Regulations, 2017

Suppliment tal-Gazzetta tal-Gvern ta’ Malta Nru. 19,925, 22 ta’ Diċembru, 2017

Taqsima B

L.N. 400 of 2017

Investment Services Act

(Cap. 370)

Financial Markets Act

(Cap. 345)

Multilateral Trading Facilities and Organised Trading Facilities

Regulations, 2017

IN EXERCISE of the powers conferred by article 12 of the

Investment Services Act and article 49 of the Financial Markets Act,

the Minister responsible for the regulation of financial services, acting

on the advice of the Malta Financial Services Authority, has made the

following regulations:-

(1) The title of these regulations is the Multilateral Title, scope and

Trading Facilities and Organised Trading Facilities Regulations, 2017. commencement.

(2) The purpose of these regulations is to implement Article

4(1) paragraphs (12), (19) to (25), (38) and (60) to (61), Articles 18(1)

to (10), Articles 19, 20, Article 31(1) to (3), Articles 32(1) and (2) and

Article 33(1) of MiFID as herein defined, and they shall be interpreted

and applied accordingly.

(3)

These regulations shall come into force on the 3rd January

2018.

(1)

In these regulations unless the context otherwise Definitions.

requires

"the Acts" means the Investment Services Act and the Financial Cap. 370.

Markets Act;

"liquid market" means a market for a financial instrument or a

class of financial instruments, where there are ready and willing

buyers and sellers on a continuous basis, assessed in accordance with

the following criteria, taking into consideration the specific market

structures of the particular financial instrument or of the particular

class of financial instruments

(a) the average frequency and size of transactions over a

range of market conditions, having regard to the nature and life

cycle of products within the class of financial instrument;

(b) the number and type of market participants, including

the ratio of market participants to traded instruments in a

particular product;

(c)

the average size of spreads, where available;

"Maltese investment firm" means a person licensed in terms of

the Investment Services Act, whose head office is in Malta and who is

entitled to carry on an activity in a Member State or EEA State other

than Malta in exercise of a European Right;

"MAR" means Regulation (EU) No 596/2014 of the European

Parliament and of the Council of 16 April 2014 on market abuse

(market abuse regulation) and repealing Directive 2003/6/EC of the

European Parliament and of the Council and Commission Directives

2003/124/EC, 2003/125/EC and 2004/72/EC, as amended from time to

time;

"matched principal trading" means a transaction where the

facilitator interposes itself between the buyer and the seller to the

transaction in such a way that it is never exposed to market risk

throughout the execution of the transaction, with both sides executed

simultaneously, and where the transaction is concluded at a price

where the facilitator makes no profit or loss, other than a previously

disclosed commission, fee or charge for the transaction;

"MiFID" means Directive 2014/65/EU of the European

Parliament and of the Council of 15 May 2014 on markets in financial

instruments and amending Directive 2002/92/EC and Directive 2011/

61/EU, as amended from time to time, and includes any implementing

measures that have been or may be issued thereunder;

"multilateral system" means any system or facility in which

multiple third-party buying and selling trading interests in financial

instruments are able to interact in the system;

"multilateral trading facility" or "MTF" means a multilateral

system, operated by a Maltese 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 MiFID;

"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

MiFID;

"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 MiFID;

"Regulation (EU) No 648/2012" means Regulation (EU) No 648/

2012 of the European Parliament and of the Council of the 4th July,

2012 on OTC derivatives, central counterparties and trade repositories,

as amended from time to time;

"SME growth market" means an MTF that is registered as an

SME growth market in accordance with the Financial Markets Act L.N. 390.

(SME Growth Markets) Regulations, 2017;

"sovereign debt" means a debt instrument issued by a sovereign

issuer;

"sovereign issuer" means any of the following that issues debt

instruments

(i)

the Union;

(ii) a Member State or EEA State, including a

government department, an agency, or a special purpose vehicle

of the Member State or EEA State;

(iii) in the case of a federal Member State or EEA State, a

member of the federation;

(iv) a special purpose vehicle for several Member States

or EEA States;

(v) an international financial institution established by

two or more Member States or EEA States which has the purpose

of mobilising funding and provide financial assistance to the

benefit of its members that are experiencing or threatened by

severe financing problems; or

(vi) the European Investment Bank;

"systematic internaliser" means a Maltese investment firm which,

on an organised, frequent systematic and substantial basis, deals on

own account when executing client orders outside a regulated market,

an MTF or an OTF without operating a multilateral system

The frequent and systematic basis shall be measured by the

number of OTC trades in the financial instrument carried out by the

Maltese investment firm on own account when executing client orders.

The substantial basis shall be measured either by the size of the OTC

trading carried out by the Maltese investment firm in relation to the

total trading of the Maltese investment firm in a specific financial

instrument or by the size of the OTC trading carried out by the Maltese

investment firm in relation to the total trading in the Union in a

specific financial instrument. The definition of a systematic

internaliser shall apply only where the pre-set limits for a frequent and

systematic basis and for a substantial basis are both crossed or where a

Maltese investment firm chooses to opt-in under the systematic

internaliser regime;

"trading venue" means a regulated market, an MTF or an OTF;

(2) Words and expressions used in the Acts shall, in these

regulations, have the same meaning as is assigned to them in the Acts.

(1) Maltese Investment firms and market operators

operating an MTF or an OTF, shall, in addition to meeting the

organisational requirements prescribed in the applicable provisions of

the Investment Services Act (Control of Assets) Regulations, the

Investment Services Rules for Investment Services Providers and the

Conduct of Business Rulebook, comply with the following

requirements

(a) they shall establish transparent rules and procedures

for fair and orderly trading and establish objective criteria for the

efficient execution of orders;

(b) they shall have arrangements for the sound

management of the technical operations of the facility, including

the establishment of effective contingency arrangements to cope

with risks of systems disruption;

(c) they shall establish transparent rules regarding the

criteria for determining the financial instruments that can be

traded under the systems of the MTF or the OTF;

(d) where applicable, they shall provide, or are satisfied

that there is access to, sufficient publicly available information

to enable its users to form an investment judgement, taking into

account both the nature of the users and the types of instruments

traded;

(e) they shall establish, publish, maintain and implement

transparent and non-discriminatory rules, based on objective

criteria, governing access to the facility of the MTF or the OTF;

(f) they shall have arrangements to identify clearly and

manage the potential adverse consequences for the operation of

the MTF or the OTF, or for the members or participants and

users, of any conflict of interest between the interest of the MTF,

the OTF, their owners or the Maltese investment firm or market

operator operating the MTF or the OTF and the sound

functioning of the MTF or the OTF; and

(g) they shall clearly inform its members or participants

of their respective responsibilities for the settlement of the

transactions executed in that facility. Maltese investment firms

and market operators operating an MTF or an OTF shall also put

in place the necessary arrangements to facilitate the efficient

settlement of the transactions concluded under the systems of

that MTF or OTF.

(2) Maltese investment firms and market operators operating

an MTF or an OTF shall comply with articles 4E and 4F of the

Financial Markets Act and have in place all the necessary effective Cap. 345.

systems, procedures and arrangements to do so.

(3) MTFs and OTFs shall have at least three materially active

members or users, each having the opportunity to interact with all the

others in respect to price formation.

(4) Where a transferable security that has been admitted to

trading on a regulated market is also traded on an MTF or an OTF

without the consent of the issuer, the issuer shall not be subject to any

obligation relating to initial, ongoing or ad hoc financial disclosure

with regard to that MTF or an OTF.

(5) Any Maltese investment firm and market operator

operating an MTF or an OTF shall comply immediately with any

instruction from the competent authority, pursuant to the applicable

provisions of the Acts and the Malta Financial Services Authority Act, Cap. 330.

to suspend or remove a financial instrument from trading.

(6) Maltese investment firms and market operators operating

an MTF or an OTF shall provide the competent authority with a

detailed description of the functioning of the MTF or the OTF,

including, without prejudice to regulations 5(1), and (6) to (8), any

links to or participation by a regulated market, an MTF, an OTF or a

systematic internaliser owned by the same Maltese investment firm or

market operator, and a list of their members, participants and, or users.

(7)

The competent authority shall make the information

referred to in sub-regulation (6) available to ESMA on request.

(8) The competent authority shall notify ESMA of every

authorisation granted to a Maltese investment firm or a market

operator to operate an MTF or an OTF.

(1) Maltese investment firms and market operators

operating an MTF shall, in addition to meeting the requirements

prescribed in regulation 3 and the applicable provisions of the

Investment Services Act (Control of Assets) Regulations, the

Investment Services Rules for Investment Services Providers and the

Conduct of Business Rulebook, establish and implement non-

discretionary rules for the execution of orders in the system.

(2) Member States shall require that the provisions of

regulation 3(1)(e), governing access to an MTF, comply with the

conditions established in regulation 8 of the Financial Markets Act

(Membership and Access) Regulations.

(3) Maltese investment firms and market operators operating

an MTF shall have arrangements

(a) to 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;

(b) to have effective arrangements to facilitate the

efficient and timely finalisation of the transactions executed

under its systems; and

(c) to have available, at the time of authorisation and on

an ongoing basis, sufficient financial resources to facilitate its

orderly functioning, having regard to the nature and extent of the

transactions concluded on the market and the range and degree

of the risks to which it is exposed.

(4) The rules prescribed in the Conduct of Business Rulebook

on general principles and information to clients, assessment of

suitability and appropriateness and reporting to clients, obligations to

execute orders on terms most favourable to the client and client order

handling rules are not applicable to the transactions concluded under

the rules governing an MTF between its members or participants or

between the MTF and its members or participants in relation to the use

of the MTF.

(5) The members of or participants in the MTF shall comply

with the obligations prescribed in the Conduct of Business Rulebook

on general principles and information to clients, assessment of

suitability and appropriateness and reporting to clients, obligations to

execute orders on terms most favourable to the client and client order

handling rules with respect to their clients when, acting on behalf of

their clients, they execute their orders through the systems of an MTF.

(6) Maltese investment firms or market operators operating an

MTF shall not execute client orders against proprietary capital, or

engage in matched principal trading.

(1) A Maltese investment firm and a market operator Specific

operating an OTF shall establish arrangements preventing the requirements

OTFs.

execution of client orders in an OTF against the proprietary capital of

the investment firm or market operator operating the OTF or from any

entity that is part of the same group or legal person as the investment

firm or market operator.

(2) A Maltese investment firm or market operator operating an

OTF shall engage in matched principal trading in bonds, structured

finance products, emission allowances and certain derivatives only

where the client has consented to the process.

(3) A Maltese investment firm or market operator operating an

OTF shall not use matched principal trading to execute client orders in

an OTF in derivatives pertaining to a class of derivatives that has been

declared subject to the clearing obligation in accordance with Article 5

of Regulation No 648/2012.

(4) A Maltese investment firm or market operator operating an

OTF shall establish arrangements ensuring compliance with the

definition of matched principal trading prescribed in regulation 2(1).

(5) A Maltese investment firm or market operator operating an

OTF may engage in dealing on own account other than matched

principal trading only with regard to sovereign debt instruments for

which there is not a liquid market.

(6) The operation of an OTF and of a systematic internaliser

shall not take place within the same legal entity.

(7)

An OTF shall not connect

(a) with a systematic internaliser in a way which enables

orders in an OTF and orders or quotes in a systematic internaliser

to interact; and

(b) with another OTF in a way which enables orders in

different OTFs to interact.

(8) A Maltese investment firm or a market operator operating

an OTF may engage another Maltese investment firm to carry out

market making on that OTF on an independent basis

Provided that for the purposes of this regulation, a Maltese

investment firm shall not be deemed to be carrying out market making

on an OTF on an independent basis if it has close links with the

Maltese investment firm or market operator operating the OTF.

(9) The execution of orders on an OTF shall be carried out on a

discretionary basis.

(10) A Maltese investment firm or market operator operating an

OTF shall exercise discretion only in either or both of the following

circumstances

(a) when deciding to place or retract an order on the OTF

they operate;

(b) when deciding not to match a specific client order

with other orders available in the systems at a given time,

provided it is in compliance with specific instructions received

from a client and with its obligations to execute orders on terms

most favourable to the client as prescribed in the Conduct of

Business Rulebook.

(11) For the system that crosses client orders the Maltese

investment firm or market operator operating the OTF may decide if,

when and how much of two or more orders it wants to match within

the system. In accordance with sub-regulations (1) to (4) and (6) to (8),

of this regulation and without prejudice to sub-regulation (5), with

regard to a system that arranges transactions in non-equities, the

Maltese investment firm or market operator operating the OTF may

facilitate negotiation between clients so as to bring together two or

more potentially compatible trading interest in a transaction

Provided that this obligation shall be without prejudice to

regulation 3 and the provisions of the Conduct of Business Rulebook

on obligation to execute orders on terms most favourable to the client.

(12) When a Maltese investment firm or market operator

requests to be authorised for the operation of an OTF or on ad hoc

basis, the competent authority may require the following

(a) a detailed explanation of the reason why the system

does not correspond to and cannot operate as a regulated market,

MTF, or systematic internaliser;

(b) a detailed description as to how discretion will be

exercised, in particular when an order to the OTF may be

retracted and when and how two or more client orders will be

matched within the OTF.

(13) In addition to the information provided pursuant to sub-

regulation (12), the Maltese investment firm or market operator of an

OTF shall provide the competent authority with information

explaining its use of matched principal trading. In this regard, the

competent authority shall monitor a Maltese investment firm’s or

market operator’s engagement in matched principal trading to ensure

that it continues to fall within the definition of such trading and that its

engagement in matched principal trading does not give rise to conflicts

of interest between the Maltese investment firm or market operator and

its clients.

(14) Articles 24, 25, 27 and 28 of MiFID as transposed in the

Conduct of Business Rulebook on general principles and information

to clients, assessment of suitability and appropriateness and reporting

to clients, obligations to execute orders on terms most favourable to

the client and client order handling rules shall be applicable to the

transactions concluded on an OTF.

(1) Maltese investment firms and market operators Monitoring of

operating an MTF or an OTF shall establish and maintain effective compliance

the rules of the

arrangements and procedures, relevant to the MTF or OTF, for the MTF

OTF and with

regular monitoring of the compliance by its members or participants or other legal

obligations.

users with its rules.

(2) Maltese investment firms and market operators operating

an MTF or an OTF shall monitor the orders sent, including

cancellations and the transactions undertaken by their members or

participants or users under their systems, in order to identify

infringements of those rules, disorderly trading conditions, conduct

that may indicate behaviour that is prohibited under MAR or system

disruptions in relation to a financial instrument and shall deploy the

resource necessary to ensure that such monitoring is effective.

(3) Maltese investment firms and market operators operating

an MTF or an OTF shall inform the competent authority immediately

of significant infringements of its rules or disorderly trading

conditions or conduct that may indicate behaviour that is prohibited

under MAR or system disruptions in relation to a financial instrument.

The competent authority shall communicate this information to ESMA

and to the European regulatory authorities of other Member States or

EEA States.

(4) With regard to conduct that may indicate behaviour that is

prohibited under MAR pursuant to sub-regulation (3), the competent

authority must be convinced that such behaviour is being or has been

carried out before it notifies the European regulatory authorities of the

other Member States or EEA States and ESMA.

(5) Maltese investment firms and market operators operating

an MTF or an OTF shall supply without undue delay the information

referred to in sub-regulations (3) and (4) above to the authorities

competent for the investigation and prosecution of market abuse and to

provide full assistance to the latter in investigating and prosecuting

market abuse occurring on or through its systems.

(1) Without prejudice to the right of the competent

authority to demand suspension or removal of a financial instrument

from trading in terms of the Acts, a Maltese investment firm or a

market operator operating an MTF or an OTF may suspend or remove

from trading a financial instrument which no longer complies with the

rules of the MTF or an OTF unless such suspension or removal would

be likely to cause significant damage to the investors’ interests or the

orderly functioning of the market.

(2) Maltese investment firms or market operators operating an

MTF or an OTF that suspends or removes from trading a financial

instrument shall also suspend or remove derivatives referred to in

points (4) to (10) of Section C of Annex I of MiFID, as transposed in

the second schedule to the Investment Services Act, that relate or are

referenced to that financial instrument where necessary to support the

objectives of the suspension or removal of the underlying financial

instrument. The Maltese investment firm or market operator operating

an MTF or an OTF shall make public its decision on the suspension or

removal of the financial instrument and of any related derivative and

communicate the relevant decisions to the competent authority.

(3) When the suspension or removal originated in Malta,

regulated markets, other MTFs, other OTFs and systematic

internalisers, which fall under the jurisdiction of the competent

authority and trade the same financial instrument or derivatives

referred to in points (4) to (10) of Section C of Annex I of MiFID, as

transposed in the second schedule to the Investment Services Act, that

relate or are referenced to that financial instrument, shall also suspend

or remove that financial instrument or derivatives from trading, where

the suspension or removal is due to suspected market abuse, a take-

over bid or the non-disclosure of inside information about the issuer or

financial instrument infringing Articles 7 and 17 of MAR except

where such suspension or removal could cause significant damage to

the investors’ interests or the orderly functioning of the market. The

competent authority shall immediately make public and communicate

to ESMA and the European regulatory authorities of the other Member

States or EEA States such a decision.

(4) Where the competent authority receives a notification from

a European regulatory authority of another Member State or EEA

State, it shall require that regulated markets, other MTFs, other OTFs

and systematic internalisers, which fall under its jurisdiction and trade

the same financial instrument or derivatives referred to in points (4) to

(10) of Section C of Annex I of MiFID, as transposed in the second

schedule to the Investment Services Act, that relate or are referenced

to that financial instrument, also suspend or remove that financial

instrument or derivatives from trading, where the suspension or

removal is due to suspected market abuse, a take-over bid or the non-

disclosure of inside information about the issuer or financial

instrument infringing Articles 7 and 17 of MAR except where such

suspension or removal could cause significant damage to the investors’

interests or the orderly functioning of the market. The competent

authority shall communicate its decision to ESMA and other European

regulatory authorities, including an explanation if the decision was not

to suspend or remove from trading the financial instrument or

derivatives referred to in points (4) to (10) of Section C of Annex I of

MiFID, as transposed in the second schedule to the Investment Cap. 370.

Services Act, that relate or are referenced to that financial instrument.

(5) Sub-regulations (2) to (4) shall also apply when the

suspension from trading of a financial instrument or derivatives

referred to in points (4) to (10) of Section C of Annex I of MiFID, as

transposed in the second schedule to the Investment Services Act, that

relate or are referenced to that financial instrument is lifted.

(6) The notification procedure referred to in sub-regulations

(2) to (4) shall also apply in the case where the decision to suspend or

remove from trading a financial instrument or derivatives referred to in

points (4) to (10) of Section C of Annex I of MiFID, as transposed in

the second schedule to the Investment Services Act, that relate or are Cap. 370.

referenced to that financial instrument is taken by the competent

authority.

The operator of an MTF may apply to the competent

authority to have the MTF registered as an SME growth market. In

such cases the Financial Markets Act (SME Growth Markets) L.N. 390.

Regulations, 2017 shall apply.

(1) Where a person falling within the scope of these

regulations fails to comply with any provisions of such regulations or

any rules issued thereunder further implementing such regulations, the

competent authority may, by notice in writing and without recourse to

a court hearing, impose on such person an administrative penalty and

other administrative measures in accordance with the provisions of the

Financial Markets Act (MiFID and MiFIR Administrative Penalties,

Measures and Investigatory Powers) Regulations, 2017 or the

Investment Services Act and Banking Act (MiFID and MiFIR

Administrative Penalties, Measures and Investigatory Powers)

Regulations, 2017.

(2) A right of appeal to the Financial Services Tribunal shall lie

from the decisions which the competent authority shall take under

these regulations and the provisions of Part VI of the Financial

Markets Act or article 19 of the Investment Services Act shall apply

mutatis mutandis.

€0.54