Under MiFID II, our FXall electronic foreign exchange trading platform will operate as an MTF. This can only be a good thing for customers as they will be executing in a well-managed and orderly environment.
At Thomson Reuters, we are committed to providing compliant solutions to our clients.
Getting this right is never without challenge, particularly when it comes to MiFID II. But we believe that by working together we can better navigate the rapids of regulatory change.
One of the questions that I’m frequently asked is why the Thomson Reuters FXall electronic trading platform has opted to become a Multilateral Trading Facility (MTF).
The perplexing element to this question is that it implies a choice. Let me be clear: Thomson Reuters FXall needs to become an MTF. To explain why, I need to get technical for a moment.
Watch video — MiFID II Market Readiness Report – Will the market be ready?
MiFID II requirements
Under MiFID II, MTFs must adhere to new rules and requirements that affect reporting, record keeping, systems and controls from January 2018.
Article 1 (7) in MiFID II requires all multilateral systems in financial instruments in the EU to operate either as an MTF, an organized trading facility (OTF) or a regulated market (RM).
A multilateral system brings together third-party buying and selling interests.
Thomson Reuters FXall is a system and multi-dealer RFQs (request-for-quotes) bringing together multiple third-party buying and selling interests (something that has been clarified in MiFID II).
Therefore, FXall is a multilateral system.
And FX derivatives are financial instruments.
Annex 1 section C4 in MiFID II covers this point: “Options, futures, swaps, forward rate agreements and any other derivative contracts relating to … currencies…”.
“Other derivative contracts” are defined as part of the FX spot definitions in Article 10 of Commission Delegated Regulation 2017/565. In that article, it is clear that FX forwards are financial instruments as well.
Therefore, Thomson Reuters FXall is a multilateral system, and FX swaps, forwards, NDFs and options are financial instruments.
Note there is no distinction here between OTC instruments and exchange-traded instruments; for the purposes of the definition of a multilateral system, the distinction is irrelevant.
What makes us an MTF?
Finally, why is Thomson Reuters FXall becoming an MTF and not an OTF or an RM?
The simple answer is that it most closely meets the definition of an MTF. It cannot be an RM — those are exchanges and Thomson Reuters FXall can’t hold itself out to be one of those.
On the other hand, OTFs are operated by brokers who may exercise discretion over how orders are executed in the system.
That doesn’t happen on Thomson Reuters FXall; trading decisions are taken by the counterparties, not by Thomson Reuters.
So by process of elimination Thomson Reuters FXall has to be an MTF.
Another question is why we require non-financial firms to join our MTF, as they are not in the scope of MIFID II. The absence of a trading obligation in FX also gets raised.
The fact is that neither of these points are material.
Thomson Reuters FXall must be an MTF as dictated by MiFID II. There is no carve out from being an MTF where the participants are non-financial firms, or in the absence of a trade mandate.
Thus, to continue to trade on Thomson Reuters FXall after January, European Takers must trade on the MTF.
Of course, there are many reasons why being a member of an MTF is a good thing. As a highly regulated platform, you are executing in a well managed and orderly environment.
And Thomson Reuters FXall remains one of the most liquid and effective electronic communication networks in the market. Sometimes regulation can be a good thing!