FCA comments on increased use of “Periodic Auctions” after-MiFID II
The FCA has published a webpage on the use of periodic auction platforms as a method for share trading in light of their significantly increased use since the introduction of MiFID II.
The FCA describes periodic auctions as follows:
“The operator collects offers to sell shares at or above a minimum price and buy at or below a maximum price specified by the selling or buying firm respectively. The auction platform then determines a single ‘uncrossing’ price which maximises the amount of business which can be executed at the same uncrossing price.”
Periodic auction platforms are also subject to lower pre-trade transparency requirements under MiFID II than more traditional central limit order book (CLOB) trading platforms.
Unlike dark pools, periodic auctions are not subject to MiFID II’s double volume cap (DVC), which if exceeded for a security can result in dark pool trading in that security being suspended for up to six months.
The FCA notes two recent rises in volume of securities traded via periodic auction platforms: one following the introduction of MiFID II requirements on 3 January 2018 and the other following the application of the first MiFID II DVC on 12 March 2018.
The FCA has concluded that, although they remain a very small part of the market, it should nonetheless carry out further work to analyse equity trading as a whole to understand the market outcomes this is generating and how these outcomes align with MiFID II and FCA objectives regarding the impact on fair and orderly trading and market transparency. The FCA will consider the design, calibration and use of periodic auctions and it will publish further analysis of these issues as appropriate.
Read: The FCA's periodic auctions webpage
HM treasury publishes new regulations implementing provisions of the EU money market funds regulation
The UK’s Money Market Funds Regulations 2018 have been published, together with an explanatory memorandum. The Regulations enable the FCA to authorise money market funds (MMFs) and enforce the provisions of the EU MMF Regulation when it comes into force on 21 July 2018.
Regulation 2 amends the Financial Services and Markets Act 2000 (FSMA) to provide powers of authorisation and intervention for the FCA in respect of unit trust funds and contractual schemes, both of which may be types of MMF;
Regulation 3 amends the Open-Ended Investment Companies Regulations 2001 (the OEIC Regulations) to allow funds that are open ended investment companies (OEICs) to apply to become MMFs, or for funds that apply to be authorised as an OEIC to be authorised as an MMF at the same time;
Regulation 4 amends the Alternative Investment Fund Managers Regulations 2013 to permit the FCA to direct the manner in which an application may be made for an alternative investment fund (AIF) to be authorised as an MMF, and the process for intervention by the FCA in respect of such a fund; and
Regulation 5 enables the FCA to investigate and bring enforcement action against funds directly for breach of the MMF Regulation.
Read: The Regulations
Read: The explanatory memorandum
FCA issues website guidance on MiFID II remuneration requirements
The FCA has updated its website on remuneration. The changes reflect the provisions of Chapter 19F of the SYSC Sourcebook, which implements the requirements on staff incentives and the remuneration of sales staff and advisers of MiFID investment firms.
The FCA’s new website guidance indicates that all firms subject to SYSC 19F should ensure that their remuneration policies and practices:
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do not remunerate or assess staff in a way that conflicts with their duty to act in the best interests of the firm’s clients; and
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ensure that clients’ interests and the right to be treated fairly are not impaired by the remuneration practices adopted by the firm in the short, medium or long term.
The FCA also notes that, unlike its remuneration codes, SYSC 19F does not contain an equivalent concept of proportionality. This means that SYSC 19F applies in its entirety to all firms within scope.
Read: The FCA’s remuneration webpage
FCA advises firms to prepare for Brexit
In its latest regulation round-up, the FCA reiterated its advice that all firms should consider the impact of EU withdrawal on their activities and customers. This should be considered both in the event the UK leaves the EU in March 2019, and also the implications of a transitional period until December 2020, under which EU rules will continue to apply.
In this connection, if a firm undertakes business in the EEA it should consider the legal basis on which this occurs. This includes whether the firm needs additional regulatory permissions in light of EU withdrawal and whether customers need to be informed of any changes. Managers may also wish to discuss this with the relevant local regulator and/or seek legal advice, including foreign law advice.
The FCA acknowledges that planning for EU withdrawal will be a major focus for many firms over the coming year and says that it will make every effort to keep firms informed and updated. In this regard it is providing regular updates in its EU withdrawal pages.
Read: The FCA’s EU withdrawal webpage
