MTF's & OTF's

Multilateral trading facilities (MTFs) and organised trading facilities (OTFs) are important multilateral electronic trading venues that were originally created under MiFID in the case of MTFs and MiFIDII in the case of OTFs. Most MTFs are operated by market operators and large investment firms whilst OTFs are operated by investment firms. Both types of venues were created to increase transparency around dark pools under strict rules governed by MiFID. 

MTFs can trade all asset classes on non- discretionary rules but are not allowed proprietary or matched principal trading on the platform. OTFs are restricted to trading non-equity asset classes such as fixed income and derivative instruments but are allowed a level of discretion in trade matching. OTFs are allowed to trade on a proprietary basis in non-liquid sovereign debt and trade on a matched principal basis in non-equity instruments that have not been declared subject to clearing obligations under EMIR.

The UK investment firm prudential regime (IFPR) will bring about several changes to the capital adequacy requirements for MTFs and OTFs key amongst which is a significant drop in initial capital requirement (ICR) to£150K from €730K in what seems to be an easing of capital requirements for trading venues. This might help stimulate the setup of smaller trading venues and could possibly see a shift from matched principal trading to multilateral trading systems.

We have specialist expertise in MTF authorisations and compliance support including compliance with technical standards. Our combined expertise in regulation, compliance, and risk enables us to provide fully bespoke compliance solutions to firms looking to set up and operate trading venues.

We are currently the trusted regulatory, compliance, and risk partner to two innovative Multilateral Trading Facilities operating in the FICC space.

How Pillar 4 Can Help

Authorisation

> Initial assessment of your MTF or OTF authorisation business model

> Bespoke advice and guidance to navigate the authorisation process including MDP  application process

> Guidance on MiFIR pre/post trade transparency

> Help structuring a suitable governance structure

> Compliance with market abuse regulations 

> Compliance with regulatory technical standards applicable to the business model and  asset classes

> Implementing a suitable ICAAP including pillar 2 elements and wind down

> Implementing practical and workable risk management, capital monitoring, and reporting tools

> Staff skills and competency assessments

> Preparing for pre-application meetings

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IFPR implementation

> Assessment of the impact of IFPR

> Financial modelling and full implementation of the IFPR and shift from ICAAP to ICARA

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Risk management

> Developing integrated risk management, capital monitoring, and reporting tools

> Developing suitable pillar 2 approaches

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On-going compliance support

> Providing specialist advise

> Revamping compliance monitoring programmes to something practical and workable in line with regulations

> Providing risk based on-going compliance monitoring and testing

> Support in regulatory reporting and capital adequacy reporting