What constitutes a trading venue? ESMA clarifies the term ‘multilateral system’

Mar 8th '23

The European Securities and Markets Authority (ESMA) has recently published an opinion that provides clarity as to when systems operated by market parties qualify as multilateral systems. Based on this ESMA opinion, market parties can check whether their systems qualify as multilateral systems and whether they are operating under the appropriate authorisation. The Dutch Authority for the Financial Markets (AFM) assesses whether market parties meet the requirements and applies this opinion in its supervision.


The new opinion provides guidance on when authorisation is required for the operation of a regulated market, multilateral trading facility (MTF) or organised trading facility (OTF). ESMA has asked the national authorities to ensure that market parties assess their systems against the ESMA opinion and reflect whether they are operating under the appropriate authorisation. With reference to the full text of this opinion, the AFM will highlight a number of elements below.


ESMA opinion

The term ‘multilateral system’ has been defined in law as ‘any system or facility in which multiple third-party buying and selling trading interests in financial instruments are able to interact in the system’. The opinion discusses the various elements of this definition. Among other things, ESMA explains in this opinion that interaction occurs if the system not only allows the communication of the different trading interests but also allows users to react to those trading interests.


In addition, the opinion addresses three different kinds of existing systems: technology providers (including communication tools and execution management systems), request for quote systems and systems in which transactions can be negotiated that are subsequently formalised on a different trading venue (pre-arranged/negotiated transactions).



Source: AFM


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