AMSTERDAM (Reuters) - Under pressure from the European Banking Authority, the Dutch central bank (DNB) said on Tuesday it would ditch its own capital requirement regime for proprietary trading firms in favour of European rules.
The decision represents an about-face for the DNB and a setback for high-frequency trading firms that have been one of the success stories of the Netherlands’ financial industry — and one of the only Dutch sectors to attract Brexit business.
The central bank (DNB) said its decision also means that high-frequency firms — such as Flow Traders (FLOW.AS), Optiver, and IMC Financial Markets — may lose an exemption to the Netherlands’ 20 percent cap on bonuses.
The Dutch bonus cap is far tougher than Europe’s 100 percent cap, and many observers believe it may be jettisoned by Prime Minister Mark Rutte’s new Cabinet.
The DNB said in a statement it does not plan to enforce the bonus cap limit until 2020 on trading firms, whose pay systems generally feature low salaries and high bonuses for successful traders.
Flow Traders CEO Dennis Dijkstra said in response that the firm “has always supported a conservative financing of its trading positions by a strong and unlevered balance sheet” and that it is confident it will weather the change easily.
Flow Traders’ shares fell 7.8 percent to 17.92 euros in early trading.
London-based trading houses Tradeweb and MarketAxess are two of the few firms that said they will move some operations to Amsterdam in the wake of Britain’s decision to leave the European Union.
The DNB said in a statement its move came after the EBA launched a “Breach of Union Law investigation into the DNB’s definition and governance of trading houses as “local firms”.
The DNB said that while it believes its own rules for the firms were “sound and prudential”, after a review it decided its definitions were “legally untenable”.
The DNB “has therefore decided to discontinue the current national prudential regime for local firms, taking immediate action to apply” Europe’s Capital Requirements Regulation (CRR) instead.
“The relevant firms will have until 31 March 2018 to meet the applicable requirements under the CRR,” the DNB said.
“If a firm’s capital falls short, it must draw up a restoration plan to ensure that it meets the CRR capital requirements as soon as reasonably practicable but in any event by 31 December 2019 at the latest.”
The DNB said its regime applies to 13 firms which have been notified of the decision. It did not disclose their names.
Reporting by Toby Sterling; editing by Larry King and Jason Neely