On 3 May 2023, the FCA published Policy Statement 23/4: Improving Equity Secondary Markets (PS23/4) which sets out its final policy on changes to technical standards and summarising the feedback received to its consultation on the subject.
In July 2022, the FCA published Consultation Paper 22/12: Improving Equity Secondary Markets (CP22/12), in which it proposed amendments to:
- Post-trade transparency, including the introduction of a new ‘designated reporter regime’ (DRR).
- Pre-trade transparency waivers.
- The tick size regime.
The FCA also sought views on improving market resilience during trading venue outages and the way retail orders are executed in the UK. The proposals sought to enhance the execution quality for investors by lowering the cost of trading, reducing market impact and ultimately increasing liquidity. They also sought to improve the content of post-trade transparency. The FCA also proposed to amend the requirements that impose material operational and compliance costs on firms but that have not delivered benefits to end users.
Feedback and final policy position
Following feedback to CP22/12, the new post-trade transparency requirements (as set out in PS23/4) will enter into force in April 2024. This timing is different to the proposed timing in CP22/12 in light of the feedback received and the consequential additional changes which the FCA plans to consult on ‘at the earliest possible convenience’. The changes to waivers from pre-trade transparency and to the tick size regime will apply immediately.
Responses to the FCA’s questions about the quality of the UK market for retail orders showed different views. Some saw merit in the retail service provider (RSP) model as it provides a cost-effective protocol for the execution of retail orders, while others felt that keeping retail flow away from transparent public markets may impede the delivery of best execution obligations. The FCA notes that this is clearly a contentious area and plans to continue discussing it with stakeholders to explore more fully the concerns raised.
The FCA intends to work with industry participants to establish a task force to develop good practices for trading venues and investment firms in the event of a trading venue outage. It will also consider whether further work is necessary on the retail service provider model, and intends to liaise with market participants and consider representations originating from this sector.
In the meantime, the FCA flags that trading venues and investment firms, and approved publication arrangements consolidating trade reports by them, will need to update their systems to comply with the changes to post-trade transparency. This may also impact their systems for transaction reporting. The FCA will consider how to minimise the impact on firms while ensuring that they continue to report transactions correctly.
Finally, the FCA notes that firms wishing to register as a designated reporter will need to submit a notification, and further details of this process will be announced ‘in due course’.