Banks and investors in the UK will still be able to trade on venues based in the European Union at the end of the Brexit transition period, in a more holistic approach from the UK regulator to the controversial rules.
The Financial Conduct Authority’s (FCA) confirmed that it will maintain the ability for UK-based firms to execute trades at venues for best execution and avoid the need for major order routing restrictions to be put in place.
The UK’s financial watchdog described its approach to the share trading obligation as simpler and more comprehensive compared to the EU’s approach, which is more complex and based on certain conditions.
“We chose this simple and comprehensive approach rather than to replicate restrictions based on the jurisdiction of the share issuer, or the currency in which a share is issued,” said Nausicaa Delfas, executive director of international at the FCA.
“We have taken this approach to ensure UK-based investors and asset managers continue to have the freedom to find the best possible trading terms and to get the best outcome for themselves and their customers. We want to preserve freedom for issuers from all jurisdictions to choose where and how to raise capital to support their business activities.”
The share trading obligation has been hugely controversial with major UK-based stocks initially caught in a political crossfire as the EU confirmed plans to adopt a less holistic approach to the rules. Following widespread concerns across the industry, the EU revised its approach last year and then again just last month in a bid to minimise disruption once the Brexit transition period comes to an end next year.
“We consider the ISIN or currency that a share carries and trades in does not and should not determine the scope of the share trading obligation,” the FCA said in a statement. “Any restriction on the trading of shares based on currency does not reflect the multi-currency nature of global capital markets and limits the ability of firms to determine how best to use global capital markets to support economic activity.”
The FCA will use the ‘temporary transitional power’ to implement its approach allowing UK market participants to continue accessing any EU trading venue and systematic internalisers from the end of the Brexit transition period on 31 December, if mutual equivalence is not agreed upon. The venue must have the relevant regulatory permissions.
“At the end of the transition period, the UK’s and EU’s regimes will be the most equivalent in the world, but as it stands this has not been recognised by the EU,” added Delfas.
“The FCA will continue to take any necessary steps available to mitigate risks of disruption that may ensue from regulatory changes to ensure UK markets remain attractive to global investors with our open, interconnected and competitive regime.”