Tag Archives: FCA

MiFID II: Jargon-buster

The EU Markets in Financial Instruments Regulation EU/600/2014 (MiFIR) and Markets in Financial Instruments Directive 2014/65/EU (together referred to as MiFID II) will apply from 3 January 2018.  This date is much closer than it seems and banks and investment firms are currently scrambling to implement MiFID II-compliant measures in their systems, controls and client documentation.

MiFID II replaces and partially recasts the existing MiFID regime under the directive 2004/39/EC (MiFID I) and in many places introduces new concepts or extends the meaning of existing concepts.

In this piece, I consider some of the main new MiFID II concepts and the inevitable jargon that goes with them.

Algorithmic or high-frequency trading (HFT): trading in financial instruments by a computer algorithm with limited or no human intervention.  MiFID II will require such trading to be conducted by authorised investment firms, be supervised and have controls and other safeguards to ensure it does not cause any disruption in the market.

APA (Approved Publication Arrangement): MiFID II introduces the concept of an APA who will assist in price discovery by publishing post-trade transparency data.  An APA could be a new market participant or a new activity conducted by Trading Venues such as exchanges.  An APA will be subject to authorisation and organisational requirements.

ARM (Approved Reporting Mechanism): a new concept introduced by MiFID II for enabling transaction reporting by investment firms to regulators.  An ARM will be subject to authorisation and organisational requirements.

CTP (Consolidated Tape Provider): MiFID II envisages a new provider that will consolidate post-trade disclosures and make them publicly available (a continuous electronic live data stream providing price and volume data).  A CTP  will be subject to authorisation and organisational requirements.

DRSP (Data Reporting Service Provider): an APA, ARM or CTP.

Financial Instruments: this is a wider concept under MiFID II and refers not only to shares and other “transferable securities” but also to money-market instruments, units in collective investment schemes, emission allowances and derivatives such as options, futures, swaps and forward rate agreements.

Independent Advice: the provision of personal recommendations to a client.  MiFID II will oblige firms to ensure that staff are not remunerated or assessed in a way that could conflict with the duty to act in a client’s best interest.

OTF (Organised Trading Facility): a trading venue for bonds, structured products or derivatives (i.e. non-equity financial instruments).  This is a new concept and MiFID II will now regulate OTF platforms (e.g. broker crossing networks).

MTF (Multilateral Trading Facility): a venue where financial instruments can trade outside of a regulated market e.g. an internal matching system at a firm that executes client orders in shares.  This is a MiFID I concept but MTFs (as also OTFs) will now need enhanced financial resources, measures for risk management and conflicts of interest identification.

Post-trade transparency: publication of transaction data via an APA by the operators of Trading Venues or SIs immediately following a trade – to be available on commercial terms immediately or for free after 15 minutes.

Pre-trade transparency: continuous publication of bid and offer prices of financial instruments by operators of Trading Venues (e.g. exchanges) or publication of firm quotes by SIs, in either case, before a trade takes place.

Regulated Market: a stock market or exchange regulated by an EU member state for trading in publicly-listed financial instruments e.g. the London Stock Exchange.

SME Growth Market: a new category of MTF that will enable small and medium-sized entities (SMEs) to access capital.  At least 50% of the issuers on such an MTF must be SMEs.

SI (Systematic Internaliser): traditionally called “market maker” this is an investment firm which routinely deals on its own account by executing customer orders in shares outside a Trading Venue such as an exchange.  MiFID II will extend this concept to cover all financial instruments not just shares.  SIs will also need to publish firm quotes and post-trade data.

Trading Venue: an OTF, MTF or Regulated Market.  MiFID II will require Trading Venues to have better systems, controls and circuit-breakers and there will be rules on minimum tick size (price increments).  They will also need to publish annual data on execution quality.

Transaction Reporting: MiFID II envisages the reporting of transaction data by investment firms that execute transactions in financial instruments to the regulator (e.g. the FCA) within 1 day of the trade via an ARM.

TTCA (Title Transfer Collateral Arrangement): this not a MiFID concept as such but MiFID II prohibits firms from entering into TTCAs with retail clients and obliges firms to consider the appropriateness of a TTCA for the other categories of clients – i.e. professional clients or eligible counterparties.




FCA signs MoUs with other UK regulators the ICO and ASA

IMG_0101On 28 January 2015, the UK’s Financial Conduct Authority (FCA) published a Memorandum of Understanding (MoU) dated 29 September 2014 that it has entered into with the Information Commissioner’s Office (ICO) in relation to their “separate but overlapping mandates” as regulators.  It covers the following areas:

  • Roles and responsibilities of the FCA and ICO
  • Co-operation
  • Information sharing
  • Policy and rule-making
  • Investigation and enforcement
  • Confidentiality

The MoU will facilitate co-ordination between the FCA and the ICO in relation to their responsibilities under the Financial Services and Markets Act 2000 (FSMA), the Data Protection Act 1998 (DPA), the Freedom of Information Act 2000 (FOIA), the Privacy and Electronic Communications (EC Directive) Regulations 2003 (SI 2003/2426) (PECR), the Environmental Information Regulations 2004 (SI 2004/3391) (EIR) and the INSPIRE Regulations 2009 (SI 2009/3157).

The FCA has also entered into an MoU with the Advertising Standards Authority (ASA) dated 3 December 2014, which covers the following areas:

  • Roles and responsibilities of the FCA and ASA (including the ASA’s remit over financial advertising)
  • Co-ordination
  • Information sharing
  • Policy and rule-making
  • Investigation and enforcement
  • Confidentiality

The MoU will facilitate co-ordination between the FCA and the ACA in relation to FSMA, UK Code of Non-broadcast Advertising, Sales Promotion and Direct Marketing (CAP Code), UK Code of Broadcast Advertising (BCAP Code) and other relevant legislation.

Beyond LIBOR: UK to extend manipulation offence to 7 more benchmarks

The LIBOR fixing scandal led to the establishment of a new regime and regulation governing how the benchmark LIBOR (London Inter-Bank Offered Rate) is calculated and administered and an offence of benchmark manipulation under the Financial Services Act 2012  that is punishable by up to 7 years’ imprisonment.

On 22 December 2014, the UK’s HM Treasury published the government’s response to their September 2014 consultation on extending this new regulatory regime to these seven other benchmarks:

  • WM/Reuters’ FX benchmark rates (WMR) – the main global forex benchmark
  • Sterling Overnight Index Average (SONIA) & Repurchase Overnight Index Average (RONIA) –  reference rates for unsecured Sterling overnight funding administered by WMBA
  • ISDAFix – principal benchmark for swap rates and spreads for interest rate swaps administered by ICE
  • ICE Brent Index – the crude oil futures benchmark
  • LBMA Gold Price (currently London Gold Fix whose administration is being taken over by ICE in early 2015)
  • LBMA Silver Price (administered by CME Group and Reuters)

HM Treasury intends to lay draft legislation before Parliament in early in 2015 so that changes can be debated and the new legislation can commence on 1 April 2015.

Alongside these measures, the UK’s Financial Conduct Authority (FCA) as the regulator with oversight of the benchmark regime, has launched a consultation on how it proposes to regulate the various firms administering these benchmarks.  This outlines the FCA’s proposed changes to the Market Conduct sourcebook (MAR) and the Supervision manual (SUP) of the FCA Handbook.  The consultation is open until 30 January 2015.

It is expected that this regulatory regime may in the future be modified or superseded by the EU’s Benchmark Regulation that is currently being debated by the European Council but it is not expected to be in place in the near future.

New Year but same old from the FCA

Happy New Year 2015 to readers of The Flaw!

It may be a new year but the UK’s Financial Conduct Authority (FCA) picked up right where it left off in 2014 by taking another headline-grabbing piece of enforcement action.  In its crosshairs this time were Execution Noble & Company – the 140 year old City firm which was acquired in 2010 by Banco Espirito Santo de Investimento, S.A. and is now part of Espirito Santo Investment Bank.

In a press release on 6 January 2015, the FCA said that Execution Noble was fined £231,000 (reduced from £330,000 for early settlement) for breaches of the Listing Rules in relation to sponsors having failed to tell the FCA’s UK Listing Authority (UKLA) that two thirds of its sponsor team – including the individuals responsible for leading and executing sponsor services – had left between June and November 2013, and for continuing to market itself as a competent sponsor during that time.

Click here for the FCA’s Final Notice dated 18 December 2014 in relation to this case.