The FCA has published a revised note on the process for making notifications to the FCA in order to benefit from the exemption for market making activities and primary market operations under Regulation (EU) 236/2012 on short selling and certain aspects of credit default swaps. The note takes into account the Guidelines issued by the European Securities and Markets Authority (ESMA) on the exemption, which come into force on 2 June 2013.

Firms that have already notified the FSA or the FCA are not required to notify the FCA that they intend to continue using the exemption. However, they must make a notification if they wish to vary the financial instruments they wish to use the exemption for.


  • ‘market making activities’: the activities of an investment firm, a credit institution, a third-country entity, or a firm which is a member of a trading venue or of a market in a third country (whose legal and supervisory framework of which has been declared equivalent*) where it deals as principal in a financial instrument, whether traded on or outside a trading venue, in any of the following capacities:
    • by posting firm, simultaneous two-way quotes of comparable size and at competitive prices, with the result of providing liquidity on a regular and ongoing basis to the market
    • as part of its usual business, by fulfilling orders initiated by clients or in response to clients’ requests to trade
    • by hedging positions arising from the fulfilment of either of the above
  • ‘authorised primary dealer’: a natural or legal person who has signed an agreement with a sovereign issuer, or has been formally recognised as a primary dealer by or on behalf of a sovereign issuer, and who, in accordance with that agreement or recognition, has committed to dealing as principal in connection with primary and secondary market operations relating to debt issued by that issuer.

The exemption

The exemption is available to persons that have made a legitimate notification to the relevant competent authority at least 30 days before the exemption is intended to be employed and where the competent authority has not prohibited its use. However, the exemption only applies to transactions carried out in performance of market-making activities or as authorised primary dealers; they do not apply to the entire scope of activities the notifying person carries out:

  • Article 17(1) of the Regulation exempts transactions performed due to market making activities from net short position transparency requirements, the restrictions on uncovered short sales in shares and sovereign debt, and the prohibition to enter into uncovered sovereign CDS positions.
  • Article 17(3) of the Regulation exempts persons acting as authorised primary dealers from having to notify net short positions in sovereign debt, from the restrictions on uncovered short sales in sovereign debt instruments and from the prohibition on entering into uncovered sovereign CDS positions.

The note refers to, and the Guidelines set out in more detail, the principles and qualifying criteria that set the standards competent authorities must take into account when assessing whether an entity notifying an exemption is entitled to benefit from it. In addition to specific principles for assessing each of the market-making capacities defined above, the general principles for the market making exemption include, inter alia:

  • maintenance of records of orders and transactions relating to exempted market making activities which allow these to be easily distinguished from proprietary trading activities
  • procedures to ensure these activities can be immediately identified and records are readily available
  • effective procedures to monitor exempted market making activities

Persons who have given a notification are required to submit a further notification to the FCA in the event that any change occurs that affect their eligibility, or intention, to use the exemption. Firms will need to consider any such changes by reference to the principles and qualifying criteria set out in the Guidelines

Which authority must be notified

  • Person wishing to use the market maker exemption must notify the competent authority of their home Member State
    • Firms whose home state is the UK must notify the FCA
  • Third-country entities not authorised in the EU that wish to use the market maker exemption must notify the competent authority of the main trading venue in the EU in which they trade – i.t. the trading venue on which the firm is most active, to be assessed based on turnover in the course of the previous year per trading venue (regulated market or MTS) when performing market making activities in Europe
    • If that venue is within the UK, firms must notify the FCA.
  • Authorised primary dealers are required to notify the competent authority of the Member State of the sovereign debt concerned:
    • Firms wishing to use the exemption in relation to UK sovereign debt must notify the FCA, and must provide evidence of their agreement with, or a record of their formal recognition as a primary dealer on behalf of, the UK sovereign issuer
Forms for FCA notifications
Notifiers intending to use the exemptions should use either the SSR-1 form (for market-makers, ‘MM’) or the SSR-2 form (for Authorised Primary Dealers, ‘APD’”) and appropriate annexes:

Prohibiting the use of the exemption

It is important to note that it is open to the FCA at any time to prohibit use of the exemption where there have been changes in the circumstances of the notifying person, such that it no longer satisfies the conditions of the exemption. This could result either from the FCA’s own assessment or from a subsequent notification received from the notifying person indicating a change that would affect its ability to use the exemption.

In that event, the FCA will send a letter to the firm setting out the reasons why it is minded to prohibit the firm from using the market maker exemption or the authorised primary dealer exemption, and senior staff (who were not involved in initial consideration of the notification) will make their decision having regard to the notification and to any written representations made by the firm (FINMAR 2.6.2G).

If not satisfied with the FCA’s decision, the firm may seek a review of the decision. That review will be conducted by at least three senior FCA staff not connected with the earlier decision taken in respect of the use of the market maker exemption or the authorised primary dealer exemption. The review will not necessary take place before the expiry of the 30 day period in which the notification should be made under the short selling regulation, but will take place within 3 months of the initial decision to prohibit the use of the exemption (FINMAR 2.6.3G)