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UK wholesale markets review update: PS 23/4 and changes to technical standards

On 3 May 2023, the Financial Conduct Authority (FCA) published its policy statement PS 23/4 ‘Improving Equity Secondary Markets’ (the PS). The PS follows the FCA’s consultation paper CP 22/12 published in July last year (the CP), which proposed a number of changes to the equity secondary markets rules – many of which were highlighted by HM Treasury’s Wholesale Markets Review (WMR).

These changes relate to areas also under consideration by the EU, as part its programme of MiFID II/MiFIR reviews. There are shifting sands on each side of the Channel, and the UK’s changes may well not be mirrored by the EU’s changes. In any event, the different timescales of the UK and EU legislative processes will mean that any comparable UK and EU changes are not likely to happen within the same timeframe.

A number of the changes also relate to areas which will receive further regulatory attention, once the Financial Services and Markets Bill (the FSM Bill) has received Parliamentary approval. Our earlier briefing on the FSM Bill can be found here. The FCA also, in the PS, confirms its intention to revisit a number of the rules governing equity secondary markets, in particular the operation of the pre-trade transparency waiver regime.

A significant change is the creation of a new regime which will allow firms to elect to hold ‘designated reporter’ status. This status will apply across all asset classes, in contrast with the current position for systematic internalisers (SIs). The intention is for designated reporters to take on post-trade reporting obligations which are currently carried out by SIs, with such designated reporter status making the reporting party for a transaction easily identifiable. Industry expectation is that this new regime (in addition to the future amendment to the SI definition so as to revert to a qualitative definition, as confirmed during the WMR) may lead to a drop in firms holding SI status in the market, with firms currently opting in to be an SI in certain asset classes preferring to move to this simpler designated reporter model.

This briefing is UK-focused and provides an update, from a UK law perspective only, on the PS and accompanying changes to technical standards. Other WMR proposals falling outside the scope of the PS are not covered below, but our earlier briefing on the broader WMR consultation can be found here.