FCA Sounds Warning on Trading Platform Perimeters

The UK’s Financial Conduct Authority (FCA) says it expects trading venues to ensure that those who operate a multilateral trading system have “satisfied” themselves that they hold the correct regulatory permissions and they are able to justify their decisions around whether they register as authorised trading venues.

The regulator sent the warning in a “Dear CEO” letter on Friday, outlining its “strategy for supervising trading venues over the next two years.” The letter targeted companies that are included in at least one of the three categories of regulated trading venues, recognised investment exchanges, multilateral trading facilities or organised trading facilities.

The FCA says it expects CEOs to discuss the issues set-out in the letter “as soon as practically possible” with fellow directors and company boards and it urges that they agree actions and any next steps. “We have also provided greater clarity on when firms may be operating a multilateral system and so require authorisation as a trading venue,” Jon Relleen, director, infrastructure and exchanges in the FCA’s supervision, policy and competition for markets division writes in the letter. “Greater clarity about the trading venue perimeter helps maintain a level playing field, which supports effective competition, while also facilitating innovation by offering firms greater certainty about the rules that will apply to them.

“Firms operating multilateral trading systems must have satisfied themselves that they hold the correct regulatory permissions and we will continue to engage with firms on our perimeter guidance where necessary,” he adds.

The warning comes more than a year after the FCA published its guidance around the so-called trading platform perimeters that set-out the rules around what functionalities require platforms to apply for authorisation as a regulated venue. This applies for non-spot instruments and it comes concurrently with European regulatory updates from ESMA.

The issue has caused much grumbling in markets due to the high costs of registering and maintaining a regulated trading venue and due to many firms looking for work-arounds to avoid applying and the subsequent damage to their bottom lines. The other problem is that trading venues that have registered and run a regulated market place have been shelling out millions of dollars but they have been slow to get rewarded by clients for becoming compliant with regulations.

The letter also emphasises the need for platforms to ensure they take all necessary steps to be in good shape around operational resilience and they have systems and controls in place to deal with high volatility and periods of stress to maintain orderly markets at all times. “In the coming period, our supervision will focus on the preparedness of Recognised Investment Exchanges (“RIEs”) for the new regulatory framework surrounding operational resilience confirmed by PS21/3,” the FCA states.

The FCA adds that RIEs must have identified their important business services, set impact tolerances for them, and have performed mapping and testing to provide assurance that these can be met by 31 March 2025. It will also select “certain” multilateral trading facilities (MTFs) and organised trading facilities (OTFs) for further