Trading facilities

MiFID 2 Anatomy™ →This page on the premium JC Article 4.1(21) Regulated market means a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments – in the system and in accordance with its non-discretionary rules – in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly and in accordance with Title III of this Directive. Article 4.1(22) Multilateral trading facility or MTF means a multilateral system, operated by an investment firm or a market operator, which brings together multiple third-party buying and selling interests in financial instruments – in the system and in accordance with non-discretionary rules – in a way that results in a contract in accordance with Title II of this Directive. Article 4.1(23) Organised trading facility or OTF means a multilateral system which is not a regulated market or an MTF and in which multiple third-party buying and selling interests in bonds, structured finance products, emission allowances or derivatives are able to interact in the system in a way that results in a contract in accordance with Title II of this Directive. MiFID 2: Less fondly known as EU Directive 2014/65/EU (EUR Lex) | MiFID 1Articles: 16(7) (Recording of Communications) Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

MiFID 2 creates quite the regime for trading facilities, public and private. There are “regulated markets” and “multilateral trading facilities”, both present in MiFID 1, and a new class of “organised trading facilities”. The three are mutually exclusive.

A Regulated market is one of the big boys: a stock exchange or a future exchange. These are the most heavily regulated, requiring authorisation as regulated markets and here there are strict pre- and post-trade transparency requirements, market-making obligations, and other regulatory standards.

A Multilateral trading facility is an electronic trading system for any kind of instrument, often operated by an established market participant such as an investment bank, that brings together multiple third-party buying and selling interests to purchase and sell financial instruments (including those that may not have an official market). Orders will usually be submitted electronically and a software engine employing non-discretionary rules will be used to pair buyers with sellers. MTFs are also subject to pre- and post-trade transparency requirements for equity instruments and must meet other certain other criteria prescribed by MiFID. Examples include as Chi-X and Turquoise.

An Organised trading facility is an electronic trading system for instruments other than equities, where discretionary order execution is allowed: the operator can decide whether, when, and how to execute orders, and can engage in matched principal trading. Created specifically to capture organised trading in the bond and derivatives markets where more execution flexibility is needed, the OTF regime brought the previous practice of unregulated systematic internalisation and order crossing for bonds and derivatives under a regulatory framework. If it is organised trading, you will need to operate an OTF.

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See also

• Dealing on own account where whether you are on an OTF or not can make all the difference.