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MTF's & OTF's

1st May 2020

Capital requirements for electronic trading platforms MTFs and OTFs to be drastically reduced! Smaller venues set to benefit!

A significantly lower initial capital requirement (ICR) of EUR150K is likely to be set for MTFs and OTFs under the new prudential rules for investment firms IFD/IFR set to go live on 26th June next year. In its recent discussions, the FCA signalled support for a significantly reduced ICR of EUR150K for these electronic trading platforms from the current level of EUR730K. The FCA also alluded to K-COH (client orders handled) not being applicable to MTF/OTF buying and selling interests. What this means is that they are likely to be de facto exempt from the variable K-factor capital requirements. However, fixed overhead requirement, wind down costs, and other pillar 2 elements still apply. The fixed overhead requirement that is calculated as a quarter of the annual fixed overheads tends to be high for most platforms given the operational costs involved. However, the ICR is going down! Our view is that there appears to be an EU-wide regulatory focus to stimulate and shift more OTC trades onto electronic trading venues with a view to increase transparency and likely support set-up of more small and mid-sized MTFs and OTFs under a reduced barrier in terms of ICR.

We currently support blockchain backed secondary corporate bond MTF operator LedgerEdge in its MTF aspirations. Our founder Prash Fernando has previously supported LiquidityEdge and has experience in electronic trading system authorisation and risk management. Speak to us for a free initial IFD/IFR assessment of your firm or if you are looking make use of the reduced ICR to set up an MTF or OTF.

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