We believe the current blanket application of CRR to banks and investment firms, without distinguishing between firms by activity or size, has a disproportionate impact on proprietary trading firms that serve as Europe’s market makers.
When MiFID II comes into effect in Europe in January 2017, it will bring a great many more market makers into a capital requirements regime designed for banks. In preparation for this change, independent market making firms are already adjusting their business models and rethinking how they will manage their capital going forward. As a result, we have already seen many firms cut down the number of products and markets they trade, and we expect this situation to get much worse as we get closer to the 2017 deadline.
Unless something is urgently done to mitigate this unintended impact, we are concerned there won't be enough market makers left to fulfill MiFID II's obligations. The combined review of prudential requirements for credit institutions and investment firms (“Capital Requirements Regulation” or “CRR” and Regulation (EU) 575/2013) is therefore timely and vital to preserving liquidity in European financial markets. To this end we (the FIA European Principal Traders Association) issued a position paper in June 2015 outlining our position on the impact of capital requirements regulation on market makers.