Article 2(1)(12) UK MiFIR is amended so that the existing definition of an SI is replaced by a simplified definition which will rely on FCA rules – which will replace the current more complicated criteria.

(Paragraph 8, Part 1 of Schedule 2¹)

The Commencement Regulations do not specify a date for this to come into force.

Restricting SIs’ ability to execute at midpoint to ‘large in scale’ orders was found, by the WMR, not to protect the quality of price formation, and may fetter SIs’ ability to achieve best execution for clients. Article 17a of UK MiFIR is accordingly amended, so that the ‘large in scale’ limitation is removed.

(Paragraph 9, Part 1 of Schedule 2)

The WMR found that the DVC, which limits the availability of the reference price waiver and negotiated waiver in respect of the pre-trade equity transparency requirements, has limited evidential basis to support its merits and may mean firms are less able to achieve the best outcomes for clients. UK MiFIR article 5 (which imposes the DVC) is accordingly deleted.

(Paragraph 5, Part 1 of Schedule 2)

The WMR found that there is no evidence that the STO was effective in encouraging trading on lit markets and increasing transparency, and concluded that removing this restriction would give firms greater ability to achieve the best outcomes for clients.

UK MiFIR article 23 (which sets out the STO) is being deleted, except for one subsection. The surviving article 23(2) is the distinct requirement that firms operating an internal matching system must have the FCA permission to operate a multilateral trading facility – and the article is retitled accordingly to reflect this.

(Paragraphs 13 and 14, Part 1 of Schedule 2)

The WMR considered whether elements of the pre-trade transparency waivers regime may be overly restrictive. Specifically, the reference price requirements for the reference price waiver to be available (i.e. the reference price must be sourced from the market of first admission or other relevant market – which may not be the most liquid market) limit firms such that they may be less able to achieve the best outcomes for clients.

UK MiFIR article 4 is replaced by new articles 4 and 4a, giving the FCA relevant powers to update the existing waivers regime.

(Paragraphs 3 and 4, Part 1 of Schedule 2)

EMIR REFIT’s exclusion of small financial counterparties from the CO led to a discrepancy between the scope of the CO and the scope of the DTO, which had previously been consistent.²

This created some uncertainty among market participants, so UK MiFIR article 28 is amended to realign respective scopes of the two obligations.

(Paragraphs 15 and 16, Part 1 of Schedule 2)

There is an exemption from the DTO for the termination or replacement of component derivatives in a portfolio compression, which is a type of PTRR service, to ensure such technical trades can be executed efficiently.³

There are other PTRR services where the same rationale can be applied. Accordingly, UK MiFIR article 31 is amended so that the FCA’s ability to make rules for such an exemption can be used for such services beyond portfolio compression.⁴

(Paragraph 18, Part 1 of Schedule 2)

The FCA’s use of its current temporary power to suspend or modify the DTO has shown that such a power can improve market functioning and resilience.

New FCA powers are inserted as article 28a of UK MiFIR to provide that the FCA can do this permanently.

The Commencement Regulations do not specify a date for this to come into force.

In line with the government’s overarching objective to give the regulators responsibility for firm-facing regulatory requirements, the Act delegates the fixed income and derivatives markets transparency regimes to the FCA, by amending articles 18, 21 and 22 of UK MiFIR.

Paragraphs 10, 11 and 12, Part 1 of Schedule 2)

The MiFID legislation requires the setting of position limits to be applied to commodity derivatives traded on trading venues and EE OTC contracts – but firms often had difficulty establishing whether an OTC contract was EE (and so in scope) and the WMR found support for taking EE OTC contracts out of scope of the relevant rules. More broadly the WMR found that it would be better for the scope of the commodity derivatives position limits and position reporting regimes to be narrower and clearer. The WMR also concluded that responsibility for setting position limits should be transferred to trading venues.

The Act inserts a new regulation 15A, and replaces regulation 16 of the MiFI Regulations, removing reference to EE OTC contracts. This is part of the broader set of changes giving the FCA powers in relation to commodity derivative position limits and reporting.

(Paragraphs 45 to 49, Part 4 of Schedule 2)