Schedule 3, paragraph 1(6)

In paragraph 3 of the Schedule (systems and controls)— for sub-paragraph (1) substitute— The exchange must ensure that the systems and controls, including procedures and arrangements, used in the performance of its functions and the functions of the trading venues it operates are adequate, effective and appropriate for the scale and nature of its business. at the end of sub-paragraph (2)(d) omit “and”; after sub-paragraph (2)(e) insert— the resilience of its trading systems; the ability to have sufficient capacity to deal with peak order and message volumes; the ability to ensure orderly trading under conditions of severe market stress; the effectiveness of business continuity arrangements to ensure the continuity of the exchange's services if there is any failure of its trading systems including the testing of the exchange's systems and controls; the ability to reject orders that exceed predetermined volume or price thresholds or which are clearly erroneous; the ability to ensure algorithmic trading systems cannot create or contribute to disorderly trading conditions on trading venues operated by the exchange; the ability to ensure disorderly trading conditions which arise from the use of algorithmic trading systems, including systems to limit the ratio of unexecuted orders to transactions that may be entered into the exchange's trading system by a member or participant, are capable of being managed; the ability to ensure the flow of orders is capable of being slowed down if there is a risk of system capacity being reached; the ability to limit and enforce the minimum tick size which may be executed on its trading venues; and the requirement for members and participants to carry out appropriate testing of algorithms. For the purposes of sub-paragraph (2)(c), the exchange must— establish and maintain effective arrangements and procedures including the necessary resource for the regular monitoring of the compliance by their members or participants with its rules; and monitor orders sent including cancellations and the transactions undertaken by its members or participants under its systems in order to identify infringements of those rules, disorderly trading conditions or conduct that may indicate behaviour that is prohibited under the market abuse regulation or system disruptions in relation to a financial instrument. For the purposes of sub-paragraph (2)(o) the exchange must provide environments to facilitate such testing. The exchange must be adequately equipped to manage the risks to which it is exposed, to implement appropriate arrangements and systems to identify all significant risks to its operation, and to put in place effective measures to mitigate those risks. The exchange must— have written agreements with all investment firms pursuing a market making strategy on trading venues operated by it (“market making agreements”); have schemes, appropriate to the nature and scale of a trading venue, to ensure that a sufficient number of investment firms enter into such agreements which require them to post firm quotes at competitive prices with the result of providing liquidity to the market on a regular and predictable basis; monitor and enforce compliance with the market making agreements; inform the FCA of the content of its market making agreements; and provide the FCA with any information it requests which is necessary for the FCA to satisfy itself that the market making agreements comply with paragraphs (c) and (d) of this sub-paragraph and sub-paragraph (2). A market making agreement must specify— the obligations of the investment firm in relation to the provision of liquidity; where applicable, any obligations arising from the participation in a scheme mentioned in sub-paragraph (1)(b); any incentives in terms of rebates or otherwise offered by the exchange to the investment firm in order for it to provide liquidity to the market on a regular and predictable basis; and where applicable, any other rights accruing to the investment firm as a result of participation in the scheme referred to in sub-paragraph (1)(b). For the purposes of this paragraph, an investment firm pursues a market making strategy if— the firm is a member or participant of one or more trading venues; the firm's strategy, when dealing on own account, involves posting firm, simultaneous two-way quotes of comparable size and at competitive prices relating to one or more financial instruments on a single trading venue, or across different trading venues; and the result is providing liquidity on a regular and frequent basis to the overall market. The exchange must be able to— temporarily halt or constrain trading on any trading venue operated by it if there is a significant price movement in a financial instrument on such a trading venue or a related trading venue during a short period; and in exceptional cases cancel, vary, or correct, any transaction. For the purposes of sub-paragraph (1) the exchange must ensure that the parameters for halting trading are calibrated in a way which takes into account— to ensure the parameters avoid significant disruptions to the orderliness of trading. the liquidity of different asset classes and sub-classes; the nature of the trading venue market model; and the types of users, The exchange must report the parameters mentioned in sub-paragraph (2) and any material changes to those parameters to the FCA in a format to be specified by the FCA. If a trading venue operated by the exchange is material in terms of liquidity of the trading of a financial instrument and it halts trading in an EEA State in that instrument, it must have systems and procedures in place to ensure that it notifies the FCA. Where the exchange permits direct electronic access to a trading venue it operates it must— ensure that a member of, or participant in, the trading venue is only permitted to provide direct electronic access to the venue if the member or participant— is an investment firm, as defined by Article 4.1.1 of the markets in financial instruments directive (definitions), authorised in accordance with the directive; is a credit institution authorised in accordance with the capital requirements directive ; comes within Article 2.1(a), (e), (i), or (j) of the markets in financial instruments directive (exemptions) and has a Part 4A permission relating to investment services and activities; is a third country firm providing the direct electronic access in the course of exercising rights under Article 46.1 (general provisions) or 47.3 (equivalence decision) of the markets in financial instruments regulation; is a third country firm and the provision of the direct electronic access by that firm is subject to the exclusion in article 72 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 ; or is a third country firm which does not come within paragraph (iv) or (v) and is otherwise permitted to provide the direct electronic access under the Act; ensure that appropriate criteria are set and applied for the suitability of persons to whom direct electronic access services may be provided; ensure that a member of, or participant in, the trading venue retains responsibility for adherence to the requirements of the markets in financial instruments directive in respect of orders and trades executed using the direct electronic access service; set appropriate standards for risk controls and thresholds on trading through direct electronic access; be able to distinguish and if necessary stop orders or trading on that trading venue by a person using direct electronic access separately from— other orders; or trading by the member or participant providing the direct electronic access; and have arrangements in place to suspend or terminate the provision to a client of direct electronic access to that trading venue by a member of, or participant in, the trading venue in the case of non-compliance with this paragraph. The exchange's rules on co-location services must be transparent, fair and non-discriminatory. The exchange's fee structure, for all fees it charges including execution fees and ancillary fees and rebates it grants, must— be transparent, fair and non-discriminatory; not create incentives to place, modify or cancel orders, or execute transactions, in a way which contributes to disorderly trading conditions or market abuse; and impose market making obligations in individual shares or suitable baskets of shares for any rebates that are granted. Nothing in sub-paragraph (1) prevents the exchange from— in order to reflect the additional burden on system capacity. adjusting its fees for cancelled orders according to the length of time for which the order was maintained; calibrating its fees to each financial instrument to which they apply; imposing a higher fee— for placing an order which is cancelled than an order which is executed; on participants placing a high ratio of cancelled orders to executed orders; or on a person operating a high-frequency algorithmic trading technique, The exchange must require members of and participants in trading venues operated by it to flag orders generated by algorithmic trading in order for it to be able to identify— the different algorithms used for the creation of orders; and the persons initiating those orders. The exchange must adopt tick size regimes in respect of trading venues operated by it in— shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments traded on each trading venue; and any financial instrument for which regulatory technical standards are adopted by the European Commission pursuant to Article 49.3 or 4 of the markets in financial instruments directive which is traded on that trading venue. The tick size regime must— be calibrated to reflect the liquidity profile of the financial instrument in different markets and the average bid-ask spread taking into account the desirability of enabling reasonably stable prices without unduly constraining further narrowing of spreads; and adapt the tick size for each financial instrument appropriately. The tick size regime must comply with any regulatory technical standards adopted by the European Commission pursuant to Article 49.3 or 4 of the markets in financial instruments directive. The exchange must synchronise the business clocks it uses to record the date and time of any reportable event in accordance with regulatory technical standards adopted by the European Commission pursuant to Article 50 of the markets in financial instruments directive.

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Source: legislation.gov.uk · retrieved 2026-09-04