UK FSA pushes for Mifid II rethink on OTCs
Tuesday 31 January 2012 - by Karina Whalley
David Lawton, acting director of markets at the Financial Services Authority, warned on Monday that the limitations set out in the draft proposals could cause a reduction in liquidity in derivative markets.
The FSA instead advocates putting in place "rigorous conflicts management processes" as is already required for multilateral trading facilities, to achieve operator neutrality and fair and orderly trading within the OTF, he said.
Lawton said further analysis is still needed to better understand how market microstructure changes affect market behaviour and stability but said the FSA supports more robust and legally enforceable risk controls for all firms and trading venues in relation to their automated trading.
He also welcomed proposals for the regulation of firms that are direct members of a trading venue but fall outside the scope of Mifid I.
There has been much industry objection to Mifid II bringing greater pre-trade transparency to OTC markets as it has done with equities. OTC and equities have very different characteristics and there are fears OTC pre-trade transparency will put at risk long standing market operations for uncertain benefits.
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