Tabled as part of a consultation paper launched on 15 April, the European watchdog has asked participants how effective they believe the order protection rule is for guaranteeing the best price for clients/investor protection, speed of execution, level of execution fees, split of liquidity, interconnection between trading venues, efficiency of the price formation process, modernising trading protocols and trading.

Implemented as part of Reg NMS in 2005, the US order protection rule mandates that orders be executed on exchanges that show the best price. Orders are re-routed to other competing venues if it cannot be executed at what is considered the best price.

The European Commission’s consultation has asked participants for their assessment of EU infrastructure to cater for the rerouting of orders to venues offering the best price – as per the requirements of the rule. It has also asked respondents to note if they think the geographical positioning of venues would pose an issue, and what the necessary arrangements and costs could be.

Those responding are also invited to give their opinion on the effectiveness of best execution rules in Europe, requiring them to list whether the EU or the US framework is most effective for obtaining the best results for clients.

Brought in under Mifid II, the best execution obligation requires that firms take all necessary and reasonable steps to ensure the best result for an order.

The European Commission’s consultation touches on a wide range of market areas as part of its objective to gather stakeholder feedback on obstacles to market integration across the EU. When it comes to trading specifically, the paper has a heavy focus on market harmonisation, with many sections dedicated to the potential benefits and feasibility of creating more integrated markets in Europe.

Numerous questions relate to what respondents believe could be barriers to integration across the 27 member states and their markets. It also asks respondents to assess both direct execution and indirect execution of orders, as well as the various fees charged for connections to venues across member states.

The 375-question strong consultation also assesses several other market areas including dark trading levels.

The paper asks participants why they think dark trading is growing, whether that be regulation, liquidity fragmentation, order flow competition, technological developments, or the growth of ETFs and passive management. Participants are also prompted on their thoughts on reference price waiver is fit for purpose and asks them to assess the current criteria for reference price.

The return of VWAP crossing?

Notably, the consultation asks if trading venues should be allowed to use the negotiated price waiver to execute negotiated transactions that take place with the assistance of a system or trading protocol operated by the trading venue.

Read more – ESMA thwarts European trajectory crossing plans with last minute rule change

The consultation follows European regulators’ decision at the end of last year to bring an abrupt and unexpected end to a group of trading venue’s plans to launch trajectory crossing in the region with a last-minute rule change. Said venues had been planning to use the waiver as the basis for their models.

Featured in its final report on equity transparency, published in December, the European Securities Markets Authority (ESMA) added an additional line to its text surrounding the specific characteristics of negotiated transactions, preventing exchanges from using the model on their own behalf. The rule change put a stop to exchanges’ plans in Europe.

The decision has received significant hit back from several parties – namely the venues looking to launch these products in Europe.

However, Tuesday’s consultation suggests the European Commission could be open to reassessing.

24-hour trading, the consolidated tape and the close

The extension of market trading hours for equities has become a hot topic in the US in recent months. While a handful of technology providers have offered out of hours trading for several years now, the decision by several incumbent exchanges to begin exploring implementing an extension of trading hours suggests the theme is becoming mainstream in the US.

Europe, however, seems to tell a different story. A few years ago, European participants were petitioning for the shortening of market hours. As US venues apply to regulators for the lengthening of their trading day, their European peers have shown little to no sign of following suit.

The European Commission’s consultation released on Tuesday asks respondents how positive they deem extended trading hours/24-hour trading to be for the development and competitiveness of EU markets, also asking if it is “advantageous” or “risky”.

When it comes to the tape, the Commission has also asked participants opinions on several technical elements including how effective lifting the anonymity of the EBBO, the importance of expanding the depth of the EBBO displayed, and the speed at which core market data should be disseminated by the tape.

Centrally the European watchdog has asked whether systematic internalisers (SIs) should contribute to the tape and which amendments to their regulatory framework would be required to effectively include them as contributors of equity pre-trade data.

The consultation also explores bilateral trading levels, single market marker venues and ghost liquidity, as well as, closing auction activity, with several questions asking participants why they think the close has grown so much and what fees they are charged on competing venues.

Respondents have until 10 June to submit their feedback to the watchdog. Meanwhile, an online questionnaire through which participants can respond to the consultation will be available as of 22 April 2025.

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“We confirm the EU Commission’s investigation and are fully cooperating. We do not comment on ongoing investigations,” said Deutsche Boerse when approached by The TRADE.

Specifically, the inspection relates to potential violations of EU antitrust rules linked to financial derivatives that prohibit restrictive business practices – Article 101 of the Treaty on the Functioning of the EU, and Article 53 of the EEA Agreement (both include reference to directly or indirectly fix purchase or selling prices or any trading conditions). 

The TRADE understands that the alleged actions which led to the raid include undercutting fees to out price competitors, and price dumping.

Unannounced investigations such as these are a preliminary investigatory step, confirmed the regulator, speaking about the process for inspecting suspected anticompetitive practices. 

“The fact that the Commission carries out such inspections does not mean that the companies are guilty of anticompetitive behaviour nor does it prejudge the outcome of the investigation itself,” asserted the European Commission. 

There is no legal deadline for completing inquiries into anticompetitive conduct, reminded the watchdog in an announcement today. The duration of the investigation depends on factors including case complexity and the extent to which companies in question cooperate with the EC.

“The Commission officials are accompanied by their counterparts from the relevant national competition authorities of the Member States where the inspections are conducted,” asserted the watchdog in an announcement.

The Commission is also carrying out unannounced antitrust inspections at the premises of other companies active in the financial services sector in two member states, The TRADE understands.

More to follow…

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The draft interpretative notice on the transitional provision of the Mifir Review keeps the double volume caps in place until the implementation of the new single volume cap.

Until Wednesday’s (27 March) notice, Europe was set to face an unintentional removal of dark trading caps from 28 March due to an unforeseen clerical error in the Mifir text in the EU Official Journal.

After more than six years of deliberation over the desired cap on dark trading in the Bloc, the European Commission and Parliament finally settled on the deletion of the 4% and 8% caps in favour of a single cap of 7%. These figures have come under fire from participants for being arbitrary.

However, while the deletion was set to officially take place on Thursday, an overlooked detail unforeseen by the Commission and regulators was that the conversion of the single volume cap (SVC) into law by the National Competent Authorities (NCAs) is expected to take 18 months.

The Mifir text in January authorised the enforcement of the SVC in 18 months’ time and deletes the existing DVC as of 28 March – leaving a window with no caps.

Brussels subsequently began exploring possible ways to close the loophole in the new share trading rules and push through a last-minute clarification that reinforces caps on dark trading, with European trading venues waiting with bated breath.

“Being able to trade at the mid-point is clearly still valued by the market and it’s quite possible that a period of time without the caps would have been feasible and welcomed by market participants,” Aquis head of sales, Sakeena Lalljee, told The TRADE. “However, we welcome the clarity following uncertainty on if or how the volume caps would apply from tomorrow.”

LSEG’s Turquoise declined to comment. Euronext had not replied to a request for comment at the time of publication.

If they had been unsuccessful, Europe would have found itself without limits on dark trading until October 2025 and with an SVC of 7% from then onwards, creating an unintentional testing period of limitless dark trading.

“We appreciate the European Commission’s clarification on this matter,” Cboe’s president for North American and European equities, Natan Tiefenbrun said. “There will be no change in our approach to running our reference price waiver venues from 28 March and we will continue to adhere to the double volume caps until implementation of the new single cap next year.”

Read more – HM Treasury makes first set of sweeping changes to wholesale markets post-Brexit

The UK’s Financial Conduct Authority (FCA) confirmed it was set to remove DVCs all together from equity trading in 2021 following its departure from the European Union.

The changes to the UK framework came into force in August last year. Following the changes, dark trading market share increased modestly and then plateaued much like the activity seen in the US which does not use caps also.

More to follow…

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Euro-denominated derivatives clearing is a market that has historically been dominated by the London Stock Exchange Group’s clearing house LCH in the City and has proved to be one of the key battle lines drawn since Brexit.

Proposed by the European Commission at the end of 2022, the new Emir 3.0 proposal includes the requirement for all participants to hold active accounts at European CCPs for clearing at least a portion of certain derivative contracts, designed to increase the attractiveness of EU CCPs and encourage more volumes back across the channel.

It also included simplified product approvals, faster model change authorisations and increased margin model transparency, alongside the proposal of a new clearing threshold calculation.

The regulation has proved divisive across the buy- and sell-side who suggest the active account proposal specifically could hamper competition and would harm liquidity by dividing volumes between the two regions. 

“The mandate to clear on EU houses will bifurcate liquidity in cleared swaps,” said one panellist speaking at the FIX Trading Conference in Paris earlier this month. “That’s an attention point for us and we will be watching it carefully. It could increase costs and decrease liquidity.”

The committee acknowledged these challenges on Tuesday, adding that the changes should be brought in under a phased approach. It has also suggested that the European Commission undergo a cost benefit analysis to assess the stability and competitiveness of markets before it imposes the mandatory threshold.

Read more – Carrot or stick? How the EU plans to reduce reliance on UK CCPs for derivatives clearing

An Acuiti Clearing Management Insight Report released in May found that around two-thirds of sell-side clearing managers do not support the EU’s recent proposals to implement active account requirements for Euro denominated swaps under Emir 3.0.

Among the specific competition concerns listed in Acuiti’s findings were that the new rules could encourage participants to take certain “uncompetitive” prices just to meet a minimum threshold of activity.

The report found that the proposals lacked clarity around how the threshold for said active accounts will be defined – an area of anxiety for those surveyed in Acuiti’s report. Overall respondents suggested that this threshold should not just be defined quantitatively.

European trade associations including AIMA, EFAMA, BFPI Ireland, EACB, FIA EPTA, Federation of the Dutch Pension Funds, Finance Denmark, Nordic Securities Association, ICI Global, FIA and ISDA, also issued a joint statement in September urging EU policymakers to delete the proposal and instead focus on streamlining the supervisory framework for EU CCPs across member states.

The European Parliament is now set to engage with European member states to negotiate the final text before the end of the year.

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Rabobank received a €26.6 million fine for its participation.

The fines relate to a trading cartel between the two banks in Euro-denominated SSA bonds and Government Guaranteed bonds that took place between 2006 and 2016.

According to the Commission’s findings, Deutsche Bank’s EUR SSA desk in Frankfurt and Rabobank’s Investment Grade Bonds desk in London “exchanged commercially sensitive information and coordinated their trading and pricing strategies” using Bloomberg emails, instant messages and online chatrooms.

The information exchanged included volumes, current and future strategies and positions, identities of counterparties and their requirements for buying and selling the bonds.

The watchdog confirmed it was investigating the two banks over the activity in December last year.

Speaking at the time of the announcement Deutsche Bank said: “Deutsche Bank has proactively cooperated with the European Commission in this matter and as a result has been granted conditional immunity. In accordance with the European Commission’s guidelines, Deutsche Bank does not expect a financial penalty. As this is an ongoing investigation, we cannot comment further.”

If successful, a leniency program applicant can either successfully avoid the entire fine or receive a large reduction from it.

The cartel is the third of its kind to come to light in the last few years after five major investment banks – Barclays, Royal Bank of Scotland (RBS), Citigroup, JP Morgan and MUFG – were handed fines totalling around €1 billion by authorities in Europe in 2019 for taking part in cartels to rig the foreign exchange spot market for 11 currencies.

More recently in 2021, in two separate bond cartels, Nomura, UBS, and UniCredit in May and Bank of America Merrill Lynch, Credit Agricole and Credit Suisse in April were fined €371 and €28 million, respectively.

Regulators globally have begun a widespread clampdown on unregulated channels of communication in light of the findings.

The US Securities and Exchange Commission (SEC) confirmed in November 2022 that its enforcement penalties had surged to a record in the government’s fiscal year, with its total enforcement actions totalling $6.4 billion in fines, up from $3.9 billion in 2021.

Fines around the use of messaging services such as WhatsApp to conduct business have largely driven this rise. Bank of America was served with a $200 million fine from the SEC  in July 2022 relating to its use of “unapproved personal devices”, joining JP Morgan and Morgan Stanley who both also received multi-million-dollar fines from the regulator in the same month.

The post Deutsche Bank swerves €156 million fine for bond trading cartel appeared first on The TRADE.

The move follows the joint declaration on financial services regulatory cooperation between the EU and the UK, which also accompanies the Trade and Cooperation Agreement (TCA).

Post-Brexit, the regulatory landscape within the UK and the EU has constantly shifted with both jurisdictions looking to their regulatory framework to help foster competition in the now separate markets.

Regulatory divergence – although expected – has been viewed as something that should be avoided, with market participants believing working together for a global coordinated approach to regulation would be more beneficial for the two markets. This latest MoU will help establish coordination between the UK and the EU with a particular focus on financial services.  

The MoU is subject to final political endorsement by the European Council before the EC can sign on behalf of the EU.

“The Windsor Framework allowed the EU and the UK to open a new chapter in our partnership based on a spirit of mutual trust and cooperation,” said Mairead McGuinness, commissioner for financial services, financial stability and capital markets union.

“I am confident that our relationship and future engagement in financial services will be built on a shared commitment to preserve financial stability, market integrity, and the protection of consumers and investors.”

Once signed by both parties, the MoU will establish the administrative framework for voluntary regulatory cooperation related to financial services between the EU and the UK, separate from the existing TCA structures.

A joint EU-UK financial regulatory forum will be established, serving as a platform to facilitate structured dialogue on issues related to financial services – a platform somewhat mirroring what the EC has with other third country jurisdictions such as the US.

The EC stated that the MoU does not deal with the access of UK-based firms to the single market – or EU firms’ access to the UK market – nor does it prejudge the adoption of equivalence decisions.

Speaking on the MoU, Adam Farkas, chief executive of the Association for Financial Markets in Europe (AFME) said: “AFME strongly welcomes that the European Commission has adopted a draft MoU establishing a framework for structured regulatory cooperation between the EU and the UK.

“The MoU should put in place a joint EU-UK Financial Regulatory Forum to ensure structured cooperation on regulatory initiatives and priorities. This should include transparency and dialogue in the equivalence process as envisaged in the Joint Declaration accompanying the Trade and Cooperation Agreement. We hope that the MoU will now be ratified by the Council, and that the MoU will serve as a basis for a cooperative, stable, and trustful long-term relationship between the EU and the UK in the area of financial services.”

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Among the various aims of the new proposals, the EC sought to encourage clearing in the EU by simplifying the procedures for central counterparties (CCPs) when launching new products and changing risk models by introducing a non-objection approval for certain changes that do not increase the risks for the CCP. 

The EC also looked to make EU CCPs more resilient by further enhancing the existing supervisory framework through the new proposals, alongside efforts to strengthen EU open strategic autonomy and safeguard financial stability.

 The International Swaps and Derivatives Association (ISDA), the Alternative Investment Management Association (AIMA), the European Fund and Asset Management Association (EFAMA) and the Futures Industry Association (FIA) have responded to the EC’s proposed EMIR amendments with the following:

“Such measures would further reinforce the positive trends already observed in the clearing of euro-denominated contracts at EU CCPs. A strategy based on organic growth and market-driven solutions would best support the competitiveness of EU CCPs in a global clearing marketplace.”

However, the associations were less complementary about the EC’s proposals which would require firms subject to the EU clearing to have an active account at an EU CCP, alongside enabling the European Securities and Markets Authority (ESMA) to define the portion of certain euro and Polish zloty-denominated contracts that should be cleared through those accounts through secondary regulation.

“Changes to capital rules would reinforce this, making it less commercially viable for EU market participants to clear through CCPs based outside the EU,” highlighted the associations.

“We remain convinced that these measures, as proposed, would be harmful to EU capital markets. They would make EU firms less competitive and would have a negative impact on the derivatives market, EU clearing members and their clients, EU investors and savers, and the Capital Markets Union. For EU firms, this would not only hinder their ability to provide best execution to clients, but would also be costly to implement.

“We believe the EC should substantiate the risk of clearing through tier-two CCPs based outside the EU and provide a robust cost-benefit analysis of the proposed active account requirements.”

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From 2005-2016, Deutsche Bank and Rabobank allegedly shared sensitive information and coordinated pricing and trading strategies via emails and online chatroom communications when trading Euro-denominated Sovereign, SSA, covered and government guaranteed bonds in order to distort competition.

Following its decision to scrap a settlement with the banks due to a lack of progress, the watchdog is now the process of following antitrust procedure which involves offering the parties a right to reply and exercise defence. If after this procedure is completed, the watchdog finds evidence of infringement, it can prohibit conduct and impose a fine of up to 10% of the company’s annual worldwide turnover.

“Deutsche Bank has proactively cooperated with the European Commission in this matter and as a result has been granted conditional immunity,” said Deutsche Bank in a statement.

“In accordance with the European Commission’s guidelines, Deutsche Bank does not expect a financial penalty. As this is an ongoing investigation, we cannot comment further.”

Rabobank had not replied to a request for comment at the time of publishing.

The investigation is the third of its kind in the last few years after five major investment banks – Barclays, Royal Bank of Scotland (RBS), Citigroup, JP Morgan and MUFG – were handed fines totalling around €1 billion by authorities in Europe in 2019 for taking part in cartels to rig the foreign exchange spot market for 11 currencies.

More recently in 2021, in two separate bond cartels, Nomura, UBS, and UniCredit in May and Bank of America Merrill Lynch, Credit Agricole and Credit Suisse in April were fined €371 and €28 million respectively.

There has been a more widespread clamp down on unregulated communication channels such as WhatsApp from regulators globally as these instances become more common.

The US Securities and Exchange Commission (SEC) confirmed in November that its enforcement penalties had surged to a record in the government’s fiscal year, with its total enforcement actions totalling $6.4 billion in fines, up from $3.9 billion last year. Fines around the use of messaging services such as WhatsApp to conduct business have largely driven this rise. Bank of America was served with a $200 million fine from the Securities and Exchanges Commission (SEC) in July relating to its use of “unapproved personal devices”, joining JP Morgan and Morgan Stanley who both also received multi-million-dollar fines from the regulator in the same month.

The post European Commission investigating Deutsche Bank and Rabobank over bonds trading cartel appeared first on The TRADE.

Under the changes, all relevant market participants will be required to hold active accounts at European CCPs for clearing at least a portion of certain derivative contracts.

As the infrastructure stands, around 90% of over the counter (OTC) EU/US interest rate swaps clearing volumes are handled by the London Stock Exchange Group’s (LSEG) LCH SwapClear in the City. Some volumes have migrated to Eurex in Frankfurt since the UK’s split from the EU, while a portion has also reportedly migrated to CCPs based in the US. Regulators in Europe have deemed the level of EU derivatives clearing taking place outside of the EU to be a systemic risk to the Bloc and the changes implemented today are intended to safeguard against these by reducing EU participants reliance on non-EU CCPs.

There were reportedly discussions of SwapClear moving to Paris post-Brexit however the task was reportedly deemed too costly. “Now EU regulators are trying to find something else,” said a source familiar with the matter. “They want to supervise this critical part of the market.”

“We are supportive of the proposed legislative changes to the European Commission’s Emir Review to streamline the supervisory framework for EU CCPs while safeguarding the objectives of Emir and support the European Commission’s ambition to increase the competitiveness of EU CCPs,” a spokesperson from LSEG said in a statement on 7 December.

“We also welcome the acknowledgement of the importance of continued access for EU firms to UK CCPs in order to hedge their risks in all currencies and manage their costs efficiently. We will continue to engage and cooperate with the relevant regulatory authorities in respect of the long-term recognition of LCH Limited on an ongoing basis under EMIR as well as on ESMA proposed risk mitigation measures.”

UK CCPs ICE Clear Europe, LCH and the London Metal Exchange (LME), were granted a temporary three-year equivalence until June 2025 by regulators in March earlier this year, however, they have since stressed that they will not grant any further equivalence decisions and participants should reduce their reliance on CCPs in the UK.

European exchange operator, Euronext issue a statement yesterday: “After Brexit, European Union deserves resilient, safe, and efficient clearing infrastructures to foster growth and drive the Capital Markets Union. As stated by the Commission, it is imperative that EU based clearing infrastructures can compete effectively on a global level.”

Euronext itself is currently in the process of migrating its clearing operations away from LCH to its internal clearing house Euronext Clearing – formerly CC&G – which it acquired as part of its Borsa Italiana deal. If all goes to plan, cash equities clearing is due to migrate in Q4 of next year while listed derivatives are expected to follow in 2024.

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Tilman Lueder

Tilman Lueder, the head of the securities markets unit at the European Commission, gave a comprehensive update on Day Two of the Fixed Income Leaders Summit of the current progress on a consolidated tape for fixed income in Europe, in which he urged for shorter deferral times and the inclusion of indicative pricing – something he said has generated surprisingly strong resistance from the market.  

“Fixed income is a market, unlike equities, which is less frequently traded with often bulky transactions and high resistance to showing the prices while the trade is still on the books, so there is very little transparency on exact pricing,” he said.  

“I do not believe that we will be done by the end of the year.”

The European Commission issued its proposal for a consolidated tape in November last year and Lueder confirmed that “negotiations are still in full swing,” but warned that “there are lots of open issues, and I do not believe that we will be done by the end of the year,” meaning that it will likely fall to the Swedish EU presidency incoming in 2023 to wrap up the issue.  

The harmonisation of post-trade publication windows (known as deferrals) is, said  Lueder, the crucial issue that needs to be tackled in order to achieve “meaningful market data consolidation” for fixed income – which is, according to the European Commission, the most urgent, the most-needed and the most achievable asset class for a consolidated tape.  

The problem is that unlike shares, which are fungible and comparable, not every bond is compatible, which is why the Commission has defined two parameters: whether an issue is small or large, and whether the market in which it is traded is liquid or illiquid. The original proposal urged dramatically reduced deferral times: including immediate price publication for small trades of up to €3 million for high yield and €5 million for investment grade, along with 15 minutes for medium sized trades in liquid and illiquid markets (in the US these are published within one minute), and end of the trading day (EOD) for large trades in liquid and illiquid markets, while ‘extra large’ trades of €50 million and above were given a rather more relaxed timeline of days/weeks.  

“In terms of value, the large liquid pocket is the most commercially relevant, followed by large illiquid, which is why we chose EOD for these,” said Lueder. “You can’t judge this market just by looking at the very small retail trades, you need to look at the big buys.”  

“When do we reach a point when this tape doesn’t become commercially reasonable anymore?” 

However, he bemoaned the gradual dilution of the original proposal, which has seen these deferral times significantly extended. The latest proposals suggest a price deferral period of 15 minutes for medium liquid trades, EOD for medium illiquid, one week for large liquid, and two weeks for large illiquid and extra large trades.  

“We’ve lost considerable ground throughout the negotiations,” admitted Lueder. “When do we reach a point when this tape doesn’t become commercially reasonable anymore?” 

Another sticking point is the debate on indicative quotes, which Lueder believes are necessary in order to give an accurate picture of where the market is heading.  

“In our opinion, refusing indicative quotes is the wrong way to go.”

“I’m always amazed by the wall of resistance we meet on this,” he said. “Indicative quotes are deemed unreliable, pie in the sky, and we are hearing from the market that they don’t want them put on the tape. We are very surprised by that, because in the US we see exactly the opposite picture – indicative quotes from the big trading houses are very reliable, indeed far more so than prices from trades that are more than two days old. In our opinion, refusing indicative quotes is the wrong way to go.”

While the consolidated tape proposals currently only cover corporate bonds, Lueder revealed that the European Commission is currently reviewing the possibility of creating something similar for sovereign issues, while he also confirmed that they are involved in a live debate on whether or not to publish RFQ responses as a pre-trade element of the tape – a controversial subject that has long divided the market.

To conclude, however, he reverted back to the twin themes of deferral times and indicative pricing as the crucial elements for success.  

“We believe transactions have to be published within an ambitious timescale, and we believe indicative quotes are needed because any trade more than two days old does not give as clear a picture,” he reiterated.  

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