MiFID currently permits exemption from the requirement to be authorised where a person does not provide any investment services or activities other than dealing on own account, unless the person is a market maker or deals outside a regulated market or MTF in an organised, frequent and systematic manner. The Commission is concerned that member states have applied the exemption differently, with some confusion arising where firms execute client orders against proprietary capital. The Commission suggests that the exemption should be clarified so that it is applied consistently and an exemption will apply only where the person concerned is not executing client orders and is neither a market maker nor a systematic internaliser.
A second issue which the Commission believes requires clarification is the treatment of matched principal trades in relation to both capital requirements and the application of the systematic internaliser regime.
Where both legs of a trade are precisely matched, this type of trading could be considered as, either, the execution of client orders or, dealing on own account (as the firm’s capital is put at risk if one of the trades fails). The Commission believes that this activity should regarded as dealing on own account but the treatment of the trading for regulatory capital purposes should be unaffected. Currently, these positions are not regarded as attracting capital charges where they are precisely matched.
The application of the systematic internaliser regime to these types of trades is less clear as the substance of the transaction is a trade between the two clients, even if legally the trades are with the firm as principal.
The Commission is seeking industry views as to capital treatment and also how matched principal trading should be treated for the purposes of the systematic internaliser regime.