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Status: Please note you should read all Brexit changes to the FCA Handbook and BTS alongside the main FCA transitional directions. Where these directions apply the 'standstill', firms have the choice between complying with the pre-IP completion day rules, or the post-IP completion day rules. To see a full list of Handbook modules affected, please see Annex B to the main FCA transitional directions.

CHAPTER II PRE-TRADE TRANSPARENCY

Section 1 Pre-trade transparency for trading venues

Article 3 Pre-trade transparency obligations(Article 3(1) and (2) of Regulation (EU) No 600/2014)

  1. (1)

    Market operators and investment firms operating a trading venue shall make public the range of bid and offer prices and the depth of trading interest at those prices. The information is to be made public in accordance with the type of trading systems they operate as set out in Table 1 of Annex I.

  2. (2)

    The transparency requirements referred to in paragraph 1 shall also apply to any "actionable indication of interest" as defined in Article 2(1)(33) and pursuant to Article 8 of Regulation (EU) No 600/2014.

Article 4 Most relevant market in terms of liquidity (Article 4(1)(a) of Regulation (EU) No 600/2014)

  1. (-1)

    For the purposes of this Article, Article 2(1)(62) of Regulation 600/2014/EU shall not apply.

  2. (-1)

    For the purposes of this Article, Article 2(1)(62) of Regulation 600/2014/EU shall not apply.

  3. (1)

    For the purposes of Article 4(1)(a) of Regulation (EU) No 600/2014, the most relevant market in terms of liquidity for a share, depositary receipt, ETF, certificate or other similar financial instrument shall be considered to be the trading venue with the highest turnover within the relevant area for that financial instrument.

  4. (2)

    For the purpose of determining the most relevant markets in terms of liquidity in accordance with paragraph 1, the FCA shall calculate the turnover in accordance with the methodology set out in Article 17(4) in respect of each financial instrument that is traded on a UK trading venue and for each trading venue in the relevant area where that financial instrument is traded.

  5. (3)

    The calculation referred to in paragraph 2 shall have the following characteristics:

    1. (a)

      it shall include, for each trading venue in the relevant area, transactions executed under the rules of that trading venue excluding:

      1. (i)

        in the case of UK trading venues, reference price and negotiated transactions flagged as set out in Table 4 of Annex I and transactions executed on the basis of at least one order that has benefitted from a large-in-scale waiver and where the transaction size is above the applicable large-in-scale threshold as determined in accordance with Article 7; and

      2. (ii)

        in the case of non-UK trading venues, transactions benefitting from any similar relief in the form of transparency waivers or otherwise;

    2. (b)

      it shall cover either the preceding calendar year or, where applicable, the period of the preceding calendar year during which the financial instrument was admitted to trading or traded on a UK trading venue and was not suspended from trading.

  6. (4)

    Until the most relevant market in terms of liquidity for a specific financial instrument is determined in accordance with the procedure specified in paragraphs 1 to 3, the most relevant market in terms of liquidity shall be the trading venue in the relevant area where that financial instrument is first admitted to trading or first traded.

  7. (5)

    Paragraphs 2 and 3 shall not apply to shares, depositary receipts, ETFs, certificates and other similar financial instruments which were first admitted to trading or first traded on a UK trading venue four weeks or less before the end of the preceding calendar year.

Article 5 Specific characteristics of negotiated transactions(Article 4(1)(b) of Regulation (EU) No 600/2014)

A negotiated transaction in shares, depositary receipts, ETF, certificates or other similar financial instruments shall be considered to be a transaction which is negotiated privately but reported under the rules of a trading venue and where any of the following circumstances applies:

  1. (a)

    two members or participants of that trading venue are involved in any of the following capacities:

    1. (i)

      one is dealing on own account when the other is acting on behalf of a client;

    2. (ii)

      both are dealing on own account;

    3. (iii)

      both are acting on behalf of a client;

  2. (b)

    one member or participant of that trading venue is either of the following:

    1. (i)

      acting on behalf of both the buyer and seller;

    2. (ii)

      dealing on own account against a client order.

Article 6 Negotiated transactions subject to conditions other than the current market price (Article 4(1)(b) of Regulation (EU) No 600/2014)

A negotiated transaction in shares, depositary receipts, ETFs, certificates and other similar financial instruments shall be subject to conditions other than the current market price of the financial instrument where any of the following circumstances applies:

  1. (a)

    the transaction is executed in reference to a price that is calculated over multiple time instances according to a given benchmark, including transactions executed by reference to a volume-weighted average price or a time-weighted average price;

  2. (b)

    the transaction is part of a portfolio trade;

  3. (c)

    the transaction is contingent on the purchase, sale, creation or redemption of a derivative contract or other financial instrument where all the components of the trade are meant to be executed as a single lot;

  4. (d)

    the transaction is executed by a management company as defined in section 237(2) of FSMA, a UK AIFM as defined in the AIFM Regulations, or a third country AIFM as defined in the AIFM Regulations, which transfers the beneficial ownership of shares from one collective investment undertaking to another and where no investment firm is a party to the transaction;

  5. (e)

    the transaction is a give-up transaction or a give-in transaction;

  6. (f)

    the transaction has as its purpose the transferring of financial instruments as collateral in bilateral transactions or in the context of a CCP margin or collateral requirements or as part of the default management process of a CCP;

  7. (g)

    the transaction results in the delivery of financial instruments in the context of the exercise of convertible bonds, options, covered warrants or other similar financial derivative;

  8. (h)

    the transaction is a securities financing transaction;

  9. (i)

    the transaction is carried out under the rules or procedures of a trading venue, a CCP or a central securities depository to effect buy-in of unsettled transactions in accordance with Regulation (EU) No 909/2014 (or similar third country law for the same type of transactions, where applicable);

  10. (j)

    any other transaction equivalent to one of those described in points (a) to (i) in that it is contingent on technical characteristics which are unrelated to the current market valuation of the financial instrument traded.

Article 7 Orders that are large in scale (Article 4(1)(c) of Regulation (EU) No 600/2014)

  1. (1)

    An order in respect of a share, depositary receipt, certificate or other similar financial instrument shall be considered to be large in scale where the order is equal to or larger than the minimum size of orders set out in Tables 1 and 2 of Annex II.

  2. (2)

    An order in respect of an ETF shall be considered to be large in scale where the order is equal to or larger than EUR 1000000.

  3. (3)

    For the purpose of determining orders that are large in scale, the FCA shall calculate, in accordance with paragraph 4, the average daily turnover in respect of shares, depositary receipts, certificates and other similar financial instruments traded on a trading venue.

  4. (4)

    The calculation referred to in paragraph 3 shall have the following characteristics:

    1. (a)

      it shall include transactions executed in the relevant area in respect of the financial instrument, whether traded on or outside a trading venue;

    2. (b)

      it shall cover the period beginning on 1 January of the preceding calendar year and ending on 31 December of the preceding calendar year or, where applicable, that part of the calendar year during which the financial instrument was admitted to trading or traded on a trading venue and was not suspended from trading.

    Paragraphs 3 and 4 shall not apply to shares, depositary receipts, certificates and other similar financial instruments first admitted to trading or first traded on a trading venue four weeks or less before the end of the preceding calendar year.

  5. (5)

    Unless the price or other relevant conditions for the execution of an order are amended, the waiver referred to in Article 4(1) of Regulation (EU) No 600/2014 shall continue to apply in respect of an order that is large in scale when entered into an order book but that, following partial execution, falls below the threshold applicable for that financial instrument as determined in accordance with paragraphs 1 and 2.

  6. (6)

    Before a share, depositary receipt, certificate or other similar financial instrument is traded for the first time on a trading venue the FCA shall estimate the average daily turnover for that financial instrument taking into account any previous trading history of that financial instrument and of other financial instruments that are considered to have similar characteristics, and ensure publication of that estimate.

  7. (7)

    The estimated average daily turnover referred to in paragraph 6 shall be used for the calculation of orders that are large in scale during a six-week period following the date that the share, depositary receipt, certificate or other similar financial instrument was admitted to trading or first traded on a trading venue.

  8. (8)

    The FCA shall calculate and ensure publication of the average daily turnover based on the first four weeks of trading before the end of the six-week period referred to in paragraph 7.

  9. (9)

    The average daily turnover referred to in paragraph 8 shall be used for the calculation of orders that are large in scale and until an average daily turnover calculated in accordance with paragraph 3 applies.

  10. (10)

    For the purposes of this Article, the average daily turnover shall be calculated by dividing the total turnover for a particular financial instrument as specified in Article 17(4) by the number of trading days in the period considered. The number of trading days in the period considered is the number of trading days on the most relevant market in terms of liquidity for that financial instrument as determined in accordance with Article 4.

Article 8 Type and minimum size of orders held in an order management facility(Article 4(1)(d) of Regulation (EU) No 600/2014)

  1. (1)

    The type of order held in an order management facility of a trading venue pending disclosure for which pre-trade transparency obligations may be waived is an order which:

    1. (a)

      is intended to be disclosed to the order book operated by the trading venue and is contingent on objective conditions that are pre-defined by the system's protocol;

    2. (b)

      cannot interact with other trading interests prior to disclosure to the order book operated by the trading venue;

    3. (c)

      once disclosed to the order book, interacts with other orders in accordance with the rules applicable to orders of that kind at the time of disclosure.

  2. (2)

    Orders held in an order management facility of a trading venue pending disclosure for which pre-trade transparency obligations may be waived shall, at the point of entry and following any amendment, have one of the following sizes:

    1. (a)

      in the case of a reserve order, a size that is greater than or equal to EUR 10000;

    2. (b)

      for all other orders, a size that is greater than or equal to the minimum tradable quantity set in advance by the system operator under its rules and protocols.

  3. (3)

    A reserve order as referred to in paragraph 2(a) shall be considered a limit order consisting of a disclosed order relating to a portion of a quantity and a non-disclosed order relating to the remainder of the quantity where the non-disclosed quantity is capable of execution only after its release to the order book as a new disclosed order.

Section 2 Pre-trade transparency for systematic internalisers and investment firms trading outside a trading venue

Article 9 Arrangements for the publication of a firm quote (Article 14(1) of Regulation (EU) No 600/2014)

Any arrangement that a systematic internaliser adopts in order to comply with the obligation to make public firm quotes shall satisfy the following conditions:

  1. (a)

    the arrangement includes all reasonable steps necessary to ensure that the information to be published is reliable, monitored continuously for errors, and corrected as soon as errors are detected;

  2. (b)

    the arrangement complies with technical arrangements equivalent to those specified for approved publication arrangements (APAs) in Article 15 of Delegated Regulation (EU) 2017/571 that facilitate the consolidation of the data with similar data from other sources;

  3. (c)

    the arrangement makes the information available to the public on a non-discriminatory basis;

  4. (d)

    the arrangement includes the publication of the time the quotes have been entered or amended in accordance with paragraph 3H of the schedule to the Recognition Requirements Regulations, rule 5.3A.17 or rule 5A.5.17 of the Market Conduct sourcebook (as applicable) as specified in Commission Delegated Regulation (EU) 2017/574.

Article 10 Prices reflecting prevailing market conditions(Article 14(3) of Regulation (EU) No 600/2014)

The prices published by a systematic internaliser shall reflect prevailing market conditions where they are close in price, at the time of publication, to quotes of equivalent sizes for the same financial instrument on the most relevant market in terms of liquidity as determined in accordance with Article 4 for that financial instrument.

Article 11 Standard market size (Article 14(2) and (4) of Regulation (EU) No 600/2014)

  1. (1)

    The standard market size for shares, depositary receipts, ETFs, certificates and other similar financial instruments for which there is a liquid market shall be determined on the basis of the average value of transactions for each financial instrument calculated in accordance with paragraphs 2 and 3 and in accordance with Table 3 of Annex II.

  2. (2)

    For the purpose of determining the standard market size which is applicable to a specific financial instrument as set out in paragraph 1, the FCA shall calculate the average value of transactions in respect of all the shares, depositary receipts, ETFs, certificates and other similar financial instruments traded on a trading venue for which there is a liquid market.

  3. (3)

    The calculation referred to in paragraph 2 shall have the following characteristics:

    1. (a)

      it shall take into account the transactions executed in the relevant area in respect of the financial instrument concerned whether executed on or outside a trading venue;

    2. (b)

      it shall cover either the preceding calendar year or, where applicable, the period of the preceding calendar year during which the financial instrument was admitted to trading or traded on a trading venue and was not suspended from trading;

    3. (c)

      it shall exclude post-trade large-in-scale transactions as set out in Table 4 of Annex I and any transactions benefitting from any similar relief under a third country regime in the form of a transparency waiver or otherwise.

    Paragraphs 2 and 3 shall not apply to shares, depositary receipts, ETFs, certificates and other similar financial instruments first admitted to trading or first traded on a trading venue four weeks or less before the end of the preceding calendar year.

  4. (4)

    Before a share, depositary receipt, ETF, certificate or other similar financial instrument is traded for the first time on a trading venue the FCA shall estimate the average daily turnover for that financial instrument taking into account any previous trading history of that financial instrument and of other financial instruments that are considered to have similar characteristics, and ensure publication of that estimate.

  5. (5)

    The estimated average value of transactions laid down in paragraph 4 shall be used as the standard market size for a share, depositary receipt, ETF, certificate or other similar financial instrument during a six-week period following the date that the share, depositary receipt, ETF, certificate or other similar financial instrument was first admitted to trading or first traded on a trading venue.

  6. (6)

    The FCA shall calculate and ensure publication of the average value of transactions based on the first four weeks of trading before the end of the six-week period referred to in paragraph 5.

  7. (7)

    The average value of transactions in paragraph 6 shall apply immediately after its publication and until a new average value of transactions calculated in accordance with paragraphs 2 and 3 applies.

  8. (8)

    For the purposes of this Article, the average value of transactions shall be calculated by dividing the total turnover for a particular financial instrument as set out in Article 17(4) by the total number of transactions executed for that financial instrument in the period considered.