FCA MiFID II HFT Authorisation

As MiFID II go-live is less than a year away, the FCA’s attention is shifting to authorisation issues.

Today, the FCA held a presentation on the HFT authorisation process. This was intended to augment their recent ‘MiFID II – application and notification user guide’.

Their slides contained no surprises but the questions and answers most certainly did. Here are some nuggets we gleaned:

Iliana Lani (FCA’s MiFID II head of authorisation) stated that the FCA cannot guarantee processing completed authorisation applications that don’t meet the FCA’s 3 July 2017 deadline. She went on to state that firms will have to stop trading, although subsequently caveated it by stressing firms need to seek their own advice. This stresses an oft-repeated point we have been advising clients of small firms that they simply have no time left to procrastinate.

A question was raised on the possibility of deferred applications, i.e. submitting an application with the request that the authorisation goes live at a future date. The answer was that the FCA has a statutory duty to process complete applications within 6 months and incomplete applications within 12 months. An incomplete application was defined as one that was lacking either quantitatively (missing information) or qualitatively.

To submit an application, one must utilise the FCA’s “Connect” gateway. Their system will prompt the user with some initial questions. Dependent on the answers, the system will respond by generating an application pack with the relevant forms. New MiFID II authorisations will be required to fill in ITS annex I as well as the FCA’s own MiFID Annex. HFT firms will additionally be required to complete an IT controls form.

An interesting question was posed regarding whether third country firms (firms based outside of the EU) trading HFT in Europe would be required to register with the FCA. The answer was ‘no’. This was robustly challenged repeatedly by many firms, including our own. The answer seemed counter intuitive and our firm urged the FCA to furnish further guidance. Further questions are whether the third country HFT firm’s placing a server at an exchange constitutes having a local presence?

Q – When should an application for HFT authorisation be furnished? Should a firm anticipate when it will beach the threshold or only submit an application when it actually does? If the latter option is chosen, would that require them to cease trading until authorisation was granted? The FCA was non-committal stating merely that an application should be furnished as soon as possible.

Q- DEA (Direct Electronic Access) – which includes DMA and sponsored access. In a chain of firms that all provide DEA to the next in line, are they all considered providing DEA? The FCA’s answer was ‘no’. The chain stops with the first DMA provider.

Exchange–>DEA Provider–>DEA user–>DEA user

 

Please contact us should you wish to discuss your MiFID II needs.

 

 

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Photo Credit to Kregg Steppe on Flickr (CC by 2.0)

 

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