On December 15, the Financial Conduct Authority (FCA) published an initial consultation paper (Consultation Paper) on implementing the revised and recast Markets in Financial Instruments Directive (MiFID II) and the associated Markets in Financial Instruments Regulation (MiFIR) into UK law and rules.

The Consultation Paper is likely to be the first of several given that the full suite of rules have not yet been finalized in Brussels by the European Commission. It covers topics where the FCA has enough certainty from Brussels regarding the final rules under MiFID II and MiFIR so as to be able to make its proposals regarding UK implementation. The FCA’s suggestions in the Consultation Paper cover, principally, key changes to the mechanisms required for the trading of financial instruments, including:

  • Trading venues. MiFID I brought new regulations to regulated markets, multilateral trading facilities (MTFs) and systematic internalizers. However, MiFID II and MiFIR will extend the existing rules and apply these extended rules to existing venues and to a new type of venue to be known as “organized trading facilities” (OTFs). The FCA has proposed making changes to its Recognized Investment Exchanges sourcebook and its Market Conduct sourcebook (MAR) to cover these new venues and associated terminology changes. There also will be a new and separate chapter in MAR to cover OTFs.
  • Transparency. The FCA has proposed changes to its rules to deal with the expansion of transparency requirements to equity-like and non-equity markets under MiFID II and MiFIR.
  • Market data. A new chapter 9 of MAR will cover data reporting service providers and their responsibilities.
  • Algorithmic and high-frequency trading requirements. The FCA’s proposed changes to MAR 5 and a new MAR 7 will cover business continuity, systems and controls, financial crime, and market abuse for algorithmic and high frequency trading firms.
  • Perimeter Guidance manual (PERG). The FCA has proposed changes to chapter 13 of PERG to take account of the changes to the scope of investment services and activities, and financial instruments.

The FCA’s consultation suggested that the new rules will close on March 8, 2016, and will be followed in the first half of 2016 by a policy statement with the final rules.

As referenced in Corporate and Financial Weekly Digest in recent weeks, there have been statements and discussions in Brussels recently regarding whether the European Union is, in fact, ready for MiFID II and MiFIR to come into effect on the proposed January 3, 2017 implementation date. It seems likely (though not yet confirmed) that it may be delayed.

The Consultation Paper is available here.