On 4 July 2025, the Financial Conduct Authority (FCA) issued Consultation Paper 25/20: Consultation Paper on the SI regime for bonds and derivatives including Discussion Paper on equity markets (CP25/20).

Background

In November 2024, the FCA published Policy Statement 24/14 which introduces new bond and derivative transparency rules for trading venues from 1 December 2025. The regulator also included in chapter 9 of the Policy Statement a short section for discussion on the future of the systematic internaliser (SI) regime.

An SI is an investment firm which, on an organised, frequent systematic and substantial basis deals on own account when executing client orders outside a regulated market, a multi-lateral trading facility (MTF) or an organised trading facility (OTF) without operating a multilateral system. Investment firms that meet the criteria to be a SI are required to notify the FCA.

Matched principal trading occurs when a transaction is facilitated by an investment firm positioning itself between the buyer and the seller in such a way that it is never exposed to market risk. Both sides of the trade are executed simultaneously, and the transaction is concluded at a price where the facilitator makes no profit or loss, other than a previously disclosed commission, fee or charge for the transaction. MiFID II prohibited investment firms using matched principal trading for trades executed on an MTF they operate. This was permissible under MiFID I and the FCA has no evidence that it caused any harm. The current prohibition means that two clients of a firm operating an MTF need to settle their trades directly with each other. To avoid this firms, which operate an MTF but wish to offer matched principal trading as part of their broking services have located the MTF in a separate group legal entity. This means that there are no benefits to clients or the wider markets from this restriction.

Trading venues can waive the obligation to publish information about bid and offer prices available on their systems (i.e. pre-trade transparency) provided they apply for a waiver with the FCA and comply with certain restrictions. The restrictions include the obligation to only cross orders using a single price derived from the most relevant market in terms of liquidity (almost always the primary market like the London Stock Exchange). This is known as the “reference price waiver” and the resultant “reference price orders” are an example of a number of order types collectively known to as “dark orders”. Trading venues that match only dark orders are known as “dark pools”.

Consultation

In CP25/20 the FCA is consulting on the SI regime for bonds and derivatives together with certain other changes that are intended to improve the functioning of UK markets. The FCA also includes a Discussion Paper which explores the evolution of UK equity market trading, including the growth of bilateral trading and the declining use of central limit order books. The FCA is seeking views on whether these developments raise concerns and if reforms may be warranted to address them.

Main changes

In CP25/20 the FCA proposes three main changes:

  • Removal of the SI regime for bonds and derivatives, as well as structured finance products and emission allowances.
  • Removing the prohibition on an investment firm to execute clients’ trades on the MTF they operate on a matched principal trading basis.
  • Permitting trading venues operating under the reference price waiver to use a broader set of prices than just the primary market, or the most relevant market in terms of liquidity, to cross orders under their systems; this would also include allowing the use of the reference price waiver within the same system where the price is derived from.

Next steps

The deadline for comments on CP25/20 is 10 September 2025.

The FCA intends to finalise the changes on the SI regime for bonds and derivatives and the other reforms on matched principal, the reference price waiver and the operation of an OTF and SI in the same legal entity in a Policy Statement in Q4 2025. The FCA will use the responses to the discussion questions on reforms to equity transparency to inform the proposals that it intends to consult on in 2026.