August 2023 update
On 29 August 2023, the Share Trading Obligation (STO) in Article 23 of UK MiFIR was revoked by the commencement of provisions in the Financial Services and Markets Act 2023. We are therefore revoking the direction we introduced under the Temporary Transitional Power (TTP) that modified the application of the STO. See the direction[1] that does this and accompanying explanatory note[2].
The below statement from 2020, therefore, no longer applies.
We believe in open markets and global competition between trading venues to promote efficient trading in financial instruments. We believe in companies’ freedom to choose where to raise capital and trade their securities, regardless of the currency of their securities.
Mutual equivalence between the UK and EU should be easy to agree and remains the best way of dealing with overlapping STOs.
As set out in our previous statements, we consider the ISIN or currency that a share carries and trades in does not and should not determine the scope of the STO. Any restriction on the trading of shares based on currency does not reflect the multicurrency nature of global capital markets and limits the ability of firms to determine how best to use global capital markets to support economic activity. It will cause disruption to investors, issuers and other market participants, leading to fragmentation of markets and liquidity in both the EU and UK.
We will use the Temporary Transitional Power (TTP)[3] to allow firms to continue trading all shares on EU trading venues and systematic internalisers (SIs) where they choose to do so, and where the regulatory status of those venues and SIs permits such activity. Before the end of the transition period we will publish a transitional direction to give effect to this. However, we will monitor market developments closely and stand ready to review our use of the TTP if conditions change, and we remain open to dialogue with ESMA.
Our approach, driven by our objectives, will preserve the ability of UK-based firms to execute their share trades at the venues where they can get the best outcomes for themselves and their customers. It will also mean firms do not have to change their systems for trading shares during a period where minimising unnecessary operational disruption will be important.
Under our approach, trading venues in the EU can be used for the purposes of executing trades in shares by UK participants, providing the venue has ensured it has the relevant permissions under either the UK’s longstanding regimes for overseas access or the temporary permissions regime (TPR)[4].
As set out in previous FCA statements, all EU trading venues that continue to have UK participants or undertake relevant regulated activity in the UK from the end of the transition period will need to be a UK Recognised Overseas Investment Exchange in relation to its business as an investment exchange, be using the TPR or be certain that their activities meet all the conditions required to benefit from the Overseas Persons Exclusion (OPE).
We will discuss with market participants and trading venues the steps that may be needed in future to protect the integrity of markets in the UK and to ensure that participants in the UK can continue to achieve high standards of execution for their clients, including when trading EU-27 shares. These discussions will include whether the MiFID II calibrations, which were designed for a pan-European market of 28 countries, remain appropriate for the UK in the absence of our current equivalence being recognised.
We will cooperate with ESMA and national competent authorities in the EU to identify as far as possible the feasibility of mutual sharing of regulatory information to support market integrity and cross-border trading.
We remain open to discussing with ESMA how to minimise any disruption that could arise in relation to overlapping requirements on financial counterparties resulting from the derivatives trading obligation.