The UK’s Financial Conduct Authority (FCA) has confirmed that its guidance regarding the post-Brexit definition of trading venues has come into force today, 9 October.
The FCA opened a consultation aimed at reworking its post-Brexit definition of a multilateral trading facility (MTF) last year, with the consultation period closing on 25 November 2022.
The watchdog received 30 responses to the consultation paper, including from: The Association for Financial Markets in Europe (AFME), Cboe Global Markets, EquiLend, European Principal Traders Association (FIA EPTA), Intercontinental Exchange (ICE), Invesco, LedgerEdge, and Virtu Financial.
The guidance has been issued by the FCA in the form of a Q&A. Specifically, the changes are highlighted in section 13.3 of the Perimeter Guidance manual (PERG) which covers ‘guidance on the scope of the UK provisions which implemented Mifid’, of which segment .3 exclusively refers to ‘investment services and activities’.
“To interpret the perimeter, we will continue to focus on the substance of the activity in question, rather than how it is labelled or whether the system operator complies with the requirements applicable to trading venues,” confirmed the FCA.
It makes clear that in the case that a firm does not operate a multilateral system, it will not require authorisation as a trading venue. In these instances, if a firm is involved in activities related to the trading of financial instruments – including technology companies which work to support trading – they will still need to consider how its arrangements relate to the Regulated Activities Order (RAO) 2000-2001.
According to the UK regulator, the policy statement is most relevant to trading venues, service companies, interdealer brokers, broker dealers, portfolio managers, technology firms serving trading institutions, and investment-based crowdfunding firms operating in primary and/or secondary markets.
The FCA’s efforts to solidify the definition came alongside its wider Wholesale Markets Review (WMR) with HM Treasury, focused on introducing ways of working which were “better tailored to the UK market,” post-Brexit.
Discussing the motivations for the change, the FCA said: “Further clarity about the perimeter will provide greater certainty to firms about their regulatory status. It will also help promote a level playing field in the market, while allowing firms to innovate and develop new technologies.”
Participants were given the opportunity to share their thoughts on the current perimeter, with the watchdog confirming that though it would not change rules and modify the actual perimeter, it would clarify definitions in its official Handbook. In addition, going forward the FCA asserted that it would “consider the feedback received and may use it to inform our thinking on potential future regulatory reforms”.
In addition, market players were encouraged to share views on whether the trading venue regime could be made more proportionate to smaller firms.
Previously the FCA in stated in a HM Treasury consultation that “it is sometimes not clear if these technology firms, who are bringing buyers and sellers together on an informal basis, need to be authorised as a Multilateral Trading Facility (MTF)”.
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Speaking at the time the guidance was announced, the FCA stated: “Further guidance on the trading venue perimeter will provide greater certainty regarding models where we do not intend trading venue requirements to apply – supporting innovation in our markets – while promoting competition and high standards by ensuring that models possessing the key characteristics of a venue are treated equally, within the framework of the trading venues regime.”
The guidance, coming into force on Monday 9 October, comes amidst a wave of regulatory changes across the market aimed at preparing the industry to keep up with the pace of evolving ways of working.
Earlier this year, The UK Government proposed a new regime in which venues will be charged with greater responsibility in monitoring market abuse and play a key role in regulating the cryptocurrency landscape.
Read more – Venues set to bear the brunt of monitoring crypto market abuses under proposed UK regulatory regime