UK’s Financial Services Authority Finalises New Regime For Alternative Trading Systems

The Financial Services Authority (FSA) today issued its final rules for alternative trading systems (ATS) which will increase the level of transparency available to market participants and improve market monitoring of trading platforms. Currently, the rules for ATSs are the same as those for ordinary securities firms, an anomaly which is addressed by these proposals. Both market participants and consumers will benefit from the improved standards which will limit the scope for market abuse and provide greater price information to the market.

Gay Huey Evans, Director of the FSA’s Markets and Exchanges Division said: “It is important to enhance the standards of monitoring and transparency in all markets to ensure that consumers and investors are adequately protected and to maintain market confidence. By introducing these standards, we want to encourage greater comparability and therefore increase competition between Alternative Trading Systems and other execution venues. We have listened carefully to the feedback we received and have amended our original proposals to better reflect the views of the market. As a result, these standards now align themselves to good market practice and forthcoming EU rules.”

The proposals in the policy statement include:

• Enhanced transparency provisions for ATSs will lead to improved visibility of prices for investors. This will enable them to make informed investment decisions. Our approach will take account of different markets and their conventions.
• A requirement that ATS operators introduce arrangements to monitor trading undertaken on their systems and report potentially abusive trading to the FSA. This will help prevent abusive trades at the expense of ATS users or other consumers.
• Enhanced information about systems to be given to retail and intermediate customers who sign up to use them. This will mean that clients are aware of the way in which their deals will be handled.
• ATSs to ensure that markets are properly informed about the instruments traded, where there are retail or intermediate customers using their systems.

The European Union is currently considering proposals revising the Investment Services Directives. This includes transparency and market monitoring rules for ATSs. The standards which the FSA has proposed today are in line with the provisions currently under discussion.

Background

1. The FSA issued CP 153 – Alternative Trading Systems in October 2002. The consultation period ended on 31st January 2003.
2. The term ‘Alternative Trading Systems’, refers to regulated securities firms that match customers for securities and financial instruments within their own systems. These firms are currently subject to the normal regulatory regime for securities firms. The current regime has no specific provisions relating to the issues that are important for trade execution platforms, such as ATSs.
3. The rules will come into force in April 2004.
4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection for consumers; and fighting financial crime.
5. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.