UK FCA Invites Comments on Regulation of Secondary Trading of Financial Instruments under MiFID II

The UK Financial Conduct Authority ("FCA") published a consultation paper in which it proposed revisions and requested comments on its regulation of the secondary trading of financial instruments in its first Markets in Financial Instruments Directive II Implementation ("MiFID II").

The paper seeks comment relating:

• Trading Venues:
  • Regulated Markets: new obligations relating to algorithmic and high-frequency trading, direct electronic access, tick sizes, business continuity and systems and controls;
  • Multilateral Trading Facilities ("MTFs"): strengthening conflicts-of-interest requirements; and
  • Organized Trading Facilities: requirements for this new category of trading venue.
• Systematic Internalizers ("SIs"): changes to the SI regime as applicable under Markets in Financial Instruments Regulation ("MiFIR");
• Transparency: the expansion of transparency requirements to equity-like and non-equity markets, including the FCA's approach to pre-trade transparency waivers and post-trade transparency deferrals;
• Market Data: the new Data Reporting Services Providers category of firms and their responsibilities, and Transaction Reporting. (The FCA is seeking proposals concerning whether it should apply MiFID II's transaction reporting obligations to managers of collective investment undertakings and pension funds);
• Algorithmic and High-Frequency Trading Requirements: business continuity, systems and controls, financial crime and market abuse, direct electronic access, and tick sizes;
• Passporting and UK Branches of Non-European Economic Area ("EEA") Firms: technical changes needed to make the correct references to the new MiFID II provisions and to highlight the harmonized forms required for passporting notifications. (The FCA also made a proposal to ensure that UK branches of non-EEA firms are subject to the same rules as investment firms when undertaking investment services and activities.)

The FCA noted that although MiFID II is scheduled to be effective on January 3, 2017, a range of matters in MiFID II must be addressed, including the conduct of business issues, where too much uncertainty remains to allow proposals on implementation to be finalized. Accordingly, the FCA said that it plans to publish "at least one further consultation paper covering these outstanding matters during the first half of 2016."

Responses to the consultation paper must be submitted by March 8, 2016.