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UK watchdog clarifies post-Brexit conditions for share trading licences

By Huw Jones

LONDON – Britain’s financial watchdog set out plans on Thursday to clarify which operators must be licensed to trade stocks and bonds in its latest post-Brexit move to keep London’s capital market competitive.

Britain’s new Prime Minister Liz Truss has promised to “unshackle” the City of London from European Union rules to boost its global competitiveness, with further details due on Friday.

“Following the UK’s withdrawal from the EU, we are now able to consider approaches which are better tailored to the UK market,” the Financial Conduct Authority said in a consultation paper on Thursday.

The watchdog said it won’t change the legal perimeter which determines mandatory licensing for trading venues, but is clarifying where that border lies.

Trading technology has advanced rapidly to include multi-lateral systems, which link banks, brokers and asset managers.

“Principally, we are concerned that some firms may be providing arrangements which constitute a multilateral system without being authorised and regulated as a trading venue,” the FCA said.

This could leave investors without protection and give some market participants an unfair advantage over licensed players, who face higher regulatory costs, the FCA said.

In its paper, the watchdog said a multilateral trading platform which requires a licence comprises multiple third-party buying and selling trading interests in financial instruments, such as stocks and bonds.

Bulletin boards would not be included, nor standalone chat rooms unless part of a multilateral platform.

“In our view, arranging trades over the telephone is not a sufficient condition for a firm to seek authorisation as a trading venue,” the FCA added.

Britain’s finance ministry said last year that market participants can only compete properly if they have certainty about their own regulatory status and that of rivals.

More guidance on the licensing perimeter would reduce risks for firms and ensure there is confidence in Britain’s rules, the ministry said.

The FCA aims to finalise the guidance in the second quarter of 2023.

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