ICMA says execution and order management systems are not trading venues

Dan Barnes

The International Capital Markets Association (ICMA) has responded to the European Securities and Market Authority (ESMA) consultation into the ‘trading venue perimeter’ by arguing that the existence of a ‘third party system operator’ who is the ‘controller’ of the terms that result in a contract is a key characteristic of whether a system is multilateral, when assessing trading venue authorisation.

“For a system to be multilateral, it must have a third-party system operator, who facilitates the matching of interests,” ICMA write in tis response.” This is particularly important when taking into account the organising of protocols. Often terms of business are involved with protocols. An example of an ‘organiser’ of protocols is a multilateral trading facility (MTF) or organised trading facility (OTF). An execution or order management system (E/OMS) does not set the protocols or rules which governs the interaction of multiple trading interests.”

It notes that they are used to organise interests involving a single user, such as a broker or portfolio manager, and while multiple bilateral communications “can be sent, the interests involving separate users do not interact.”

It argues that these management systems facilitate bilateral communications in a more efficient way then communicating over the phone or by e-mail but “they are not ‘platforms’ in which multiple buyers and multiple sellers interact.”

“Therefore, it is ICMA’s considered view that an EMS or OMS does not qualify for authorisation as a trading venue. In addition, an entity that solely aggregates or consolidates is also not sufficient to qualify for authorisation as a trading venue.”

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