PS23/11: Guidance on the trading venue perimeter

Following a public consultation (CP22/18) on „Guidance on the trading venue perimeter“, in other words on guidance on the application of trading venue regulations towards specific market participants and systems (e.g. voice brokers or bulletin board operators), the Financial Conduct Authority (FCA) has now published a policy statement (PS23/11) in this context. In it, the Authority summarizes the responses it has received to its consultation, describes the changes it has made to the draft that was consulted on based on the obtained feedback, and sets out the final guidance as it will apply from October 9, 2023.
To recall, with the proposed modifications to the Perimeter Guidance Manual (PERG), the FCA sought to clarify which participants, systems, or platforms would qualify as „trading venues“ and would thus be subject to trading venue requirements such as registration obligations, transaction reporting obligations, and other distinguished requirements.
In detail, the FCA proposed to revise PERG for investment services and activities by adding numerous questions and answers (Q&As) to clarify
– the meaning of the term „multilateral system (MLS)“ for purposes of the application of trading venue requirements; and
– whether or not and – if so – under which circumstances the following market participants and activities would qualify as a MLS:
– operators of bulletin boards;
– investment-based crowdfunding firms operating primary market platforms;
– portfolio managers executing trade orders of multiple clients „against“ each other via means of internal trade matching;
– firms blocking trades for specific purposes on behalf of their clients; and
– communication technology providers and voice brokers.
In its final policy statement now, the FCA notes that in large, respondents welcomed the clarification, although consent was definitely greater among system operators and managers that are already registered as a trading venue (highly supportive of the PERG modifications). Those respondents that are not currently registered as a trading venue and instead operating under some other permission typically felt that the issuance of the guidelines would impose further restrictions and limit operational flexibility.
As a consequence to the feedback received, the FCA has only made some minor changes to the proposed version for clarification purposes only. One change was made to correct a wrong reference to MiFID RTS 1 and 2 in new question: Q24D: Does voice broking involve the operation of a multilateral system?
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Concerning the feedback on measures the FCA could take in order to facilitate competition among firms offering multilateral systems and reduce entry barriers and ongoing regulatory requirements for smaller, less significant MLS, the FCA received the following feedback, which will not be used for regulatory purposes, so the regulator:
The complexity of regulatory requirements in the trading venue market was seen as a key barrier for smaller firms, but – at the same time – many respondents stated that they believe these requirements to be necessary for investor protection. Furthermore, the need for multiple regulatory systems in different jurisdictions would add to the barrier for smaller operators. As far as connectivity and aggregation service providers are concerned, they face resistance from incumbent trading venues, which hinders their transition to becoming trading venues. On top, high costs associated with platform oversight, regulatory compliance, and market data reporting are additional barriers, particularly for smaller firms. Some respondents suggested that requirements should be more scalable based on factors like revenue, balance sheet asset size, and trading methods, while others argued that requirements should apply uniformly to all trading venues regardless of size.