The Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001

• (1) An exchange operating ... an SME growth market ... (an “exchange-operated SME growth market”) must comply with rules made by FCA for the purposes of this paragraph as they have effect on IP completion day.

• (2) An exchange-operated SME growth market must not admit to trading a financial instrument which is already admitted to trading on another SME growth market unless the issuer of the instrument has been informed of the proposed admission to trading and has not objected.

• (3) Where an exchange-operated SME growth market exchange admits a financial instrument to trading in the circumstances of sub-paragraph (2), that exchange-operated SME growth market may not require the issuer of the financial instrument to demonstrate compliance with—

• (a) any obligation relating to corporate governance, or

• (b) the disclosure obligations.

• (4) In this paragraph, “the disclosure obligations” has the same meaning as in paragraph 9ZB.

Specific requirements for organised trading facilities: execution of orders

9F

• (1) An exchange operating an organised trading facility must—

• (a) execute orders on that facility on a discretionary basis in accordance with sub-paragraph (4);

• (b) not execute any client orders on that facility against its proprietary capital or the proprietary capital of any entity that is part of the same group or legal person as the exchange unless in accordance with sub-paragraph (2);

• (c) not operate a systematic internaliser within the same legal entity;

• (d) ensure that the organised trading facility does not connect with a systematic internaliser in a way which enables orders in an organised trading facility and orders or quotes in a systematic internaliser to interact; and

• (e) ensure that the organised trading facility does not connect with another organised trading facility in a way which enables orders in different organised trading facilities to interact.

• (2) An exchange may only engage in—

• (a) matched principal trading on an organised trading facility operated by it in respect of—

• (i) bonds,

• (ii) structured finance products,

• (iii) emission allowances, and

• (iv) derivatives which have not been declared subject to the clearing obligation in accordance with Article 5 of the EMIR regulation,

where the client has consented to that; or

• (b) dealing on own account on an organised trading facility operated by it, otherwise than in accordance with paragraph (a), in respect of sovereign debt instruments for which there is not a liquid market.

• (3) If the exchange engages in matched principal trading in accordance with sub-paragraph (2)(a) it must establish arrangements to ensure compliance with the definition of matched principal trading ....

• (4) The discretion which the exchange must exercise in executing a client order may only be the discretion mentioned in sub-paragraph (5) or in sub-paragraph (6) or both.

• (5) The first discretion is whether to place or retract an order on the organised trading facility.

• (6) The second discretion is whether to match a specific client order with other orders available on the organised trading facility at a given time, provided the exercise of such discretion is in compliance with specific instructions received from the client and in accordance with the exchange's obligations under—

• (a) section 11.2A of the Conduct of Business sourcebook,

• (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (7) Where the organised trading facility crosses client orders the exchange may decide if, when and how much of two or more orders it wants to match within the system.

• (8) Subject to the requirements of this paragraph, with regard to a system that arranges transactions in non-equities, the exchange may facilitate negotiation between clients so as to bring together two or more potentially comparable trading interests in a transaction.

• (9) The exchange must comply with rules made by the FCA as they have effect on 1st December 2021 as to how Articles 24, 25, 27 and 28 of the markets in financial instruments directive apply to its operation of an organised trading facility.

• (10) Nothing in this paragraph prevents an exchange from engaging an investment firm to carry out market making on an independent basis on an organised trading facility operated by the exchange provided the investment firm does not have close links with the exchange.

• (11) In this paragraph—

• “close links” has the meaning given in Article 2(1)(21) of the markets in financial instruments regulation;

• “investment firm” has the meaning given in Article 2(1A) of the markets in financial instruments regulation;

• “non-equities” means bonds, structured finance products, emission allowances and derivatives traded on a trading venue to which Article 8(1) of the markets in financial instrument regulation applies.

Specific requirements for organised trading facilities: disclosure

9G

• (1) The rules of the exchange must provide that where it, without obtaining the consent of the issuer, admits to trading on an organised trading facility operated by it a transferable security which has been admitted to trading on a regulated market, the exchange may not require the issuer of that security to demonstrate compliance with the disclosure obligations.

• (2) The exchange must maintain arrangements to provide sufficient publicly available information (or satisfy itself that sufficient information is publicly available) to enable users of an organised trading facility operated by it to form investment judgements, taking into account both the nature of the users and the types of instruments traded.

• (3) In this paragraph, “the disclosure obligations” has the same meaning as in paragraph 9ZB.

Specific requirements for organised trading facilities: FCA request for information

9H

• (1) An exchange must, when requested to do so, provide the FCA with a detailed explanation in respect of an organised trading facility operated by it, or such a facility it proposes to operate, of—

• (a) why the organised trading facility does not correspond to and cannot operate as a multilateral trading facility, a regulated market or a systematic internaliser;

• (b) how discretion will be exercised in executing client orders, and in particular when an order to the organised trading facility may be retracted and when and how two or more client orders will be matched within the facility; and

• (c) its use of matched principal trading.

• (2) Any information required under sub-paragraph (1) must be provided to the FCA in the manner which it considers appropriate.

Provision of data reporting services

9I

An exchange providing data reporting services must comply with—

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) the requirements of Chapter 9 of the Market Conduct sourcebook;

• (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (e) Commission Implementing Regulation (EU) 2017/1110 of 22 June 2017 laying down implementing technical standards with regard to the standard forms, templates and procedures for the authorisation of data reporting services providers and related notifications pursuant to Directive 2014/65/EU of the European Parliament and of the Council on markets in financial instruments.

Recognition requirements for central securities depositories

5B

Part 7 of the Schedule sets out recognition requirements applying to bodies in respect of which a recognition order has been made under section 290(1)(d) of the Act, or which have applied for such an order under section 288A of the Act.

Method of satisfying recognition requirements

Dealings and transactions not involving investments

Exchanges and clearing houses which do not enter into market contracts

Effect of recognition under the Financial Services Act 1986

Revocation of recognition: action taken before commencement

FCA rules

Reporting of infringements

9J

• (1) The exchange must have in place appropriate procedures for its employees to report actual or potential infringements of the CSD regulation , any EU regulation originally made under the CSD regulation which is assimilated direct legislation, or any subordinate legislation (within the meaning of the Interpretation Act 1978) made under the CSD regulation on or after IP completion day, internally through a specific, independent and autonomous channel.

• (2) The protections set out in points (b), (c) and (d) of Article 65(2) of that regulation (reporting of infringements) must be applied in relation to those procedures.

Reporting of infringements

31A

• (1) The central counterparty must have in place appropriate procedures for its employees to report actual or potential infringements of the CSD regulation , any EU regulation originally made under the CSD regulation which is assimilated direct legislation, or any subordinate legislation (within the meaning of the Interpretation Act 1978) made under the CSD regulation on or after IP completion day, internally through a specific, independent and autonomous channel.

• (2) The protections set out in points (b), (c) and (d) of Article 65(2) of that regulation (reporting of infringements) must be applied in relation to those procedures.

PART 7 — Recognition requirements for Central Securities Depositories

Requirements of the CSD regulation

37

The central securities depository must meet the requirements set out in the CSD regulation , any EU regulation originally made under the CSD regulation which is assimilated direct legislation, or any subordinate legislation (within the meaning of the Interpretation Act 1978) made under the CSD regulation on or after IP completion day.

Access to settlement facilities

38

• (1) The central securities depository must make transparent and non-discriminatory rules, based on objective criteria, governing access to settlement facilities provided by it.

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reporting of infringements

39

• (1) The central securities depository must have in place appropriate procedures for its employees to report actual or potential infringements of the CSD regulation , any EU regulation originally made under the CSD regulation which is assimilated direct legislation, or any subordinate legislation (within the meaning of the Interpretation Act 1978) made under the CSD regulation on or after IP completion day, internally through a specific, independent and autonomous channel.

• (2) The protections set out in points (b), (c) and (d) of Article 65(2) of that regulation (reporting of infringements) must be applied in relation to those procedures.

Investment services and activities

40

• (1) A central securities depository providing investment services and activities in addition to the services explicitly listed in Sections A and B of the Annex to the CSD regulation must comply with—

• (a) provisions of the law of the United Kingdom relied on by the United Kingdom before IP completion day to implement the markets in financial instruments directive, except for Articles 5 to 8, 9(1), (2) and (4) to (6) and 10 to 13 of that directive—

• (i) as those implementing provisions have effect on IP completion day, in the case of rules made by the FCA or the Prudential Regulatory Authority under the Act, and

• (ii) as amended from time to time, in all other cases; and

• (b) the markets in financial instruments regulation, any EU regulation originally made under the markets in financial instruments regulation which is assimilated direct legislation, or any subordinate legislation (within the meaning of the Interpretation Act 1978) made under the markets in financial instruments regulation on or after IP completion day.

• (2) Until 3rd January 2018—

• (a) the reference in sub-paragraph (1)(a) to Articles 5 to 8, 9(1), (2) and (4) to (6) and 10 to 13 of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments (recast) is to be read as a reference to Articles 5 to 10b of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, and

• (b) sub-paragraph (1)(b) does not apply.

High message intraday rate

3A

• (1) For the purposes of the definition of “high-frequency algorithmic trading technique” in regulation 3(1), a high message intraday rate consists of the submission on average of either of the following—

• (a) at least 2 messages per second with respect to any single financial instrument traded on a trading venue;

• (b) at least 4 messages per second with respect to all financial instruments traded on a trading venue.

• (2) Paragraphs (3) to (7) have effect for the purposes of the calculation in paragraph (1).

• (3) The following are to be included in the calculation—

• (a) messages concerning financial instruments for which there is a liquid market in accordance with Article 2(1)(17) of the markets in financial instruments regulation;

• (b) messages introduced for the purpose of a market-making strategy that satisfies the criteria in paragraph (4).

• (4) A market-making strategy satisfies the criteria in this paragraph where the strategy—

• (a) is pursued by an investment firm as a member or participant in one or more trading venues when dealing on own account, and

• (b) involves posting firm, simultaneous two-way quotes of comparable size and at competitive prices relating to one or more financial instruments on a single trading venue or across different trading venues, with the result of providing liquidity on a regular and frequent basis to the overall market.

• (5) Messages introduced for the purpose of dealing on own account are to be included in the calculation.

• (6) Messages introduced through trading techniques other than those relying on dealing on own account are to be included in the calculation where the firm’s execution technique is structured in such a way as to avoid the execution taking place on own account.

• (7) For the calculation of a high message intraday rate in relation to direct electronic access providers, messages submitted by their clients with direct electronic access are to be excluded from the calculations.

• (8) In this regulation “dealing on own account” means trading against proprietary capital resulting in the conclusion of transactions in one or more financial instruments.

Recognition requirements for investment exchanges

Recognition requirements for clearing houses which are not central counterparties

Recognition requirements for central counterparties

Recognition requirements for central securities depositories

Method of satisfying recognition requirements

Dealings and transactions not involving investments

Exchanges and clearing houses which do not enter into market contracts

Effect of recognition under the Financial Services Act 1986

Revocation of recognition: action taken before commencement

FCA rules

Significant damage to investors’ interests or orderly functioning of financial markets

7F

• (1) This paragraph applies for the purposes of paragraph 7E(1).

• (2) The following are circumstances in which a suspension or removal from trading of a financial instrument would be likely to cause significant damage to the interests of investors or the orderly functioning of the financial markets—

• (a) where it would create a systemic risk undermining financial stability, such as where the need exists to unwind a dominant market position, or where settlement obligations would not be met in a significant volume;

• (b) where the continuation of trading on the trading venue is necessary to perform critical post-trade risk management functions when—

• (i) as a result of the default of a clearing member there is a need for the liquidation of financial instruments under the default procedures of a central counterparty, and

• (ii) a central counterparty would be exposed to unacceptable risks as a result of an inability to calculate margin requirements;

• (c) where the financial viability of the issuer would be threatened, such as where it is involved in a corporate transaction or capital raising.

• (3) In determining in any other circumstance whether a suspension or removal would be likely to cause significant damage to the interests of investors or the orderly functioning of the financial markets, the exchange must have regard (among other things) to the following—

• (a) the liquidity of the market concerned, taking account of the fact that the consequences of a suspension or removal are likely to be greater where the market is more liquid;

• (b) the nature of the suspension or removal where actions with a sustained or lasting impact on the ability of investors to trade a financial instrument on trading venues, such as removals, are likely to have a greater impact on investors than other actions;

• (c) the knock-on effects of a suspension or removal on sufficiently related derivatives, indices or benchmarks for which the removed or suspended instrument serves as an underlying or constituent;

• (d) the effects of a suspension on the interests of market end-users who are not financial counterparties, such as entities trading in financial instruments to hedge commercial risks.

• (4) In this paragraph—

• “clearing member”, in relation to a central counterparty, means an undertaking which participates in the central counterparty and which is responsible for discharging the financial obligations arising from that participation;

• “financial counterparty” has the meaning given in Article 2(8) of Regulation (EU) 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC derivatives, central counterparties and trade repositories;

• “issuer”, in relation to a financial instrument, means the person who issued the instrument.