final date by which the relevant MIFIR provisions must be applied should be moved
forward to be consistent with that of the clearing mandate for "OTC" derivatives under
EMIR (the European Market Infrastructure Regulation).
Conclusion
Tradeweb has played a major role in creating a more
efficient marketplace in Europe for the trading of fixed income and derivatives. For
the region to remain globally competitive, it is essential that rules are implemented
that encourage the adequate supply of liquidity to institutional investors, while
providing the safeguards that increased price transparency provides. These goals can
best be achieved through electronic markets, which reduce a variety of operational,
trading, settlement and clearing risks.
We look forward to working with the European regulators on
the MiFID II/MiFIR proposals, including to reflect better the G20 commitment regarding
electronic trading of derivatives and to ensure that pre-trade transparency obligations
do not adversely impact liquidity in the fixed income and derivatives markets.
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