On 22 September 2022, the FCA published Consultation Paper 22/18 ‘Guidance on the trading venue perimeter’ (CP22/18).

CP22/18 is part of the Wholesale Markets Review and addresses the recommendation that the FCA consult on guidance that provides for greater clarity on the types of firms which need to be authorised as a trading venue. In CP22/18 the FCA proposes new guidance in the Perimeter Guidance Manual which is intended to clarify the definition of a multilateral system, as well as questions and answers on the application of the general guidance to specific types of arrangements in financial markets. The FCA also seeks views, but is not making proposals, on whether regulatory obligations for trading venues can be made more proportionate for smaller firms, while maintaining high standards of market integrity.

The proposed guidance covers:

• Investment-based crowdfunding firms operating primary market platforms. The proposed guidance indicates that a crowdfunding platform in which the business funding interests of an issuer of shares, debentures or alternative debentures are matched with those of investors does not amount to a multilateral system.
• Bulletin boards. The proposed guidance clarifies the demarcation between multilateral systems and bulletin boards.
• Technology providers. The proposed guidance draws a distinction between general purpose communications systems and multilateral systems.
• Voice brokers. The proposed guidance clarifies that arranging or executing client orders over the telephone without operating a trading system or facility does not constitute a multilateral system.
• Portfolio managers operating internal matching systems. The proposed guidance sets out the circumstances where the execution of trading interests by a portfolio manager does not constitute a multilateral system.
• Blocking onto trading venues. The proposed guidance indicates that where a firm operates a system for the purpose only of blocking trades onto a trading venue consistent with the intentions of the parties to the underlying transactions to trade on a trading venue, these arrangements do not amount to the operation of a multilateral system.

The FCA is also proposing to update the definition of a service company in the Glossary Terms section of the Handbook. The FCA notes that where a firm does not operate a multilateral system, it will not require authorisation as a trading venue. However, the FCA adds that a firm must consider how its arrangements relate to the permissions in Article 25 of the Financial Services and Markets Act 2000 (Regulated Activities Order) 2001 (RAO). Depending on the activity undertaken and client types, some firms may choose to be authorised as service companies. The current definition of a service company in the Handbook refers to client categorisation terminology used in the UK before the implementation of MiFID in 2007. The FCA is proposing to update the definition of a service company in the Glossary Terms, so that it also refers to the current client categorisation terminology with respect to client limitation types.

The FCA also proposes that the European Securities and Markets Authority (ESMA) Q&As dealing with the trading venue perimeter – Q&As 7, 10, 11 and 12 in Section 5 of the ESMA Q&As on MiFID II and MiFIR market structures topics – should not form part of its supervisory expectations following the issuance of the final guidance.

The deadline for comments on CP22/18 is 11 November 2022.

Based on the responses the FCA receives, it will finalise the guidance and publish a Policy Statement in Q2 2023.