MAR 5

Alternative Trading Systems

MAR 5.1

Application and purpose

MAR 5.1.1

See Notes

handbook-guidance
This chapter is relevant to every firm that has, or intends to apply for, a Part IV permission and that:
(1) if it is a UK domestic firm, operates or proposes to operate an ATS from an establishment in the United Kingdom or elsewhere;
(2) if it is an overseas firm, operates or proposes to operate an ATS from an establishment in the United Kingdom.

MAR 5.1.2

See Notes

handbook-guidance
This chapter is subject to the provisions in ECO. For example, this chapter is not relevant to an incoming ECA provider acting as such.

Purpose

MAR 5.1.3

See Notes

handbook-guidance
The purpose of this chapter is to provide a framework for implementing several of the CESR ATS standards. The FSA considers that the implementation of these standards will protect consumers, promote market confidence, reduce financial crime and promote public understanding of the financial system. These standards, and therefore this chapter, do not apply to bilateral systems, which are excluded from the definition of an ATS.

MAR 5.2

Guidance about what constitutes an ATS

MAR 5.2.1

See Notes

handbook-guidance
MAR 5.2.2 G to MAR 5.2.8 G set out guidance on the meaning of the expressions ATS and bilateral system (as defined in the Glossary). This guidance is adapted from the guidance contained in the CESR ATS standards on the meaning of "qualifying system" (which is the term equivalent to ATS used in those standards).

"System"

MAR 5.2.2

See Notes

handbook-guidance
For the purposes of the definitions of an ATS and a bilateral system, a system is intended to include not only the electronic parts (if any) of a system but also any rules, protocols, procedures and agreements that make up the system. It is also intended to cover the various parts of a system whether provided directly by the ATS operator or by another person under an arrangement with the ATS operator.

"Price taking systems"

MAR 5.2.3

See Notes

handbook-guidance
A system may be an ATS although it does not directly involve price formation. For example, a price taking system such as certain crossing systems may be an ATS.

"Buying and selling interests"

MAR 5.2.4

See Notes

handbook-guidance
The expression buying and selling interests is intended to include not only orders, but also quotes and indications of interest.

"Brings together"

MAR 5.2.5

See Notes

handbook-guidance
Buying and selling interests will be regarded as being brought together in the system if they are brought together under the system's rules or by means of the system's protocols or internal operating procedures. The concept of bringing together is intended to cover any process under which interests interact; this may be by automatic matching, by way of selection of interests by users themselves or otherwise. It is not necessary that the interests be displayed to users. The fact that, after interests are matched, the users must ratify a proposed transaction does not mean that the interests are not brought together in the system. However, systems such as order routing systems where interests are transmitted but do not interact are not intended to be covered by the definition of an ATS.

"Non-discretionary rules"

MAR 5.2.6

See Notes

handbook-guidance
The reference to non-discretionary rules in the definition of an ATS is intended to exclude systems where the operator exercises discretion as to how the interests interact. However, the reference is not intended to exclude a system just because the operator has discretion as to whether or not to enter an interest into the system. It is also not intended to exclude a system just because users have discretion about whether or not to take up or accept any expression of interest.

Bulletin boards etc.

MAR 5.2.7

See Notes

handbook-guidance
A bulletin board or similar system where users contact each other outside the system (that is, not under the system's rules and not by means of the system's protocols or internal operating procedures) to negotiate the material terms of transactions will not be covered by the definition of an ATS.

Bilateral system/central counterparty

MAR 5.2.8

See Notes

handbook-guidance
The definition of an ATS excludes bilateral systems. The definition of bilateral system is intended to capture a system that is like an ATS except that a single person enters into one side of every transaction effected using the system. It is not however intended to cover central counterparty systems, where in substance participants deal among themselves but where their deals are assumed by the central counterparty as buyer and seller. A central counterparty will have a flat book unless there is a default or mistake, while typically the counterparty in a bilateral system will take principal positions in investments on a continuous basis. The definition of bilateral system is slightly flexible in that occasional crossings of client orders will not of itself make the system an ATS. It also includes a system where, rather than a single person, one of a number of persons in the same group enters into one side of every transaction effected using the system.

MAR 5.3

Notification of establishment of an ATS

Application for permission

MAR 5.3.1

See Notes

handbook-guidance
A person who applies for a Part IV permission and proposes to operate an ATS will be required to complete appropriate parts of the application pack relating to the operation of an ATS(see AUTH 3.9 (Procedures in relation to applications for Part IV permission)).

Variation of permission to operate an ATS

MAR 5.3.2

See Notes

handbook-guidance
If a firm that proposes to operate an ATS applies for variation of Part IV permission to carry on an additional regulated activity necessary to operate the ATS, the FSA considers that, for the purposes of SUP 6.3.20 G (Applications involving significant changes), the proposal will usually cause a significant change to the firm's business or risk profile. The FSA may therefore require the firm to complete the appropriate parts of the full application pack (see AUTH 3.9), as directed by the FSA.

Notice by firm that already has permission to operate an ATS

MAR 5.3.3

See Notes

handbook-guidance
If a firm that proposes to operate an ATS already has permission to carry on the regulated activity necessary to operate the ATS, the firm should give notice of the proposal to the FSA before it begins to operate the ATS, in accordance with Principle 11 (Relations with regulators). This is because the FSA considers that this is a business expansion that could have a significant impact on the firm's risk profile or resources (see SUP 15.3.8 G). When the FSA receives notice, it may request further information from the firm such as the completion of a systems form.

Notification of significant changes to ATS

MAR 5.3.4

See Notes

handbook-guidance
The FSA would also expect an ATS operator to give the FSA notice if there is any significant change to the operation of an ATS that it operates, in accordance with Principle 11 (Relations with regulators). Notice should be given as soon as reasonably practicable after the change.

MAR 5.4

Requirements to be imposed on the Part IV permission of an ATS operator

MAR 5.4.1

See Notes

handbook-guidance
The FSA proposes to implement several of the CESR ATS standards by imposing requirements on the Part IV permissions of ATS operators.

MAR 5.4.2

See Notes

handbook-guidance
The FSA proposes to impose the requirements on the Part IV permissions of ATS operators in a way that has regard to the principle in the CESR ATS standards that the standards should be implemented in a differentiated way, taking into account the particular risk to be addressed and each ATS's circumstances.

MAR 5.4.3

See Notes

handbook-guidance
If a person who proposes to operate an ATS applies for a Part IV permission, the FSA will be minded to impose the requirements under section 43 of the Act (Imposition of requirements).

MAR 5.4.4

See Notes

handbook-guidance
If a firm that proposes to operate an ATS applies for a variation of Part IV permission to carry on an additional regulated activity necessary to operate the ATS, the FSA will be minded to impose the requirements under section 44 (Variation etc. at request of authorised person) or section 45 (Variation etc. on the Authority's own initiative) of the Act.

MAR 5.4.5

See Notes

handbook-guidance
In relation to current ATS operators, or firms proposing to operate an ATS that have permission to carry on the regulated activity necessary to operate the ATS, the FSA will be minded to impose the requirements under section 44 or 45 of the Act.

MAR 5.4.6

See Notes

handbook-guidance
The FSA may decide not to impose particular requirements in particular cases if it is not appropriate to do so. For example, the FSA will be minded not to impose requirements for pre-trade information to be provided to users or published on ATS operators that operate price taking systems or request for quote systems. Also, it will be minded not to impose requirements for publication of post-trade information on ATS operators that operate ATS's that facilitate trading in interest-rate swaps, contractually based investments relating to currency, or debt securities other than benchmark bonds.

MAR 5.4.7

See Notes

handbook-guidance
The FSA proposes to impose requirements for publication of pre-trade and post-trade information that are no more onerous in relation to an investment than the standard that applies under the Act or relevant national law of another State (as the case may be) to the exchange operating the underlying market for the investment.

MAR 5.4.8

See Notes

handbook-guidance
MAR 5 Annex 1 G sets out an illustration of the form of requirements that the FSA will be minded to impose on the Part IV permission of an ATS operator. The exact form may vary to take into account the matters referred to in MAR 5.4.2 G. The FSA may also consider setting out more detail in the requirements if the FSA considers it appropriate to do so (for example, if requested to do so by an ATS operator).

MAR 5.5

Parts of the Handbook applicable to the operation of an ATS

MAR 5.5.1

See Notes

handbook-guidance
The purpose of this section is to help prospective and actual ATS operators find their way around the Handbook by setting out which parts of it apply to them when operating an ATS.

MAR 5.5.2

See Notes

handbook-guidance
The application of the Handbook to the operation of ATS's is summarised in MAR 5.5.3 G. ATS operators should read applicable parts of the Handbook to find out what the detailed regulatory requirements are for operating ATS's.

MAR 5.5.3

See Notes

handbook-guidance
Handbook provisions applicable to ATSs

MAR 5 Annex 1

Illustrative form of requirements: Alternative Trading Systems

See Notes

handbook-guidance
Fair and orderly trading
Publication of pre-trade information
Publication of post-trade information
Method of publication
Timing of publication
Monitoring of trading
Meaning of "appropriate arrangements"
Access to sufficient publicly available information