The Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001

3.—[F1(1) The exchange must ensure that the systems and controls used in the performance of its functions are adequate, and appropriate for the scale and nature of its business.]U.K.

[F1(1) The exchange must ensure that the systems and controls, including procedures and arrangements, used in the performance of its functions and the functions of the trading venues it operates are adequate, effective and appropriate for the scale and nature of its business.]

(2) Sub-paragraph (1) applies in particular to systems and controls concerning—

(a)the transmission of information;

(b)the assessment [F2, mitigation] and management of risks to the performance of the exchange’s functions;

(c)the effecting and monitoring of transactions on the exchange;

[F3(ca)the technical operation of the exchange, including contingency arrangements for disruption to its facilities;]

(d)the operation of the arrangements mentioned in paragraph 4(2)(d) below; [F4and]

(e)(where relevant) the safeguarding and administration of assets belonging to users of the exchange’s facilities;

[F5(f)the resilience of its trading systems;

(g)the ability to have sufficient capacity to deal with peak order and message volumes;

(h)the ability to ensure orderly trading under conditions of severe market stress;

(i)the effectiveness of business continuity arrangements to ensure the continuity of the exchange's services if there is any failure of its trading systems including the testing of the exchange's systems and controls;

(j)the ability to reject orders that exceed predetermined volume or price thresholds or which are clearly erroneous;

(k)the ability to ensure algorithmic trading systems cannot create or contribute to disorderly trading conditions on trading venues operated by the exchange;

(l)the ability to ensure disorderly trading conditions which arise from the use of algorithmic trading systems, including systems to limit the ratio of unexecuted orders to transactions that may be entered into the exchange's trading system by a member or participant, are capable of being managed;

(m)the ability to ensure the flow of orders is capable of being slowed down if there is a risk of system capacity being reached;

(n)the ability to limit and enforce the minimum tick size which may be executed on its trading venues; and

(o)the requirement for members and participants to carry out appropriate testing of algorithms.]

[F6(3) For the purposes of sub-paragraph (2)(c), the exchange must—

(a)establish and maintain effective arrangements and procedures including the necessary resource for the regular monitoring of the compliance by their members or participants with its rules; and

(b)monitor orders sent including cancellations and the transactions undertaken by its members or participants under its systems in order to identify infringements of those rules, disorderly trading conditions or conduct that may indicate behaviour that is prohibited under the market abuse regulation or system disruptions in relation to a financial instrument.

(4) For the purposes of sub-paragraph (2)(o) the exchange must provide environments to facilitate such testing.

(5) The exchange must be adequately equipped to manage the risks to which it is exposed, to implement appropriate arrangements and systems to identify all significant risks to its operation, and to put in place effective measures to mitigate those risks.]

Textual Amendments

F6Sch. para. 3(3)-(5) inserted (29.6.2017 for specified purposes, 3.7.2017 for specified purposes) by The Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (S.I. 2017/701), reg. 1(2)(3)(4)(6), Sch. 3 para. 1(6)(c) (with reg. 7)

Commencement Information

I1Sch. para. 3 in force at 1.12.2001, see reg. 2