Financial Services analysis: Rosali Pretorius, partner at Dentons, considers the Financial Conduct Authority’s (FCA) finalised multilateral trading facility (MTF) guidance.
FCA publishes finalised MTF guidance, LNB News 15/04/2015 161
Finalised guidance published by the FCA sets out the key FCA Handbook (MAR 5) requirements (including pre and post-trade transparency, reporting and monitoring of compliance with the rules of the MTF) and the FCA’s Good Practice Observations relating to MTF operator rulebooks.
What is the background to the new guidance?
The FCA in December 2014 undertook a consultation reviewing MTF arrangements, consulting with 16 different firms. It has now produced this guidance after considering the responses to that consultation. I suspect that the FCA was concerned that there was starting to be too much variation in the approach taken by different MTFs to documentation and other requirements.
I welcome this guidance, because in my view MTFs were always meant to comply with MAR 5. Some of the practices that the FCA highlight in my view do not actually comply with it, which can leave advisers in a difficult position at times. So the guidance is good in terms of setting out the FCA’s expectations and hammering them home to MTF operators.
Who will it affect?
Operators of MTFs, to the extent that they haven’t complied already with MAR 5 requirements, though I would expect that many operators already comply.
How does the guidance deal with any particular areas of concern or interest to those affected?
The requirements relating to disclosure of fees and incentive schemes are potentially onerous, but they have been postponed until January 2017 to coincide with the coming into force of MiFID II (Directive 2014/65/EU). Generally speaking, however, I don’t think the guidance is unduly onerous for operators who have considered the existing rules properly, and actually clarifies that much flexibility is available for instance, around settlement arrangements.
How and when will it be implemented?
Some of this is just confirmation of what’s already out there, so it’s not a question of making new rules.
Many operators had argued that there was no need to publish a rulebook. They say rulebooks might contain confidential information. The FCA guidance now clarifies that MTF operators have to publish a rulebook, but supplementary documents can be published elsewhere. I have always done this for MTF clients, so I am surprised about the levels of variance in terms of what the FCA has discovered. Those who haven’t published a rulebook in the past, will need to consider whether they need to split whatever they provide to members into something they feel can be publicly disclosed on their website, and a second confidential document such as membership or user agreements which effectively support that rulebook.
What should lawyers advise their clients in light of the new guidance?
Many firms will already be operating consistently with the requirements, but MTF operators should check their existing rulebook and member and/or user agreements against MAR 5 and the new guidance. The FCA likes to see that this has been considered properly, and in my experience, likes a table comparing the requirements with the rules and contracts.
Where does this fit with other developments with the FCA?
This guidance essentially confirms what is out there already. Trading venues are proliferating. The FCA is naturally concerned, and wants assurance that, all those trading venues comply with all existing requirements to ensure transparent and orderly markets continue to be a concern and a goal. The FCA says it will continue to work with MTF operators around requirements in this area. I can appreciate that some operators have concerns about the disclosure of fees requirements, but I think it’s helpful that the FCA has highlighted this issue. Operators should start to consider their arrangements against the directive.
This article first appeared in the May 2015 edition of LexisPSL. Written by Rosali Pretorius in Dentons' London office.