On March 24, 2016, the Prudential Regulation Authority published its proposals for transposing certain aspects of the Markets in Financial Instruments legislative package, which comprises the Markets in Financial Instruments Directive and the Markets in Financial Instruments Regulation, collectively known as MiFID II. The PRA’s proposals relate to the passporting regime and algorithmic trading only—the PRA will consult on other aspects related to MiFID II in due course.
Under MiFID II, the scope of the passporting regime has been extended to include the operation of an organized trading facility (a new type of trading venue for non-equity instruments) and emissions allowances. The PRA is proposing that firms that intend to extend their passports to these additional activities or investment types should notify the PRA. Existing passports will remain valid and unchanged. In addition, the PRA intends to use the new EU notification forms developed by the ESMA. Also, the current declaration for passport notifications under the Capital Requirements Directive will be extended to passport notifications made under MiFID II. For firms that want to passport their MiFID activities under their Capital Requirements Directive passport, the PRA will continue using the European Banking Authority’s forms.
MiFID II also introduces new rules on algorithmic trading. The PRA proposes to transpose the prudential requirements relating to algorithmic trading in a new part of the PRA Rulebook on Algorithmic Trading. The proposals include rules requiring firms that engage in algorithmic trading to ensure that their trading systems are resilient, have sufficient capacity, subject to appropriate trading thresholds and limits, prevent the sending of erroneous orders and do not contribute to a disorderly market. Firms would also need to have business continuity arrangements in place in the event of a failure, which would have to be tested and monitored.
Responses to the PRA’s proposals are due by May 27, 2016. The PRA proposals are subject to change dependent on the final requirements that are set out in the European Commission’s delegated acts on these requirements.
The PRA’s consultation paper is available at: http://www.bankofengland.co.uk/pra/Documents/publications/cp/2016/cp916.pdf.