PS23/4: Improving equity secondary markets

Following the launch of a consultation (CP22/12) on proposed revisions to the operating rules of UK-based equity markets (changes to the Retained Markets in Financial Instruments Regulation (UK MiFIR)), the Financial Conduct Authority, FCA, has now published a corresponding final policy statement (PS23/4). Therein, the regulator briefly summarizes the feedback it has received to its consultation and stipulates the final rules as they came or will come into force in accordance with the above noted timeline.
To recall, in an effort to streamline the obligations as regards transactions reporting and transaction disclosures of trading venues and investment firms and concurrently to improve the overall transparency in equity markets to foster decision making and market liquidity, the FCA proposed to
– no longer require all transactions to be reported on, but only those that serve(d) price forming functions.
– revise the OTC trade reporting framework where after systematic internalizers (SI) are the ones responsible for publication of OTC transactions to replace it with a „new designated reporter regime (DRR)“. Such regime would no longer require trading counterparties to assess the status of the other counterparty as SI to determine reporting responsibilities.
– revise the forms for trade reporting including individual fields to make them simpler and fit for purpose.
– permit trading venues – for instruments where a foreign market is the primary market – to use the tick size regime used by foreign trading venues for affected instruments, so long as the tick size is smaller than the one in the UK.
– permit dark pool trading venues that operate under a reference price waiver to use reference prices from markets other than non-UK primary markets so long as these prices are „robust and transparent“.
The FCA also consulted on new guidelines regarding the resilience of trading venues to power outages and on ways to further improve the best execution of trade orders for clients.
In its policy statement now, the FCA confirms that it will go ahead (went ahead) with above noted changes as far as the transaction reporting and disclosures are concerned. The Authority will thereby make (made) minor amendments based on the feedback it has received to its consultation. In general, the FCA notes that the feedback was highly supportive of the proposed modifications. Some concerns arose as regards the differences in rules for firms operating both in the EU and in UK and as regards the – back then proposed – implementation timeline. Also, some respondents sought to have alternative options under the DRR. Therefore, the FCA has
– extended the implementation timeline to provide an additional 12 months for most transparency requirements;
– provided for an additional option under the new „designated reporter regime“ to allow systematic internalizers to bilaterally agree upon individual reporting obligations; and
– made adjustments to the scope of exemptions and to reporting flags as regards the content of post-trade transparency.
As far as the proposed guidelines on power outages are concerned, the FCA states it has established a sub-committee within the FCA’s Secondary Markets
Advisory Committee (S-MAC) „to consider developing good practices for trading venues and investment firms“.