On November 4, the UK’s Financial Conduct Authority (FCA) published a statement regarding its approach to the UK share trading obligation (STO) after the end of the Brexit transition period.

The FCA’s statement follows the recent statement made by the European Securities and Markets Authority (ESMA), in which ESMA set out its final position on the STO as it applies to EU investment firms (see the October 30, 2020 edition of Corporate & Financial Weekly Digest). The FCA’s approach reflects its continued view that the International Securities Identification Number (ISIN) or currency that a share carries and trades in does not, and should not, determine the scope of the STO. The FCA also maintains that mutual equivalence between the United Kingdom and European Union should be easy to agree and remains the best way of dealing with overlapping STOs.

The FCA states that it will use its Temporary Transitional Power (TTP) to allow UK investment firms to continue trading shares on EU trading venues and systematic internalisers (SIs) where they choose to do so, and where the regulatory status of those venues and SIs permits such activity. The FCA will publish a transitional direction to give effect to this approach before the end of the transition period. However, it will monitor market developments closely and review its use of the TTP if conditions change.

Under the FCA’s approach, all EU trading venues that continue to have UK participants or undertake a relevant regulated activity in the United Kingdom from the end of the transition period will need to:

  • be a UK recognized overseas investment exchange;
  • use the FCA’s Temporary Permissions Regime; or
  • be certain that their activities meet all of the conditions required in order to benefit from the UK’s overseas persons exclusion.

The FCA goes on to state that it will discuss with market participants and trading venues the future steps that may be needed to protect the integrity of UK markets and to ensure that UK participants can continue to achieve high standards of execution for their clients.

The FCA’s statement is available here.