Anxiety Grows Over Regulatory Ambiguity

Firms are facing huge uncertainty as regulators and politicians continue to discuss how best to implement the plethora of new financial services rules that are likely to descend on Europe.



Regulations aimed at preventing another financial crisis such as the revised Markets in Financial Instruments Directive (MiFID II) and European Market Infrastructure Regulation (Emir) are currently snaking their way through the European Union but many in the industry want clarity on the upcoming regulations that could radically alter the financial services landscape.



“The regulatory regimes associated with cleared OTC markets are still being finalized and this is naturally creating a lack of clarity concerning eventual operational processing frameworks amongst existing and prospective clearing firms,” Clive Pedder, executive vice-president of post-trade solutions at Sungard in London, a trading and technology company, told Markets Media at WBR’s Trade Tech Europe 2012 industry event in London this week.



“These requirements are still emerging and this poses major challenges for our clients in adapting to shifting functional demands and also in deciding which market venues should receive IT investment, since not all will be economically viable in the longer term.”



Steve Grob, director of group strategy at Fidessa in London, a trading and technology company, believes that similar upcoming regulation from the US, including the Dodd-Frank Act and the Volcker Rule, could also impact negatively on European firms.



“Our customers are getting hit by wave after wave of regulation and that shows no sign of slowing down and, in fact, that is getting worse as geographical regulators are all smashing into each other,” he told Markets Media at WBR’s Trade Tech Europe 2012.



Pedder at Sungard is also fearful that some markets may be forced to close due to the regulatory uncertainty and that some firms are even doubting their investments to comply with the new regulations.



“It is still unclear as to what shape of market will eventually emerge or what form of market concentration will take place because not all of these venues will be commercially viable due to lack of volume,” he said.



“Many firms have scaled back their investments in cleared OTC markets because entry costs are significant, taking a pause in order to determine where future expenditure should most effectively be directed, dependent on further clarification of regulatory frameworks, client demand and market volumes.”