On 2 December 2020, the FCA published a draft transitional direction for the share trading obligation (STO) together with an explanatory note. Our earlier blog on the FCA statement on the STO is here.

The transitional direction provides:

• The UK STO at article 23(1) of MiFIR requires firms to trade in scope shares on UK trading venues, systematic internalisers and equivalent third country trading venues.
• The effect of the transitional direction is to allow firms to continue to trade shares on EU trading venues and systematic internalisers, as an alternative to the option mentioned above. This mitigates the disruption that could reasonably be expected to arise from compliance with onshored obligations.
• The transitional direction does not affect the requirement for EU trading venues and systematic internalisers to carry on an activity with a firm only where the EU trading venue or systematic internaliser has the relevant regulatory status, for example, as a Recognised Overseas Investment Exchange, under the relevant temporary permission regime, or where their activities meet all of the conditions required to benefit from the Overseas Persons Exclusion.
• Third country investment firms subject to MiFIR by virtue of GEN 2.2.22AR may rely upon the transitional direction in the same way as other firms.
• The UK STO, as modified by the transitional direction, defines the parameters of where firms are able to trade. Within these parameters, firms must take all sufficient steps to obtain the best possible results for clients when executing orders, as set out in COBS 11.2A.2R.
• The transitional direction may be varied or revoked (without prejudice to any continuing effect in relation to earlier times).

The transitional direction comes into force on IP completion day.