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This week from Chris Smith, the editor:
History moment for the vertically challenged
This was the week when history will record that Europe began a slow move towards shaping its financial landscape into something slightly more realistic.
A decisive battle is now shaping up between the vertical and horizontal clearing model devotees.
The NYSE-Deutsche Börse showdown in Brussels coincided with the same week that NASDAQ OMX announced it was coming back to town. Actually, I doubt that was a coincidence given NASDAQ chief executive Bob Greifeld's determination to keep the doors open to
all.
How badly does NYSE-Deutsche Börse want a deal? How hard is the EU competition commissioner going to play? More directly, will the shareholders accept whatever comes out of all this?
My bet is that the winner will be choice and innovation. Europe needs to have a diverse trading environment, irrespective of who controls it, in order to meet the rise of Asia.
MiFID could create a perfect regulatory environment that guarantees absolute safety but if those within the firewall can't compete through innovative products, the European exchanges could end up engaged in a race to the bottom as they battle for dwindling business.
The risks of what might happen were raised all too clearly by the Bank of England this week when concern was raised at what might happen with a CCP failure.
The long-awaited MiFID reforms, however, didn’t inspire much hope. Yes, everything was in there – and that was the problem. We seem to have got 'spaghetti logic': throw plenty at the wall and see what sticks.
It's a classic EU approach to change and the outcome is based on a either a messy compromise or a victory for the side that ducked something under the wire in the final seconds. That's a world away from ending up with what's right and MiFID is too important to get wrong.
Given that this week has also been spent witnessing the fallout from decades of messy compromises, those at the top table are going to have to take a new approach.
The spotlight is also shifting towards the exchanges and that will intensify the closer we get to G20 deadline.
The ultimate goal is an environment where innovation thrives and there's lively competition for trade but not at any price achieved by reckless behaviour. It's a difficult goal to reach but perhaps it's time to be bolder.
Chris Smith, editor
csmith@fointelligence.com
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