European Union lawmakers should rethink their decision to bolster "monopolies" in processing vast swathes of derivatives transactions from next year, Britain said on Wednesday.
UK financial services minister Greg Clark said in his first visit to Brussels since being appointed last month that EU markets were largely "closed structures" and need radical reform to foster competition.
He singled out derivatives, where new rules next year will force banks to channel trillions of euros in contracts through clearing houses to improve safety and transparency.
Clark fears that a draft EU law known as Mifid, which is now being approved, will leave market users with little or no choice of where to settle their trades.
"Do we wish to legally mandate in Mifid that one or two monopolies govern our market infrastructure with all the inefficiencies that this brings?" Clark said in a speech.
"Expensive services for consumers, no incentives to improve services, and the risk of setting up mini-monopolies that represent a single point of failure?"
EU lawmakers last week watered down articles in the draft law aimed at increasing competition in derivatives clearing by imposing conditions which could be hard to meet.
They also deleted an article that would have allowed anyone to buy a license to offer trading in popular traded benchmarks such as Deutsche Boerse's Stoxx indexes, derivatives based on which can be traded only on the German exchange.
Finance ministers of the 27 EU states, which have a joint say on Mifid, are due to debate it in early October, when Britain will try to persuade them to amend the draft law. But after a unanimous parliamentary vote, the UK may not be able to muster enough votes to force lawmakers to back down when it comes to agreeing a final text.
The changes made by lawmakers are seen as bolstering Deutsche Boerse and NYSE Euronext who have or plan to have derivatives clearing operations. The German Stoxx index is Europe's most popular benchmark.
The EU vetoed a proposed merger of Deutsche Boerse and NYSE Euronext in February, saying it would create a monopoly in on-exchange derivatives.
"I would urge the European Parliament to reflect again whether it is sensible to delete these provisions ... This loophole must be closed in the current Mifid negotiations," Clark said in his speech.
NYSE Euronext welcomed last week's vote in the European parliament, saying unfettered competition in derivatives clearing could jeopardize financial stability.
Clark also criticized other member states for trying to water down sanctions for market abuses in a separate EU law.
(Reporting by Huw Jones; Editing by Catherine Evans)