Derivatives industry gathers to discuss market reform, opportunities and challenges

The great and the good from London’s derivatives industry descend to FOW Regulation to discuss G20 reform, Brexit, Basel III and all things MiFID II.

More than 200 banks, brokers, vendors and buy-side participants gathered at the Grange City Hotel to find out how MiFID II and other European and international regulations will impact trading, risk management and regulatory operations in the global derivatives market.

Attendees at the 4th annual FOW Regulation conference participated in presentations, panel discussions and Q&As on the implementation of MiFID II, MAR and Basel III, the impact of Brexit, algorithmic trading, compliance and trade reporting. With representatives from regulatory bodies, banks, buy-side institutions, legal firms, technology vendors and trade bodies all offering their views, the audience was offered a broad range of views from different perspectives. MiFID II was undoubtedly the topic on everyone’s mind.

Although it remains the centrepiece of European regulatory reform, and still looks certain to be introduced in the UK, fundamental questions remain over London’s capital markets and the competitive advantage or disadvantage that Brexit will bring. The early morning panel discussed what Brexit meant for the implementation of EU regulatory reform in the UK and its interaction with Europe and the rest of the world. This was followed by a panel discussing the plethora of reforms across the world seeking to bring greater oversight, transparency and accountability to algorithmic trading.

With differing approaches and definitions in place, new rules are increasing complexity for firms in the market. The debate focused on how will Reg AT in the US impacts Europe, how to manage obligations across a global trading book, how MiFID II will transform algorithmic trading and what trading institutions should do to meet regulatory requirements. The final panel of the morning discussed the complexities of trade reporting in an increasingly automated trading environment.

The EMIR reporting requirements were introduced amid confusion from the market and reports of miss-reporting and over-reporting were rife. But this has not dampened the appetite of regulators to enforce new rules, and many expect a tougher stance to be taken with MiFID II reporting. There were also fruitful discussions around the Market Abuse Regulation regime, which came into force in July with unprecedented scope and ambition, Organised Trading Facilities (OTFs) and the increased requirements for commodity derivatives. But another prominent challenge for the derivatives industry that became clear throughout the day was the management of capital rules.

Already, a number of large FCMs have pulled out of the market and more rules, including MiFID II, CRD IV and the new IOSCO requirements, are coming down the line. Panel members and the audience discussed how this will impact liquidity and trading activity and how banks and buy-side firms can adapt. Overall, the reform of financial markets continues to gather pace and it remains the case that regulation remains at the forefront in the post-2008 regulatory environment.

The complexity of compliance in an electronic, automated environment remains a concern, but participants were also given insight into the innovation taking place amongst technology vendors and trading institutions to stay ahead of the regulatory curve. 12 months is a long time in financial services and we could be looking at a very different market in a year’s time.

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