According to the FCA, its new pre and post-trade transparency regime is simpler and will benefit investors and market participants by improving transparency and, consequently, liquidity.
The changes are a part of the regulator’s attempt “to strengthen the UK’s position in global wholesale markets” and make it a “primary market destination for issuers seeking to list or quote bonds.”
The new requirements apply only to:
- bonds admitted to trading on a trading venue; and
- derivatives subject to clearing obligations.
OTC trading of non-specified instruments by investment firms falls outside of the scope of the regime and will not be subject to public trade reporting.
Key additional changes include:
- the removal of the requirement for transparency calculations in order to determine if an instrument is liquid;
- the discontinuation of the Financial Instruments Transparency System (FITRS) for bonds and derivatives;
- the systematic internaliser (SI) definition amended from quantitative to qualitative; and
- improvements to the content of post-trade reports.
The regulator has also set out the specific standards and criteria that will permit trading venues to calibrate their transparency requirements.
The policy statement includes some changes from the proposals originally published in the consultation paper including:
- the introduction of 3 deferral durations for bonds;
- modification of order length and threshold size required for bonds to qualify for deferrals;
- refined grouping criteria for bonds;
- longer deferral for swaps with non-benchmark tenors;
- lower threshold sizes for SONIA (Sterling Overnight Index Average) swaps;
- systems relying on negotiation removed from the scope of pre-trade transparency;
- preference for the Unique Product Identifier (UPI) which is to be used if it exists, with the International Securities Identification Number (ISIN) to be used otherwise.
And while the 15-minute maximum delay for real-time reporting of package trades has been retained, the FCA has made it clear that this represents a maximum that “can only be justified by limitations in the firm’s technical capability to report in real-time.”
In response to industry feedback on the regulator’s original proposal, pre-trade transparency requirements have been removed for any system other than a:
- continuous auction order book;
- quote-driven trading system;
- periodic auction trading system.
According to the FCA this ensures closer alignment with international practice. The removal of RFQ systems from the scope of pre-trade transparency requirements means that the new regime will not include pre-trade transparency requirements for SIs.
The regulator stresses that the “general requirements for business to be conducted in a fair and orderly manner will continue to apply.” And it is requesting responses to its discussion on the future of the transparency regime as it applies to SIs in Chapter 9 of the Policy Statement by 10 January 2025.
The tables below attempt to summarize the new transparency regime, which will come into force on 1 December 2025.
Instrument types
| Category 1 | Category 2 |
| Bonds traded on UK trading venues, certain derivatives subject to clearing obligations | Emission allowances structured finance products, other debt securities such as: exchange traded commodities, exchange traded notes, derivatives that are not in Category 1 |
Explicitly included in Category 1 are:
- ITraxx Europe Main (5-year tenor);
- ITraxx Europe Crossover (5-year tenor).
Explicitly excluded from the list of Category 1 instruments are:
- FX derivatives;
- single-name CDSs;
- forward rate agreements (FRA) and swaps with reference index other than EURIBOR, SONIA, SOFR, €STR and FedFunds.
Investment firms
| Category 1 | Category 2 | |
| Pre-trade | No obligation to report | No obligation to report |
| Post-trade | Real-time reporting unless the trade above relevant LIS threshold set out in FCA Handbook | No obligation to report |
Trading venues
| Category 1 | Category 2 | |
| Pre-trade | Pre-trade transparency applies depending on the characteristics of the market model. Waivers available for LIS orders and Order Management Systems | Pre-trade transparency applies depending on the characteristics of the market model. Waivers available for LIS orders and Order Management Systems |
| Minimum size of LIS orders set in FCA Handbook | ||
| Post-trade | Real-time reporting unless the trade above relevant LIS threshold set out in FCA Handbook | Post-trade transparency set by the trading venue in line with criteria set out in FCA rules |