Following a consultation in September 2022 (“CP22/18”), the UK Financial Conduct Authority (“FCA”) has published a policy statement (“PS23/11”) containing guidance on when a firm’s activities constitute those of a trading venue requiring authorisation.

In its statement, the FCA has sought, among other things, to clarify its view of what constitutes a “multilateral system” and how this concept should be applied to specific types of arrangements in financial markets.

The term “trading venue” covers three types of venues in the UK - regulated markets, multilateral trading facilities and organised trading facilities. Common to all three types of trading venue is the operation of a “multilateral system”, which has four elements: (i) it has the characteristics of a trading system or facility; (ii) it comprises multiple third-party buying and selling trading interests; (iii) it allows trading interests to interact in the system; and (iv) those trading interests are in financial instruments. The guidance provides further information on the FCA’s interpretation of such elements.

Notably, the guidance makes it clear that in determining whether a given system is considered multilateral or bilateral turns on whether the system, at the point of entry, enables one person to interact potentially with multiple others. The guidance also clarifies that the execution of a transaction does not need to take place within the system in order to meet the threshold for trading interests to “interact” in the system.

The guidance will be included in the FCA’s Perimeter Guidance Handbook (also known as PERG) and will come into force on 9 October 2023. This leaves a fairly short window for firms to become authorised if they conclude that they now fall within the regulatory perimeter based on the new guidance. The FCA has encouraged firms potentially affected by the guidance to contact the FCA.

The guidance reflects, to some extent, similar developments in the European Union, following the European Securities and Markets Authority opinion on the EU trading venue perimeter in February 2023, and in the United States, where the Commodity Futures Trading Commission issued a staff advisory in September 2021 on the triggers for registration as a swap execution facility.