UK Regulatory Guidance on Trading Venue Regulatory Perimeter

The U.K. Financial Conduct Authority has issued final guidance to clarify the scope of the regulatory perimeter for trading venues and the regulatory approvals needed to conduct their business. The guidance caters for new platforms emerging from technological developments. The guidance is one of the outcomes of HM Treasury's Wholesale Markets Review (which we discuss in our client note, "UK Wholesale Markets Review"). Other aspects of the Review are being implemented through the Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") or by amendments to FCA rules.

Generally, the guidance tightens up the U.K. perimeter, providing helpful clarifications to the market on topics that have been open to discussion since the Markets in Financial Instruments package was introduced. Such guidance has become increasingly necessary as a result of MiFID II regulating Organised Trading Facility activities as a trading venue, as well as various technological advancements in trading infrastructure. Among other things, the FCA confirms that a multilateral system has four elements: (i) it has the characteristics of a trading system or facility; (ii) it comprises multiple third-party buying and selling trading interests; (iii) it allows trading interests to interact in the system; and (iv) those trading interests are in MiFID financial instruments. The FCA states that the regulatory perimeter is dependent on substance rather than terminology. Therefore, all service offerings need to consider whether they meet the definition of a multilateral system rather than relying on how they label their service.

In addition to providing guidance on the regulatory perimeter and how this applies to different business models, with issuing this guidance, the FCA confirms that Q&As 7, 10, 11 and 12 in section 5 of the European Securities and Markets Authority's Q&As on MiFID II and MiFIR market structures topics no longer form part of its supervisory expectations.

Earlier this year ESMA issued its own opinion on the trading venue perimeter. The ESMA paper endorsed the same four-pronged test for determining if a given offering is a "multilateral system" as the FCA. ESMA has expressed some different views to the FCA with regard to the perimeter; for instance, ESMA guidance would appear to draw in more RFQ systems into the regulatory perimeter.

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