Overseas reference prices, outages industry taskforce and SI reporting overhaul among new FCA reforms

Wholesale Markets Review reforms range across post-trade transparency, OTC transaction reporting, use of reference prices from overseas venues, tick sizes, and market outages.

The UK Financial Conduct Authority (FCA) has today announced its next set of changes to the equity secondary markets designed to reduce the cost of trading and streamline reporting obligations.

The changes follow a consultation by the FCA and fall under the UK’s wider ongoing Wholesale Markets Review (WMR) designed to make its markets more competitive post-Brexit.

Among the reforms announced today is a new rule that will allow UK trading venues to use reference prices from overseas venues – if robust, reliable and transparent – to improve choice and competition and the removal of size thresholds for orders benefiting from the order management facility (OMF) waiver. Firms will instead be allowed to calibrate thresholds based on characteristics of their markets.

Today’s announcement also confirms a taskforce will be established to work on “good practices” in relation to conduct during an outage.

Elsewhere, the watchdog has announced new rules around the consolidation of trade reports from different sources in a bid to allow institutions to “better identify transactions that contribute to the price discovery process” and the removal of SI status as a criteria for deciding whether a firm should be required to report transactions. The FCA said the move would simplify OTC reporting across instruments and that it would adopt a new regime based on designated reporting firms.

With relation to tick sizes, the FCA has confirmed it will remove restrictions preventing trading venues from using the same tick size used by trading venues overseas where those venues are the primary market for an instrument.

The changes can be implemented using the FCA’s existing powers and are therefore not contingent on any upcoming changes and the implementation of the Financial Markets Services Bill.

Reforms relating to post-trade will enter into force in April next year. Changes relating to waivers from pre-trade transparency and the new tick size regime will apply immediately. Trading venues will now be expected to update their systems to comply with changes to post-trade transparency including to reporting fields and flags.

“The changes we are making aim at making markets more efficient, reducing the cost of trading and streamlining reporting obligations,” said the regulator in its paper. “Greater transparency means better quality information for firms executing orders on investors’ behalf. Furthermore, by removing some unnecessary requirements, we believe we will reduce cost for businesses.”