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What would MiFID II delay mean for treasurers?

“One of the most ambitious and contentious reforms introduced by the EU in response to the 2008 financial crisis” is how the Financial Times described it. The Markets in Financial Instruments Directive (MiFID II) is designed to impose an unprecedented level of regulatory oversight on the derivatives markets in Europe, covering a huge volume of financial instruments. Its aim is to make financial markets safer and more robust but its remit is exceptionally broad and implementation will be challenge for both EU authorities – such as the European Securities and Markets Association (ESMA) – and national authorities.

This is because preparations for MiFID II are wide-ranging and complex. They include the need for investment firms, trading venues and supervisors alike to rebuild their transaction and reference data reporting systems, in some cases almost from scratch.

Speaking last week to the European Parliamentary Committee for Economic and Monetary Affairs scrutiny hearing on MiFID II, ESMA Chair Steve Maijoor, said that the timing for stakeholders and regulators alike to implement the rules and build the necessary IT systems for MiFID II is extremely tight. “Unfeasible” was the word he used as he went on to say that in some areas the deadline of 1 January 2017 would not be met. This is because the text of the regulatory technical standards (RTS) will not be finalised until “well into 2016”. Maijoor explained that some complex IT systems could only be built after details of the RTS were completed and “some of the most complex IT systems would need at least a year to be built”. ESMA therefore raised the possibility of delaying certain parts of MiFID II, mainly related to transparency, transaction and position reporting.

In late September ESMA published its final draft technical standards (RTS) on MiFID II, which took two years to produce and numbers 900 pages.

The scope and duration of that delay in MFID implementation has not yet been confirmed but Martin Merlin, a director in the EC's financial services unit, has suggested that “the simplest and most legally sound approach would be to delay the whole package by one year."

However, any delay in the European legislation could distort competition in some financial markets, seeing as the US has already made inroads on creating transparency for derivatives trading with the Dodd-Frank Act.

The question remains: what, if anything, does this mean for corporate treasurers? While a delay might not be earth-shattering in itself, its ripple-effect could potentially affect treasury in the following ways:

  1. The purpose of MiFID II is to create a safer environment in which privately traded derivative instruments are moved onto electronic platforms, improving transparency and curbing the size of trading positions in some commodities markets. A delay in creating this more transparent market will impact the ability of companies to use derivative instruments and may mean adjustments in their risk management approach to using derivatives instruments for hedging purposes.
  2. If the EU financial markets are perceived to be lagging behind US markets in terms of transparency, this could influence the decisions of corporate treasurers in choosing which markets to access.
  3. The EC, in September, announced its first steps towards creating a capital markets union (CMU), which is designed to open up and facilitate access to alternative non-bank sources of financing for corporates. MiFID II contains measures that are integral to the CMU and significant delays in this area could prolong the current period in which companies are finding it increasingly difficult to access funding.

While several countries have already called for a delay for MiFID, it seems that politicians in Europe are not impressed with the current situation. Philippe Lamberts, a Belgian Green Party member, said: “I am not from the financial industry, I am a legislator and I am not amused at all.”

However, delay may be the best option for companies that rely on continuity and lack of disruption in the financial markets.

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