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

PART IRecognition requirements for investment exchanges

Financial resources

1.—(1) The exchange must have financial resources sufficient for the proper performance of its functions as a recognised investment exchange.

(2) In considering whether this requirement is satisfied, the Authority may (without prejudice to the generality of regulation 6(1)) take into account all the circumstances, including the exchange’s connection with any person, and any activity carried on by the exchange, whether or not it is an exempt activity.

Suitability

2.—(1) The exchange must be a fit and proper person to perform the functions of a recognised investment exchange.

(2) In considering whether this requirement is satisfied, the Authority may (without prejudice to the generality of regulation 6(1)) take into account all the circumstances, including the exchange’s connection with any person.

Systems and controls

3.—(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.

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

(a)the transmission of information;

(b)the assessment and management of risks to the performance of the exchange’s functions;

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

(d)the operation of the arrangements mentioned in paragraph 4(2)(d) below; and

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

Safeguards for investors

4.—(1) The exchange must ensure that business conducted by means of its facilities is conducted in an orderly manner and so as to afford proper protection to investors.

(2) Without prejudice to the generality of sub-paragraph (1), the exchange must ensure that—

(a)access to the exchange’s facilities is subject to criteria designed to protect the orderly functioning of the market and the interests of investors;

(b)dealings in investments on the exchange are limited to investments in which there is a proper market;

(c)appropriate arrangements are made for relevant information to be made available (whether by the exchange or, where appropriate, by issuers of the investments) to persons engaged in dealing in investments on the exchange;

(d)satisfactory arrangements are made for securing the timely discharge (whether by performance, compromise or otherwise) of the rights and liabilities of the parties to transactions effected on the exchange (being rights and liabilities in relation to those transactions);

(e)satisfactory arrangements are made for recording transactions effected on the exchange, and transactions (whether or not effected on the exchange) which are cleared or to be cleared by means of its facilities;

(f)appropriate measures are adopted to reduce the extent to which the exchange’s facilities can be used for a purpose connected with market abuse or financial crime, and to facilitate their detection and monitor their incidence; and

(g)where the exchange’s facilities include making provision for the safeguarding and administration of assets belonging to users of those facilities, satisfactory arrangements are made for that purpose.

(3) In sub-paragraph (2)(c), “relevant information” means information which is relevant in determining the current value of the investments.

Disclosure by issuers of securities

5.—(1) In this paragraph—

• “admission to trading”, “securities” and “regulated market” are to be construed in accordance with regulation 2 of the Traded Securities (Disclosure) Regulations 1994(1);

• “the obligation of disclosure” means the obligation imposed by regulation 3 of those Regulations;

• “issuer” means a person who is subject to that obligation whose securities are admitted to trading on a regulated market which the exchange regulates and supervises; and

• “the relevant securities” means securities in relation to which the obligation of disclosure arises.

(2) The rules of the exchange must enable the exchange, in the event of a failure by an issuer to comply with the obligation of disclosure,—

(a)to discontinue the admission of the relevant securities to trading;

(b)to suspend trading in the relevant securities;

(c)to publish the fact that the issuer has failed to comply with the obligation of disclosure; and

(d)to make public itself any information which the issuer has failed to publish.

(3) This paragraph is without prejudice to the requirement in paragraph 4(2)(c) above.

Promotion and maintenance of standards

6.—(1) The exchange must be able and willing to promote and maintain high standards of integrity and fair dealing in the carrying on of regulated activities by persons in the course of using the facilities provided by the exchange.

(2) The exchange must be able and willing to cooperate, by the sharing of information or otherwise, with the Authority, with any other authority, body or person having responsibility in the United Kingdom for the supervision or regulation of any regulated activity or other financial service, or with an overseas regulator within the meaning of section 195 of the Act.

Rules and consultation

7.—(1) The exchange must ensure that appropriate procedures are adopted for it to make rules, for keeping its rules under review and for amending them.

(2) The procedures must include procedures for consulting users of the exchange’s facilities in appropriate cases.

(3) The exchange must consult users of its facilities on any arrangements it proposes to make for dealing with penalty income in accordance with paragraph 8(3) below (or on any changes which it proposes to make to those arrangements).

Discipline

8.—(1) The exchange must have effective arrangements for monitoring and enforcing compliance with—

(a)its rules (including rules in relation to the provision of clearing services in respect of transactions other than transactions effected on the exchange); and

(b)the arrangements made by it as mentioned in paragraph 4(2)(d) above.

(2) Arrangements made pursuant to sub-paragraph (1) must include procedures for—

(a)investigating complaints made to the exchange about the conduct of persons in the course of using the exchange’s facilities; and

(b)the fair, independent and impartial resolution of appeals against decisions of the exchange.

(3) Where arrangements made pursuant to sub-paragraph (1) include provision for requiring the payment of financial penalties, they must include arrangements for ensuring that any amount so paid is applied only in one or more of the following ways—

(a)towards meeting expenses incurred by the exchange in the course of the investigation of the breach in respect of which the penalty is paid, or in the course of any appeal against the decision of the exchange in relation to that breach;

(b)for the benefit of users of the exchange’s facilities;

(c)for charitable purposes.

Complaints

9.—(1) The exchange must have effective arrangements for the investigation and resolution of complaints arising in connection with the performance of, or failure to perform, any of its regulatory functions.

(2) But sub-paragraph (1) does not extend to—

(a)complaints about the content of rules made by the exchange, or

(b)complaints about a decision against which the complainant has the right to appeal under procedures of the kind mentioned in paragraph 8(2)(b) above.

(3) The arrangements must include arrangements for a complaint to be fairly and impartially investigated by a person independent of the exchange, and for him to report on the result of his investigation to the exchange and to the complainant.

(4) The arrangements must confer on the person mentioned in sub-paragraph (3) the power to recommend, if he thinks it appropriate, that the exchange—

(a)makes a compensatory payment to the complainant,

(b)remedies the matter complained of,

or takes both of those steps.

(5) Sub-paragraph (3) is not to be taken as preventing the exchange from making arrangements for the initial investigation of a complaint to be conducted by the exchange.