Recognised

Investment Exchanges

and Recognised

Clearing Houses
REC Contents

Recognised Investment Exchanges and Recognised

Clearing Houses

REC 1 Introduction

1.1 Application

1.2 Purpose, status and quotations

REC 2 Recognition requirements

2.1 Introduction

2.2 Method of satisfying the recognition requirements

2.3 Financial resources

2.4 Suitability

2.5 Systems and controls and conflicts

2.5A Guidance on Public Interest Disclosure Act: Whistleblowing

2.6 General safeguards for investors, provision of pre and post-trade

information about share trading and suspension and removal of financial

instruments from trading

2.7 Access to facilities

2.8 Settlement and clearing facilitation services

2.9 Transaction recording

2.10 Financial crime and market abuse

2.11 Custody

2.12 Availability of relevant information and admission of financial

instruments to trading (UK RIEs only)

2.13 Promotion and maintenance of standards

2.14 Rules and consultation

2.15 Discipline

2.16 Complaints

2.16A Operation of a multilateral trading facility

2.17 Recognition requirements relating to the default rules of UK RIEs

REC 2A Recognised Auction Platforms

2A.1 Introduction

2A.2 Method of satisfying the RAP recognition requirements

2A.3 Guidance on RAP recognition requirements

2A.4 Power and procedure for RAP penalties and censures

REC 3 Notification rules for UK recognised bodies

3.1 Application and purpose

3.2 Form and method of notification

3.3 Waivers

3.4 Key individuals and internal organisation

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REC Contents

3.5 Disciplinary action and events relating to key individuals

3.6 Constitution and governance

3.7 Auditors

3.8 Financial and other information

3.9 Fees and incentive schemes

3.10 Complaints

3.11 Insolvency events

3.12 Legal proceedings

3.13 Delegation of relevant functions

3.14 Products, services and normal hours of operation

3.14A Operation of a regulated market or MTF

3.15 Suspension of services and inability to operate facilities

3.16 Information technology systems

3.17 Inability to discharge regulatory functions

3.18 Membership

3.19 Investigations

3.20 Disciplinary action relating to members

3.21 Criminal offences and civil prohibitions

3.22 Restriction of, or instruction to close out, open positions

3.23 Default

3.24 Transfers of ownership

3.25 Significant breaches of rules and disorderly trading conditions

3.26 Proposals to make regulatory provision

REC 4 Supervision

4.1 Application and purpose

4.2 The supervisory relationship with UK recognised bodies

4.2A Publication of information by UK RIEs and RAPs

4.2B Exercise of passport rights by a UK RIE

4.2C Control over a UK RIE

4.2D Suspension and removal of financial instruments from trading

4.2E Information: compliance of UK recognised bodies with EU requirements

4.2F Information gathering power on FCA’s own initiative

4.2G Reports by skilled persons

4.3 Risk assessments for UK recognised bodies

4.4 Complaints

4.5 FCA supervision of action by UK RIEs under their default rules

4.6 The section 296 power to give directions

4.6A The section 192C power to direct qualifying parent undertakings

4.7 The section 297 power to revoke recognition

4.8 The section 298 procedure

4.9 Disciplinary measures

REC 5 Applications for Recognition (UK recognised bodies)

5.1 Introduction and legal background

5.2 Application process

REC 6 Overseas Investment Exchanges

6.1 Introduction and legal background

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REC Contents

6.2 Applications

6.3 Recognition requirements

6.5 FCA decision on recognition

6.6 Supervision

6.7 Notification rules for overseas recognised bodies

6.8 Powers to supervise

REC 6A EEA market operators in the United Kingdom

6A.1 Exercise of passport rights by EEA market operator

6A.2 Removal of passport rights from EEA market operator

REC 7 Fees

7 Annex 1 [deleted: the provisions in relation to Recognised Investment Exchanges

and Recognised Clearing Houses are set out in FEES 4 Annex 6R]

7 Annex 2 [deleted: the provisions in relation to Recognised Investment Exchanges

and Recognised Clearing Houses are set out in FEES?3 Annex 3R]

Transitional provisions and Schedules

TP 1 Transitional provisions

Sch 1 Record keeping requirements

Sch 2 Notification requirements

Sch 5 Rights of action for damages

Sch 6 Rules that can be waived

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Recognised Investment Exchanges and Recognised Clearing Houses

Chapter 1

Introduction

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REC 1 : Introduction Section 1.1 : Application

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1.1 Application

[Note: ESMA has also issued guidelines under article 16(3) of the ESMA

Regulation covering various topics relating to automated trading and direct

electronic access. See www.esma.europa.eu/system/files/esma_2012_122_

en.pdf ]

The rules and guidance in this sourcebook apply to recognised bodies and to

applicants for recognition as RIEs under Part XVIII of the Act (Recognised

Investment Exchanges and Clearing Houses) and (as RAPs) under the RAP

regulations. The guidance in ■ REC 6A applies to EEA market operators exercising

passporting rights in the United Kingdom.

(1) UK RIEs are exempt persons under section 285 of the Act (Exemption

for recognised investment exchanges and clearing houses).

(2) UK RIEs must satisfy recognition requirements prescribed by the

Treasury (in certain cases with the approval of the Secretary of State)

in the Recognition Requirements Regulations. UK RIEs must also

satisfy the MiFID implementing requirements in the MiFID

Regulation.RAPs must satisfy the recognition requirements prescribed

by the Treasury in the RAP regulations, under the auction regulation

and must also be UK RIEs and so are subject to requirements under

the MiFID Regulation. ROIEs must satisfy recognition requirements

laid down in section 292 of the Act (Overseas investment exchanges

and overseas clearing houses).

(3) UK RIEs must also comply with notification requirements in, and with

notification rules made under, sections 293 (Notification

requirements) and 295 (Notification: overseas investment exchanges

and clearing houses) of the Act.

(1) The recognition requirements for UK recognised bodies and the MiFID

implementing requirements are set out, with guidance, in ■ REC 2. The

RAP recognition requirements (other than requirements under the

auction regulation which are not reproduced in REC) are set out, with

guidance, in ■ REC 2A. (2) The notification rules for UKrecognised bodies are set out in ■ REC 3

together with guidance on those rules.
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(3) Guidance on the FCA's approach to the supervision of recognised

bodies is given in ■ REC 4. (4) Guidance for applicants (and potential applicants) for UK recognised

body status is given in ■ REC 5. (5) The recognition requirements, notification rules, and guidance for

ROIEs and guidance for applicants (and potential applicants) for ROIE

status are set out in ■ REC 6. (5A) Guidance for EEA market operators exercising their passporting rights

in the United Kingdom is set out in ■ REC 6A. (6) The fees rules for recognised bodies and applicants are set out in

■ FEES 1, ■ 2, ■ 3 and ■ 4.
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1.2 Purpose, status and quotations

Purpose ...................................................................................................... The purpose of the guidance (other than in ■ REC 6A) in this sourcebook is to

give information on the recognised body requirements. The purpose of the

guidance in ■ REC 6A is to give EEA market operators information about their

passporting rights in the United Kingdom. Explanations of the purposes of

the rules in this sourcebook are given in the chapters concerned.

Status ...................................................................................................... (1) Most of the provisions in this sourcebook are marked with a G (to

indicate guidance) or an R (to indicate a rule). Quotations from UK

statute or statutory instruments are marked with the letters "UK" unless they form part of a piece of guidance. Quotations from the

directly applicable MiFID Regulation are marked with the letters

"EU". For a discussion of the status of provisions marked with a letter,

see Chapter 6 of the Reader's Guide.

(2) Where the guidance states that the FCA may have regard to any

factor in assessing or determining whether a recognised body

requirement is satisfied, it means that the FCA will take that factor

into account so far as it is relevant.

(3) In determining whether a recognised body satisfies the recognised

body requirements, the FCA will have regard to any relevant factor,

including, but not limited to, the factors specifically discussed in the

guidance. Quotations ...................................................................................................... (1) This sourcebook contains quotations from the Act, the Recognition

Requirements Regulations, the RAP regulations and the Companies

Act 1989 and the MiFID Regulation and, where necessary, words have

been added to, or substituted for, the text of these provisions to

facilitate understanding.

(2) The additions and substitutions are enclosed in square brackets ([ ]).

The omission of words within a quotation is indicated by three dots

(...).

(3) Any words in these quotations which have the same meaning as

Handbook defined terms are shown in italics and their definitions

may be found in the Glossary.
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(4) As these quotations contain provisions which impose obligations, they

are printed in bold type. The use of bold type is not intended to

indicate that these quotations are rules made by the FCA. (5) None of the editorial changes made by the FCA in these quotations

can supersede or alter the meaning of the provision concerned.
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Recognised Investment Exchanges and Recognised Clearing Houses

Chapter 2

Recognition requirements

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REC 2 : Recognition Section 2.1 : Introduction

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2.1.2 G

2.1.3 G

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2.1 Introduction

This chapter contains the recognition requirements for UK RIEs (other than

RAPs) and sets out guidance on those requirements. Except for ■ REC 2.5A, references to recognised body or UK recognised bodies in the rest of this

chapter shall be read as referring to UK RIEs. This chapter also contains the

MiFID implementing requirements for UK RIEs. Guidance on the RAP recognition requirements which apply to RAPs is set

out in ■ REC 2A (Recognised Auction Platforms). Guidance on the recognition

requirements for ROIEs is set out in ■ REC 6 (Overseas Investment Exchanges).

These recognition requirements must be satisfied by applicants for UK RIE

status before recognition is granted and by all UK RIEs at all times while they

are recognised. In addition the MiFID implementing requirements must be

satisfied by applicants for UK RIE status before recognition is granted and by

all UK RIEs at all times while they are recognised. The same standards apply

both on initial recognition and throughout the period recognised body

status is held. The term UK RIE in the guidance should be taken, therefore,

to refer also to an applicant when appropriate.

(1) The paragraphs in the Schedule to the Recognition Requirements

Regulations are grouped in this sourcebook in sections which give

guidance on the same subject for UK RIEs. (2) The table in ■ REC 2.1.4 G indicates in which section each of those

paragraphs (and the associated guidance) can be found.

Location of recognition requirements and guidance

Recognition Subject Section in

Requirements REC 2

Regulations

Regulation 6 Method of satisfying recognition re- 2.2

quirements

Part I of the UK RIE recognition requirements

Schedule

Paragraph 1 Financial resources 2.3

Paragraph 2 Suitability 2.4

Paragraph 3 Systems and controls 2.5
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Recognition Subject Section in

Requirements REC 2

Regulations

Paragraphs General safeguards for investors 2.6

4(1) and

4(2)(aa)

Paragraph Access to facilities 2.7

4(2)(a)

Paragraph Proper markets 2.12

4(2)(b)

Paragraph Availability of relevant information 2.12

4(2)(c)

Paragraph Settlement 2.8

4(2)(d)

Paragraph Transaction recording 2.9

4(2)(e)

Paragraph Conflicts 2.5

4(2)(ea)

Paragraph Financial crime and market abuse 2.10

4(2)(f)

Paragraph Custody 2.11

4(2)(g)

Paragraph 4(3) Definition of relevant information 2.12

Paragraph 4A Provision of pre-trade information about 2.6

share trading

Paragraph 4B Provision of post-trade information about 2.6

share trading

Paragraph 6 Promotion and maintenance of standards 2.13

Paragraph 7 Rules and consultation 2.14

Paragraph 7A Admission of financial instruments to trading 2.12

Paragraph 7B Access to facilities 2.7

and 7C

Paragraph 7D Settlement 2.8

Paragraph 7E Suspension and removal of financial instru- 2.6

ments from trading

Paragraph 8 Discipline 2.15

Paragraph 9 Complaints 2.16

Paragraph 9A Operation of a multilateral trading facility 2.16A

Part II of the UK RIE default rules in respect of market 2.17

Schedule contracts

Recitals and articles from the MiFID Regulation (and the associated guidance)

relevant to market transparency are set out in ■ REC 2.6. Articles from the

MiFID Regulation relevant to admission to trading are set out in ■ REC 2.12.
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2.2 Method of satisfying the recognition

requirements

Recognition Requirements Regulations, Regulation 6

(1) In considering whether a [UK recognised body] or applicant satisfies recognition requirements applying to it under these [Recognition Requirements Regulations], the [FCA] may take into account all relevant circumstances including the constitution of the person concerned and its regulatory provisions within the meaning of section 300E of the Act. (2) Without prejudice to the generality of paragraph (1), a [UK recognised

body] or applicant may satisfyrecognition requirements applying to it under these [Recognition Requirements Regulations] by making arrangements for functions to be performed on its behalf by any otherperson. (3) Where a [UK recognised body] or applicant makes arrangements of the

kind mentioned in paragraph (2), the arrangements do not affect the responsibility imposed by the Act on the [UK recognised body] or applicant

to satisfy recognition requirements applying to it under these

[Recognition Requirements Regulations ], but it is in addition a recognition requirement applying to the [UK recognised body] or applicant that

the person who performs (or is to perform) the functions is a fit and

proper person who is able and willing to perform them.

Relevant circumstances ...................................................................................................... The FCA will usually expect :

(1) the constitution, regulatory provisions and practices of the UK

recognised body or applicant;

(2) the nature (including complexity, diversity and risk) and scale of the

UK recognised body's or applicant's business;

(3) the size and nature of the market which is supported by the UK

recognised body's or applicant's facilities;

(4) the nature and status of the types of investor who use the UK

recognised body's or applicant's facilities or have an interest in the

market supported by the UK recognised body's or applicant's

facilities;

(4A) competition in the markets for services provided, or proposed to be

provided, by the UK recognised body or applicant in its capacity as

such; and

(5) the nature and scale of the risks to the statutory objectives associated

with the matters described in (1) to (4A);
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to be among the relevant circumstances which it will take into account in

considering whether a UK recognised body or applicant satisfies the

recognition requirements. Outsourcing ......................................................................................................

It is the UK recognised body's responsibility to demonstrate to the FCA that a

person who performs a function on behalf of the UK recognised body is fit

and proper and able and willing to perform that function. The recognition

requirement referred to in Regulation 6(3) applies to the UK recognised

body and not to any person who performs any function on its behalf. In this

context, for a person to be "fit and proper" does not necessarily imply that

he is an authorised person, or qualified to be so, or that the required

standard is the same as that required either for authorised persons or

recognised bodies.

If a UK recognised body makes arrangements for functions to be performed

on its behalf by persons who are authorised persons or recognised bodies, this does not alter its obligations under Regulation 6.

If a person who performs a function on behalf of a UK recognised body is

himself carrying on a regulated activity in the United Kingdom , he will,

unless he is a person to whom the general prohibition does not apply, need

to be either an authorised person or an exempt person . The person to

whom a function is delegated is not covered by the UK recognised body's

exemption.

In determining whether the UK recognised body meets the recognition

requirement in Regulation 6(3), the FCA may have regard to whether that

body has ensured that the person who performs that function on its behalf:

(1) has sufficient resources to be able to perform the function (after

allowing for any other activities);

(2) has adequate systems and controls to manage that function and to

report on its performance to the UK recognised body;

(3) is managed by persons of sufficient skill, competence and integrity;

(4) understands the nature of the function it performs on behalf of the

UK recognised body and its significance for the UK recognised body's

ability to satisfy the recognition requirements and other obligations

in or under the Act ; and

(5) undertakes to perform that function in such a way as to enable the

UK recognised body to continue to satisfy the recognition

requirements and other obligations in or under the Act .

In determining whether a UK recognised body continues to satisfy the

recognition requirements where it has made arrangements for any function

to be performed on its behalf by any person , the FCA may have regard, in

addition to any of the matters described in the appropriate section of this
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chapter, to the arrangements made to exercise control over the performance

of the function, including:

(1) the contracts (and other relevant documents) between the UK

recognised body and the person who performs the delegated

function;

(2) the arrangements made to monitor the performance of that function;

and

(3) the arrangements made to manage conflicts of interest and protect

confidential regulatory information.
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2.3 Financial resources

Schedule to the Recognition Requirements Regulations, Paragraph 1

(1) The [UK RIE] must have financial resources sufficient for the proper performance of its [ relevant functions] as a [UK RIE].

(2) In considering whether this requirement is satisfied, the [FCA]must

(without prejudice to the generality of regulation 6(1)) take into account

all the circumstances, including the [UK RIE's] connection with any person

, and any activity carried on by the [UK RIE], whether or not it is an exempt activity.

[deleted]

In determining whether a UK recognised body has financial resources

sufficient for the proper performance of its relevant functions, the FCA may

have regard to:

(1) the operational and other risks to which the UK recognised body is

exposed;

(2) if the UK recognised body guarantees the performance of

transactions in specified investments, the counterparty and market

risks to which it is exposed in that capacity;

(3) the amount and composition of the UK recognised body's capital;

(4) the amount and composition of the UK recognised body's liquid

financial assets;

(5) the amount and composition of the UK recognised body's other

financial resources (such as insurance policies and guarantees, where

appropriate);

(6) the financial benefits, liabilities, risks and exposures arising from the

UK recognised body's connection with any person, including but not

limited to, its connection with:

(a) any undertaking in the same group as the UK recognised body;

(b) any other person with a significant shareholding or stake in the

UK recognised body;
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(c) any other person with whom the UK recognised body has made a

significant investment whether in the form of equity, debt, or by

means of any guarantee or other form of commitment;

(d) any person with whom it has a significant contractual

relationship.

(7) the nature and extent of the transactions concluded on the UK RIE. Accounting information and standards ...................................................................................................... The FCA will usually rely on a UK recognised body's published and internal

management accounts and financial projections, provided that those

accounts and projections are prepared in accordance with UK, US or

international accounting standards.

Counterparty and market risks: principles ......................................................................................................

In assessing whether a UK recognised body has sufficient financial resources

in relation to counterparty and market risks, the FCA may have regard to:

(1) the amount and liquidity of its financial assets and the likely

availability of liquid financial resources to the UK recognised body

during periods of major market turbulence or other periods of major

stress for the UK financial system; and

(2) the nature and scale of the UK recognised body's exposures to

counterparty and market risks and, where relevant, the

counterparties to which it is exposed.

Operational and other risks: principles ......................................................................................................

In assessing whether a UK recognised body has sufficient financial resources

in relation to operational and other risks, the FCA may have regard to the

extent to which, after allowing for the financial resources necessary to cover

counterparty and market risks, the UK recognised body's financial resources

are sufficient and sufficiently liquid:

(1) to enable the UK recognised body to continue carrying on properly

the regulated activities that it expects to carry on; and

(2) to ensure that it would be able to complete an orderly closure or

transfer of its exempt activities without being prevented from doing

so by insolvency or lack of available funds.

Operational and other risks: components of calculation ......................................................................................................

In considering whether a UK recognised body has sufficient financial

resources in relation to operational and other risks, the FCA will normally

have regard to two components: eligible financial resources and net capital.

Operational and other risks: components of calculation ...................................................................................................... (1) [deleted]

(2) [deleted]
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Operational and other risks: UK RIEs - the standard and riskbased approach ...................................................................................................... (1) The FCA considers that a UK RIE which at any time holds:

(a) eligible financial resources not less than the greater of:

(i) the amount calculated under the standard approach; and

(ii) the amount calculated under the risk-based approach; and

(b) net capital not less than the amount of eligible financial

resources determined under (1)(a);

will, at that time, have sufficient financial resources to meet the

recognition requirement in respect of operational and other risks

unless there are special circumstances indicating otherwise.

(2) The FCA would normally regard the amount calculated under

■ REC 2.3.9G (1)(a)(i) to be a minimum amount of financial resources

below which a UK RIE would be failing the recognition requirements. The FCA would expect a UK RIE to hold, in addition to this minimum

amount, an amount constituting an operational risk buffer calculated

in accordance with ■ REC 2.3.22 G. Operational and other risks: individual guidance ...................................................................................................... The FCA would expect to provide a UK recognised body with individual

guidance on the amount of eligible financial resources which it considers

would be sufficient for the UK recognised body to hold in respect of

operational and other risks in order to satisfy the recognition requirements.

In formulating its individual guidance, the FCA will ordinarily apply the

approach described in ■ REC 2.3.9 G for UK RIEs. Operational and other risks: eligible financial resources ...................................................................................................... For the purposes of ■ REC 2.3, "eligible financial resources" should consist of

liquid financial assets held on the balance sheet of a UK recognised body,

including cash and liquid financial instruments where the financial

instruments have minimal market and credit risk and are capable of being

liquidated with minimal adverse price effect.

Operational and other risks: net capital

...................................................................................................... For the purposes of ■ REC 2.3, "net capital" should be in the form of equity.

For this purpose, the FCA considers that common stock, retained earnings,

disclosed reserves and other instruments classified as common equity tier one

capital or additional tier one capital constitute equity. The FCA considers

that, when calculating its net capital, a UK recognised body:

(1) should deduct holdings of its own securities, or those of any

undertaking in the same group as the UK recognised body, together

with any amount owed to the UK recognised body by an undertaking

in its group under any loan or credit arrangement and any exposure

arising under any guarantee, charge or contingent liability given in

favour of such an undertaking or a creditor of such undertaking; and

(2) may include interim earnings that have been independently verified

by its auditor.
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Operational and other risks: eligible financial resources

calculated under the standard approach ...................................................................................................... (1) Under the standard approach, the amount of eligible financial

resources is equal to six months of operating costs.

(2) Under the standard approach, the FCA assumes liquid financial assets

are needed to cover the costs that would be incurred during an

orderly wind-down of the UK recognised body's exempt activities, while continuing to satisfy all the recognition requirements and

complying with any other obligations under the Act (including the

obligations to pay periodic fees to the FCA).

(3) For the purposes of the standard approach, the FCA would normally

expect the calculation of operating costs to be based on the UK

recognised body's most recent audited annual accounts, with six

months of operating costs being equal to one half of the sum of all

operating costs reflected in the audited annual accounts of the UK

recognised body in the course of performing its functions during the

year to which the accounts relate. In calculating the gross annual

operating costs, the FCA would consider it reasonable to exclude noncash costs (costs that do not involve an outflow of funds).

(4) The FCA considers it to be reasonable for a UK recognised body to

adjust its operating expenditure calculation if, during the period since

its last audited accounts were prepared, its level of operating

expenditure has changed materially as documented by the current

annual budget or forecast adopted by the UK recognised body's

governing body. (5) The FCA considers that it is reasonable for a UK recognised body to

adjust its operating expenditure to take account of arrangements

between two or more undertakings in the same group, which are all

subject to prudential regulation in the United Kingdom under which

specified costs are shared or recharged among those undertakings

and those costs would otherwise be double-counted in the calculation

of their financial resources requirement.

Operational and other risks: eligible financial resources

calculated under the risk-based approach (UK RIE's only)

...................................................................................................... (1) The risk-based approach is intended to ensure that sufficient financial

resources are maintained at all times such that a UK RIE would not be

prevented from implementing an orderly wind-down as a result of

the financial impacts of stress events affecting its business or the

markets in which it operates.

(2) Under the risk-based approach the amount of eligible financial

resources is calculated by adding together:

(a) the amount estimated by the UK RIE to absorb the potential

business losses that a business of its nature, scale and complexity

might incur in stressed but plausible market conditions; and

(b) the amount estimated by the UK RIE to effect an orderly closure.

In this context, a business loss arises where there is an increase in cost

or reduction of revenue relative to a UK RIE's expectation of its
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financial performance, such that a loss needs to be charged against

its capital.

Operational and other risks: the risk-based assessment (UK

RIEs only)

...................................................................................................... For the purposes of calculating the risk-based approach, the FCA would

normally expect the UK RIE to provide the FCA with an annual financial risk

assessment that identifies the risks to its business. As a financial risk

assessment is likely to form an integral part of the UK RIE's management

process and decision-making culture, the FCA would normally expect it to be

approved by the UK RIE's governing body. The FCA would normally expect to use the financial risk assessment prepared

by the UK RIE in the course of preparing individual guidance on the amount

of financial resources that it considers is sufficient for a UK RIE to hold in

order to satisfy the recognition requirements. The financial risk assessment

would provide the basis for calculating the amount of eligible financial

resources that should be held by the UK RIE under the risk-based approach.

The financial risk assessment should be based on a methodology which

provides a reasonable estimate of the potential business losses which a UK

RIE might incur in stressed but plausible market conditions. The FCA would

expect a UK RIE to carry out a financial risk assessment at least once in every

twelve-month period, or more frequently if there are material changes in the

nature, scale or complexity of the UK RIE's operations or its business plans

that suggest such financial risk assessment no longer provides a reasonable

estimate of its potential business losses. The FCA considers that it would be

reasonable for a financial risk assessment to proceed in the following way:

(1) Step 1: the UK RIE would identify, in writing, the risks to which the

business of the UK RIE is exposed and which could have a material

adverse effect on its financial position, in the light of the nature,

scale and complexity of its operations and its business plans. For this

purpose, it would be reasonable to refer to the categorisation of risk

used under the system of risk management adopted by the UK RIE in

order to meet its responsibilities under the recognition requirements

referred to in ■ REC 2.5. That description would identify which risks

are indemnified or transferred by the UK RIE and which are retained

and accepted.

(2) Step 2: the UK RIE would conduct an assessment of the potential

business losses that could arise in the event that the risks identified in

accordance with step 1 were to materialise. For this purpose, it would

be reasonable for a UK RIE to develop, and keep under review, a

stress and scenario testing plan designed to simulate the effects of a

pre-determined series of events, or sets of circumstances, that would

be likely to occur following the crystallisation of one or more

identified risks, taking into account the systems and controls in place

to mitigate those risks. The stress and scenario testing plan would:

(a) cover a forward-looking period of at least one year;

(b) consider a suitable range of adverse events and sets of

circumstances, of a defined severity and duration, which could

occur in stressed but plausible market conditions;
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(c) consider how a particular adverse event or set of circumstances

could lead to or be correlated with other events;

(d) consider the potential for a particular adverse event or set of

circumstances to affect multiple business lines;

(e) take into account realistic management actions to resolve such

adverse events and circumstances; and

(f) where appropriate, involve sensitivity analysis showing the effects

of changes to assumptions made about the impact of particular

adverse events and circumstances.

In designing its stress and scenario testing plan, the FCA considers

that it would be reasonable for a UK RIE to be guided by any riskscoring methodology that it deploys for general risk-management

purposes that might have application in evaluating the probability

and impact of its risks.

(3) Step 3: the UK RIE would assess the eligible financial resources that it

would need to hold to cover such potential business losses. Such

eligible financial resources would enable the UK RIE to absorb any

financial shocks attributable to such business risks were they to arise.

In carrying out this assessment, the FCA considers that it would be

reasonable for a UK RIE to take account of any action which its

senior management might plan on taking in response to a given

stress event. For example, if the risk appetite of a UK RIE is such that

it would not pursue recovery from a given stress event (and would

instead initiate an orderly wind-down), the assessment of eligible

financial resources needed in such circumstances might reasonably be

limited to the costs of orderly wind-down from the point in time at

which that decision would be likely to be made.

Where a UK RIE expects to be making a loss during the period

covered by the financial risk assessment as a result of its anticipated

business performance in normal market conditions, the business

losses which are relevant to the calculation of the risk-based

approach are those additional losses which the UK RIE would expect

to incur in stressed but plausible market conditions.

(4) Step 4: the UK RIE would make an assessment of the cost of orderly

closure. The FCA considers that an orderly closure should normally

include an assessment of the impact of closure on the users of the

markets operated by that UK RIE. For the purpose of this assessment,

the FCA considers that it would be reasonable for a UK RIE to adopt

the amount needed under the standard approach as its cost of

orderly closure or to use its own method of calculation based on a

scenario plan which comprehensively documents the costs that a UK

RIE in its position might incur in order to fully implement an orderly

wind-down.

(5) Step 5: the UK RIE would produce a proposal for the amount of

eligible financial resources considered to be adequate to meet the

risk-based approach. Such a proposal would be based on the sum of:

(a) the amount assessed to cover potential business losses in

accordance with ■ REC 2.3.17G (3); and
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(b) an amount assessed to cover the cost of orderly closure in

accordance with ■ REC 2.3.17G (4). (6) Step 6: the UK RIE would calculate the amount available as an

operational risk buffer in accordance with ■ REC 2.3.22 G. To the extent

the amount available is insufficient to constitute an operational risk

buffer, the UK RIE would include within its proposal the amount it

would propose to hold (in addition to the sum of the amounts

referred to in (5)(a) and (b)) for those purposes.

The FCA would normally expect a financial risk assessment to include a

description of the methodology applied by the UK RIE to arrive at the

proposal made in accordance with ■ REC 2.3.17G (5). Where a UK RIE is a member of a group, the FCA would normally expect the

annual risk assessment to be accompanied by a consolidated balance sheet:

(1) of any group in which the UK RIE is a subsidiary undertaking; or

(2) (if the UK RIE is not a subsidiary undertaking in any group) of any

group of which the UK RIE is a parent undertaking. The FCA would expect to consider the financial risk assessment, any proposal

with respect to an operational risk buffer and, if applicable, the consolidated

balance sheet, in formulating its guidance on the amount of eligible

financial resources it considers to be sufficient for the UK RIE to hold in

order to meet the recognition requirements. In formulating its guidance, the

FCA would, where relevant, consider whether or not the financial risk

assessment makes adequate provision for the following risks:

(1) the risks related to the administration and operation of the UK RIE as

a business enterprise (whether as a result of adverse reputational

effects, poor execution of business strategy, ineffective response to

competition, or otherwise);

(2) the risk that deficiencies in information systems or internal processes,

human errors, management failures, or disruptions from external

events will result in the reduction, deterioration, or breakdown of

services provided by a UK RIE (whether as a result of errors or delays

in processing, system outages, insufficient capacity, fraud, data loss

and leakage, or otherwise);

(3) the risk that the financial position of the UK RIE may be adversely

affected by its relationships (financial or non-financial) with other

entities in the same group or by risks which may affect the financial

position of the whole group, including reputational contagion; and

(4) any other type of risk which is relevant to that particular UK RIE. Operational and other risks: purpose of the risk buffer ...................................................................................................... The FCA would normally consider a UK recognised body to be failing the

recognition requirements if it held financial resources less than the amount

calculated under ■ REC 2.3.9G (1)(a)(i) (in respect of UK RIEs). The FCA
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therefore expects a UK recognised body to hold an operational risk buffer of

a sufficient amount in excess of this minimum, to ensure that it is at all times

able to comply with its regulatory obligations.

Operational and other risks: calculation of the operational risk

buffer - UK recognised bodies ...................................................................................................... (1) [deleted]

(2) The FCA would normally expect a UK RIE to hold, in addition to the

minimum amount determined under ■ REC 2.3.9G (1)(a)(i), an

operational risk buffer consistent with a risk-based approach.

(a) Where the amount of eligible financial resources calculated by a

UK RIE under ■ REC 2.3.17G (5) (the risk-based approach) is greater

than the amount of eligible financial resources calculated under

■ REC 2.3.13 G (the standard approach), and the difference is of an

amount sufficient to serve the purposes of the operational risk

buffer, then the FCA considers that there would be no need for a

UK RIE to hold any further amount as an operational risk buffer.

(b) Where the amount of eligible financial resources calculated by a

UK RIE under ■ REC 2.3.17G (5) (the risk-based approach) is not

sufficient to provide an effective operational risk buffer over and

above the amount calculated under ■ REC 2.3.13 G (the standard

approach), then the FCA would expect the UK RIE to include

within its annual risk assessment a proposal to hold additional

financial resources sufficient to constitute an operational risk

buffer.

(3) As the operational risk buffer is an amount in excess of the minimum

financial resources sufficient to meet the recognition requirements, the FCA would normally not regard a UK recognised body that draws

upon or temporarily depletes the operational risk buffer to have

failed or be failing a recognition requirement in respect of its

financial resources. However, the FCA would expect to be notified as

soon as reasonably practicable if the UK recognised body draws upon,

or intends to draw upon, its operational risk buffer.
REC 2 : Recognition Section 2.4 : Suitability

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2.4 Suitability

Schedule to the Recognition Requirements Regulations, Paragraph 2

(1) The [UK RIE] must be a fit and proper person to perform the [ relevant

functions ] of a [ UK RIE ].

(2) In considering whether this requirement is satisfied, the [FCA] may

(without prejudice to the generality of regulation 6(1)) take into account

all the circumstances, including the [UK RIE's] connection with any person. (3) The persons who effectively direct the business and operations of the

[UK RIE] must be of sufficiently good repute and sufficiently experienced

to ensure the sound and prudent management and operation of the financial markets operated by it.

(4) The persons who are in a position to exercise significant influence over

the management of the [UK RIE], whether directly or indirectly must be

suitable.

[deleted]

In determining whether a UK recognised body is a fit and proper person, the

FCA may have regard to any relevant factor including, but not limited to:

(1) the commitment shown by the UK recognised body's governing body

to satisfying the recognition requirements and to complying with

other obligations in or under the Act;

(2) its arrangements, policies and resources for fulfilling its obligations

under the Act in relation to its activities as a UK recognised body;

(3) the extent to which its constitution and organisation provide for

effective governance;

(4) the arrangements made to ensure that its governing body has

effective oversight of the UK recognised body's relevant functions;

(5) the access which its regulatory department has to the governing

body;

(6) the size and composition of its governing body, including:

(a) the number of members of the governing body who represent

members of the UK recognised body or other persons and the

types of person whom they represent;
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(b) the number and responsibilities of any members of the governing

body with executive roles within the UK recognised body; and

(c) the number of independent members of the governing body;

(7) the structure and organisation of its governing body, including any

distribution of responsibilities among its members and committees;

(8) the integrity and competence of its governing body and key

individuals;

(9) breaches of any relevant law, regulation or code of practice by the

UK recognised body or its key individuals;

(10) its arrangements for ensuring that it employs individuals who are

honest and demonstrate high standards of integrity;

(11) the effectiveness of its arrangements to control conflicts of interest

(see also REC 2.5); and

(12) the independence of its regulatory department from its commercial

and marketing departments.

In determining whether a UK recognised body is a fit and proper person, the

FCA may have regard to its connections with:

(1) any undertaking in the same group;

(2) any owner or part-owner of the UK recognised body;

(3) any person who has the right to appoint or remove members of the

governing body or other key individuals;

(4) any person who is able in practice to appoint or remove members of

the governing body or other key individuals;

(5) any person in accordance with whose instructions the governing body

or any key individual is accustomed to act; and

(6) any key individual in relation to the UK recognised body .

In assessing whether its connection with any person could affect whether a

UK recognised body is a fit and proper person, the FCA may have regard to:

(1) the reputation and standing of that other person, including his

standing with any relevant UK or overseas regulator;

(2) breaches of any law or regulation by that other person;

(3) the roles of any of the UK recognised body's key individuals who

have a position within organisations under the control or influence of

that other person, including their responsibilities in that organisation

and the extent and type of their access to its senior management or

governing body;
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(4) the extent to which the UK recognised body operates as a distinct

entity notwithstanding its connection with that other person;

(5) the extent to which the UK recognised body's governing body is

responsible for its day-to-day management and operations;

but nothing in this paragraph should be taken to imply any restriction on

the ability of a UK recognised body to outsource any function to any person

in a manner consistent with Regulation 6 of the Recognition Requirements

Regulations.

In assessing whether the persons who effectively direct the business and

operations of the UK RIE are of sufficiently good repute and sufficiently

experienced to ensure the sound and prudent management and operation of

the financial markets operated by it, the FCA may have regard to the repute

and experience of the UK RIE's key individuals.
REC 2 : Recognition Section 2.5 : Systems and controls and

requirements conflicts

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2.5.1A UK

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2.5 Systems and controls and conflicts

Schedule to the Recognition Requirements Regulations, paragraph 3

(1) The [UK RIE] must ensure that the systems and controls used in

the performance of its [relevant 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, mitigation and management of risks to

the performance of the [UK RIE's relevant functions];

(c) the effecting and monitoring of transactions on the [UK

RIE];

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

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

(e) (where relevant) the safeguarding and administration of

assets belonging to users of the [UK RIE's] facilities. Schedule to the Recognition Requirements Regulations, paragraph 4(2)(ea)

Without prejudice to the generality of sub-paragraph [4(1)], the [UK RIE]

must ensure that -

appropriate arrangements are made to -

(i) identify conflicts between the interests of the [UK RIE], its

owners and operators and the interests of the persons

who make use of its facilities or the interests of the financial markets operated by it; and

(ii) manage such conflicts so as to avoid adverse consequences for the operation of the financial markets operated by the [UK RIE] and for the persons who make use of

its facilities.

[deleted]

In assessing whether the systems and controls used by a UK recognised body

in the performance of its relevant functions are adequate and appropriate

for the scale and nature of its business, the FCA may have regard to the UK

recognised body's:
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(1) arrangements for managing, controlling and carrying out its relevant

functions, including:

(a) the distribution of duties and responsibilities among its key

individuals and the departments of the UK recognised body

responsible for performing its relevant functions;

(b) the staffing and resources of the departments of the UK

recognised body responsible for performing its relevant functions;

(c) the arrangements made to enable key individuals to supervise the

departments for which they are responsible;

(d) the arrangements for appointing and supervising the

performance of key individuals (and their departments); and

(e) the arrangements by which the governing body is able to keep

the allocation of responsibilities between, and the appointment,

supervision and remuneration of, key individuals under review;

(2) arrangements for the identification and management of conflicts of

interest;

(3) arrangements for internal and external audit; and

(4) information technology systems.

The following paragraphs set out other matters to which the FCA may have

regard in assessing the systems and controls used for the transmission of

information, risk management, the effecting and monitoring of transactions,

the operation of settlement arrangements (the matters covered in paragraph

4(2)(d) of the Schedule to the Recognition Requirements Regulations) and

the safeguarding and administration of assets.

Information transmission ......................................................................................................

In assessing a UK recognised body's systems and controls for the transmission

of information, the FCA may also have regard to the extent to which these

systems and controls ensure that information is transmitted promptly and

accurately:

(1) within the UK recognised body itself;

(2) to members; and

(3) (where appropriate) to other market participants or other relevant

persons.

Risk management

......................................................................................................

In assessing a UK recognised body's systems and controls for assessing and

managing risk, the FCA may also have regard to the extent to which these

systems and controls enable the UK recognised body to:

(1) identify all the general, operational, legal and market risks wherever

they arise in its activities;

(2) measure and control the different types of risk;
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(3) allocate responsibility for risk management to persons with

appropriate knowledge and expertise; and

(4) provide sufficient, reliable information to key individuals and, where

relevant, the governing body of the UK recognised body.

[deleted]

Effecting and monitoring of transactions and operation of

settlement arrangements ......................................................................................................

In assessing a UK RIE's systems and controls for the effecting and monitoring

of transactions, and for the operation of settlement arrangements, the FCA

may have regard to the totality of the arrangements and processes through

which the UK RIE's transactions are effected, cleared, and settled, including:

(1) a UK RIE's arrangements under which orders are received and

matched, its arrangements for trade and transaction reporting, and (if

relevant) its arrangements with another person under which any

rights or liabilities arising from transactions are discharged including

arrangements for transmission to a settlement system or clearing

house;

(2) (if relevant), a UK RIE's arrangements under which instructions

relating to a transaction to be cleared by another person by means of

a clearing facilitation service are entered into its systems by the

relevant other person and transmitted to the other person; and

(3) the arrangements made by the UK RIE for monitoring and reviewing

the operation of these systems and controls.

Safeguarding and administration of assets ......................................................................................................

In assessing a UK recognised body's systems and controls for the

safeguarding and administration of assets belonging to users of its facilities, the FCA may have regard to the totality of the arrangements and processes

by which the UK recognised body:

(1) records the assets held and the identity of the owners of (and other

persons with relevant rights over) those assets;

(2) records any instructions given in relation to those assets;

(3) records the carrying out of those instructions;

(4) records any movements in those assets (or any corporate actions or

other events in relation to those assets); and

(5) reconciles its records of assets held with the records of any custodian

or sub-custodian used to hold these assets, and with the records of

beneficial or legal ownership of those assets.
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Management of conflicts of interest

...................................................................................................... A conflict of interest arises in a situation where a person with responsibility

to act in the interests of one person may be influenced in his action by an

interest or association of his own, whether personal or business or

employment related. Conflicts of interest can arise both for the employees of

UK recognised bodies and for the members (or other persons) who may be

involved in the decision-making process, for example where they belong to

committees or to the governing body. Conflicts of interest may also arise for

the UK recognised body itself as a result of its connection with another

person. The FCA recognises that a UK RIE has legitimate interests of its own and that

its general business policy may properly be influenced by other persons (such

as its owners). Such a connection does not necessarily imply the existence of

a conflict of interest nor is it necessary to exclude individuals closely

connected with other persons (for example, those responsible for the

stewardship of the owner's interests) from all decision-making processes in a

UK recognised body. However, there may be decisions, primarily regulatory

decisions, from which it may be appropriate to exclude an individual in

certain circumstances where an interest, position or connection of his

conflicts with the interest of the recognised body. ■ REC 2.5.13 G to ■ REC 2.5.16 G set out the factors to which the FCA may have

regard in assessing a UK recognised body's systems and controls for

managing conflicts of interest.

The FCA may have regard to the arrangements a UK recognised body makes

to structure itself and to allocate responsibility for decisions so that it can

continue to take proper regulatory decisions notwithstanding any conflicts of

interest, including:

(1) the size and composition of the governing body and relevant

committees;

(2) the roles and responsibilities of key individuals, especially where they

also have responsibilities in other organisations;

(3) the arrangements for transferring decisions or responsibilities to

alternates in individual cases; and

(4) the arrangements made to ensure that individuals who may have a

permanent conflict of interest in certain circumstances are excluded

from the process of taking decisions (or receiving information) about

matters in which that conflict of interest would be relevant.

The FCA may also have regard to the systems and controls intended to

ensure that confidential information is only used for proper purposes. Where

relevant, recognised bodies will have to comply with section 348 (Restrictions

on disclosure of confidential information by the FCA etc.) and regulations

made under section 349 (Exemptions from section 348) of the Act.
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The FCA may also have regard to the contracts of employment, staff rules,

letters of appointment for members of the governing body, members of

relevant committees and other key individuals and other guidance given to

individuals on handling conflicts of interest. Guidance to individuals may

need to cover:

(1) the need for prompt disclosure of a conflict of interest to enable

others, who are not affected by the conflict, to assist in deciding how

it should be managed;

(2) the circumstances in which a general disclosure of conflicts of interest

in advance of any particular instance in which a conflict of interest

arises may be sufficient;

(3) the circumstances in which a general advance disclosure may not be

adequate;

(4) the circumstances in which it would be appropriate for a conflicted

individual to withdraw from involvement in the matter concerned,

without disclosing the interest; and

(5) the circumstances in which safeguards in addition to disclosure would

be required, such as the withdrawal of the individual from the

decision-taking process, or from access to relevant information.

The FCA may also have regard to the arrangements made:

(1) for enforcing rules or other provisions applicable to staff and other

persons involved in regulatory decisions; and

(2) to keep records of disclosures of conflicts of interest and the steps

taken to handle them.

Internal and external audit

...................................................................................................... A UK recognised body's arrangements for internal and external audit will be

an important part of its systems and controls. In assessing the adequacy of

these arrangements, the FCA may have regard to:

(1) the size, composition and terms of reference of any audit committee

of the UK recognised body'sgoverning body;

(2) the frequency and scope of external audit;

(3) the provision and scope of internal audit;

(4) the staffing and resources of the UK recognised body's internal audit

department;

(5) the internal audit department's access to the UK recognised body's

records and other relevant information; and

(6) the position, responsibilities and reporting lines of the internal audit

department and its relationship with other departments of the UK

recognised body.
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■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 2/23

Information technology systems ......................................................................................................

Information technology is likely to be a major component of the systems and

controls used by any UK recognised body. In assessing the adequacy of the

information technology used by a UK recognised body to perform or support

its relevant functions, the FCA may have regard to:

(1) the organisation, management and resources of the information

technology department within the UK recognised body;

(2) the arrangements for controlling and documenting the design,

development, implementation and use of information technology

systems; and

(3) the performance, capacity and reliability of information technology

systems.

The FCA may also have regard to the arrangements for maintaining,

recording and enforcing technical and operational standards and

specifications for information technology systems, including:

(1) the procedures for the evaluation and selection of information

technology systems;

(2) the arrangements for testing information technology systems before

live operations;

(3) the procedures for problem management and system change;

(4) the arrangements to monitor and report system performance,

availability and integrity;

(5) the arrangements (including spare capacity and access to back-up

facilities) made to ensure information technology systems are resilient

and not prone to failure;

(6) the arrangements made to ensure business continuity in the event

that an information technology system does fail;

(7) the arrangements made to protect information technology systems

from damage, tampering, misuse or unauthorised access; and

(8) the arrangements made to ensure the integrity of data forming part

of, or being processed through, information technology systems.

The FCA may have regard to the arrangements made to keep clear and

complete audit trails of all uses of information technology systems and to

reconcile (where appropriate) the audit trails with equivalent information

held by system users and other interested parties.
REC 2 : Recognition Section 2.5A : Guidance on Public Interest

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2.5A Guidance on Public Interest

Disclosure Act: Whistleblowing

Application and Purpose: Application ...................................................................................................... This section is relevant to every UK recognised body to the extent that the

Public Interest Disclosure Act 1998 ("PIDA") applies to it.

Purpose ...................................................................................................... (1) The purposes of this section are to:

(a) provide UK recognised bodies with guidance regarding the

provisions of PIDA; and

(b) Encourage UK recognised bodies to consider adopting and

communicating to workers appropriate internal procedures for

handling workers' concerns as part of an effective risk

management system.

(2) In this section "worker" includes, but is not limited to, an individual

who has entered into a contract of employment.

The guidance in this section concerns the effect of PIDA in the context of the

relationship between UK recognised bodies and the FCA. It is not

comprehensive guidance on PIDA itself.

Practical Measures: Effect of PIDA ...................................................................................................... Under PIDA, any clause or term in an agreement between a worker and his

employer is void in so far as it purports to preclude the worker from making

a protected disclosure (that is, "blow the whistle").

In accordance with section 1 of PIDA:

(1) a "protected disclosure" is a qualifying disclosure which meets the

relevant requirements set out in part 4A of the Employment Rights

Act 1996;

(2) a "qualifying disclosure" is a disclosure, made in the public interest,

of information which, in the reasonable belief of the worker making

the disclosure, tends to show that one or more of the following (a

"failure") has been, is being, or is likely to be, committed:

(a) a criminal offence; or
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(b) a failure to comply with any legal obligation; or

(c) a miscarriage of justice; or

(d) the putting of the health and safety of any individual in danger;

or

(e) damage to the environment; or

(f) deliberate concealment relating to any of (a) to (e);

it is immaterial whether the relevant failure occurred, occurs or

would occur in the United Kingdom or elsewhere, and whether the

law applying to it is that of the United Kingdom or of any other

country or territory.

Internal Procedures ...................................................................................................... (1) UK recognised bodies are encouraged to consider adopting

appropriate internal procedures which will encourage their workers

with concerns to blow the whistle internally about matters which are

relevant to the functions of the FCA. (2) In considering appropriate internal procedures, UK recognised

bodiesmay find the guidance provided to firms in ■ SYSC 18.2.2 G (2)

and ■ SYSC 18.2.2 G (3) helpful.

Link to fitness and propriety ......................................................................................................

In determining whether a UK recognised body is a fit and proper person, the

FCA may have regard to any relevant factor including, but not limited to,

how the UK recognised body and key individuals have complied with any

relevant law (see REC 2.4.3 G (9)).
REC 2 : Recognition Section 2.6 : General safeguards for

requirements investors, provision of pre and post-trade

information about share trading and...

2

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2.6 General safeguards for investors,

provision of pre and post-trade

information about share trading and

suspension and removal of financial

instruments from trading

Schedule to the Recognition Requirements Regulations, Paragraph 4(1)

The [UK RIE] must ensure that business conducted by means of itsfacilitiesis conducted in an orderly manner and so as to afford proper protection to investors.

Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(aa)

Without prejudice to the generality of sub-paragraph [4(1)], the [UK RIE]

must ensure that -

it has transparent and non-discretionary rules and procedures -

(i) to provide for fair and orderly trading, and

(ii) to establish objective criteria for the efficient execution

of orders;

Schedule to the Recognition Requirements Regulations, Paragraph 4A

(1) The [UK RIE] must make arrangements for-

(a) current bid and offer prices for shares, and

(b) the depth of trading interest in shares at the prices

which are advertised through its systems,

to be made available to the public on reasonable commercial

terms and on a continuous basis during normal trading hours,

subject to the requirements contained in Chapter IV of the

[MiFID Regulation] [(see REC 2.6.7 EU and REC 2.6.21 EU to REC

2.6.24 EU)].

(2) If [a UK RIE] decides to give investment firms and credit institutions required to publish their quotes in shares-

(a) in accordance with Article 27 of [MiFID], or

(b) by the [FCA],

access to the arrangements referred to in sub-paragraph (1), it

must do so on reasonable commercial terms and on a non-discriminatory basis.

(3) The [FCA] may waive the requirements of sub-paragraph (1) in

the circumstances specified-
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(a) in the case of shares to be traded on a multilateral

trading facility operated by the [UK RIE], in Article

29.2 of [MiFID] and Chapter IV of the [MiFID Regulation] [(see REC 2.6.10 EU and REC 2.6.13 EU)]; or

(b) in the case of shares to be traded on a regulated

market operated by the [UK RIE], in Article 44.2 of

[MiFID] and Chapter IV of the [MiFID Regulation]

[(see REC 2.6.10 EU and REC 2.6.13 EU)].

Schedule to the Recognition Requirements Regulations, Paragraph 4B

(1) The [UK RIE] must make arrangements for the price, volume

and time of transactions executed in shares to be made available to the public as soon as possible after the time of the

transaction on reasonable commercial terms, subject to the requirements contained in Chapter IV of the [MiFID Regulation]

[(see REC 2.6.15 EU and REC 2.6.21 EU to REC 2.6.24 EU]).

(2) If [a UK RIE] decides to give investment firms and credit institutions required to make public details of their transactions in

shares-

(a) in accordance with Article 28 of [MiFID], or

(b) by the [FCA].

access to the arrangements referred to in sub-paragraph (1),

it must do so on reasonable commercial terms and on a non

discriminatory basis.

(3) The [FCA] may permit [UK RIEs] to defer the publication required by sub-paragraph (1) in the circumstances specified,

and subject to the requirements contained-

(a) in the case of shares traded on a multilateral trading facility operated by [a UK RIE], in Article 30.2

of [MiFID] and Chapter IV of the [MiFID Regulation] [(see REC 2.6.18 EU)]; or

(b) in the case of shares traded on regulated market

operated by [a UK RIE], in Article 45.2 of [MiFID]

and Chapter IV of the [MiFID Regulation] [(see

REC 2.6.18 EU)].

(4) If the [FCA] permits [UK RIEs] to defer the publication required by sub-paragraph (1), those [UK RIEs] must ensure that

the existence of and the terms of the permission are disclosed

to users and members of their facilities and to investors.

Link to fitness and propriety ...................................................................................................... Articles 29.2 and 44.2 of MiFID provide that the pre-trade transparency

requirement can be waived based on market model or the size and type of

orders. In particular this obligation can be waived in respect of transactions

that are large in scale compared with normal market size for the share or

type of share in question. Articles 30.2 and 45.2 of MiFID provide that

publication of the details of transactions can be deferred based on their type

or size. In particular this obligation can be deferred in respect of transactions

that are large in scale compared with the normal market size for that share

or that class of shares.
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Schedule to the Recognition Requirements Regulations, Paragraph 7E

The rules of the [UK RIE] must provide that the [UK RIE] must not exercise

its power to suspend or remove from trading on a regulated market operated by it any financial instrument which no longer complies with its rules,

where such step would be likely to cause significant damage to the interests of investors or the orderly functioning of the financial markets.

Article 17 of the MiFID Regulation

Pre-trade transparency obligations

(1) A ... market operator operating an MTF or a regulated market shall, in respect of each share admitted to trading on a

regulated market that is traded within a system operated by

it and specified in Table 1 of Annex II [(see REC 2.6.8 EU)],

make public the information set out in paragraphs 2 to 6.

(2) Where one of the entities referred to in paragraph 1 operates a continuous auction order book trading system, it

shall, for each share as specified in paragraph 1, make public continuously throughout its normal trading hours the aggregate number of orders and of the shares those orders

represent at each price level, for the five best bid and offer

price levels.

(3) Where one of the entities referred to in paragraph 1 operates a quote-driven trading system, it shall, for each share as

specified in paragraph 1, make public continuously throughout its normal trading hours the best bid and offer by price

of each market maker in that share, together with the volumes attaching to those prices.

The quotes made public shall be those that represent binding commitments to buy and sell the shares and which indicate the price and volume of shares in which the registered

market makers are prepared to buy or sell.

In exceptional market conditions, however, indicative or

one-way prices may be allowed for a limited time.

(4) Where one of the entities referred to in paragraph 1 operates a periodic auction trading system, it shall, for each

share specified in paragraph 1, make public continuously

throughout its normal trading hours the price that would

best satisfy the system's trading algorithm and the volume

that would potentially be executable at that price by participants in that system.

(5) Where one of the entities referred to in paragraph 1 operates a trading system which is not wholly covered by paragraphs 2 or 3 or 4, either because it is a hybrid system falling under more than one of those paragraphs or because

the price determination process is of a different nature, it

shall maintain a standard of pre-trade transparency that ensures that adequate information is made public as to the

price level of orders or quotes for each share specified in

paragraph 1, as well as the level of trading interest in that

share.

In particular, the five best bid and offer price levels and/or

two-way quotes of each market maker in that share shall be

made public, if the characteristics of the price discovery

mechanism permit it.
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Pre-trade transparency obligations

(6) A summary of the information to be made public in accordance with paragraphs 2 to 5 is specified in Table 1 of Annex

II. [(see REC 2.6.8 EU)]

Table 1 of Annex II to the MiFID Regulation: Information to be made

public in accordance with Article 17 (see REC 2.6.9EU)

Summary of information to be made public,

in accordance with ArtType of system Description of system icle 17

continuous auction or- a system that by means the aggregate number

der book trading of an order book and a of orders and the

system trading algorithm oper- shares they represent at

ated without human in- each price level, for at

tervention matches sell least the five best bid

orders with matching and offer price levels.

buy orders on the basis

of the best available

price on a continuous

basis

quote-driven trading a system where transac- the best bid and offer

system tions are concluded on by price of each market

the basis of firm quotes maker in that share, tothat are continuously gether with the volmade available to parti- umes attaching to

cipants, which requires those prices

the market makers to

maintain quotes in a

size that balances the

needs of members and

participants to deal in a

commercial size and the

risk to which the market maker exposes itself

periodic auction trading a system that matches the price at which the

system orders on the basis of a auction trading system

periodic auction and a would best satisfy its

trading algorithm oper- trading algorithm and

ated without human in- the volume that would

tervention potentially be executable at that price

trading system not co- A hybrid system falling adequate information

vered by first three into two or more of the as to the level of orders

rows first three rows or a sys- or quotes and of tradtem where the price de- ing interest; in particutermination process is lar, the five best bid

of a different nature and offer price levels

than that applicable to and/or two way quotes

the types of system co- of each market maker

vered by [the] first in the share, if the charthree rows acteristics of the price

discovery mechanism so

permit
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Recital 14 to the MiFID Regulation

A waiver from pre-transparency obligations arising under Articles 29 or 44

of [MiFID] [(see REC 2.6.3 UK)] ... should not enable [MiFID investment firms]

to avoid such obligations in respect of those transactions in liquid shares

which they conclude on a bilateral basis under the rules of a regulated market or an MTF where, if carried out outside the rules of the regulated market or MTF, those transactions would be subject to the requirements to publish quotes set out in Article 27 of [MiFID].

Article 18 of the MiFID Regulation

Waivers based on market model and type of order or transaction

(1) Waivers in accordance with Article 29(2) and 44(2) of [MiFID]

[(see REC 2.6.3 UK)] may be granted by the[FCA] for systems operated by an MTF or a regulated market, if those systems satisfy

one of the following criteria:

(a) they must be based on a trading methodology by

which the price is determined in accordance with a

reference price generated by another system,

where that reference price is widely published and

is regarded generally by market participants as a reliable reference price;

(b) they formalise negotiated transactions [(see REC

2.6.11 EU)], each of which meets one of the following criteria:

(i) it is made at or within the current volume

weighted spread reflected on the order

book or the quotes of the market makers

of the regulated market or MTF operating

that system or, where the share is not

traded continuously, within a percentage

of a suitable reference price, being a percentage and a reference price set in advance by the system operator;

(ii) it is subject to conditions other than the

current market price of the share [see REC

2.6.12 EU)].

For the purposes of point (b), the other conditions specified in

the rules of the regulated market or MTF for a transaction of

this kind must also have been fulfilled.

In the case of systems having functionality other than as described in points (a) or (b), the waiver shall not apply to that

other functionality.

(2) Waivers in accordance with Articles 29(2) and 44(2) of [MiFID]

[(see REC 2.6.3 UK)], based on the type of orders may be granted

only in relation to orders held in an order management facility

maintained by the regulated market or the MTF pending their

being disclosed to the market.

Article 19 of the MiFID Regulation

References to negotiated transaction

For the purpose of Article 18(1)(b) [(see REC 2.6.10 EU)] a negotiated transaction shall mean a transaction involving members or participants of a regulated market or an MTF which is negotiated privately but executed within
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References to negotiated transaction

the regulated market or MTF and where that member or participant in doing so undertakes one of the following tasks:

(a) dealing on own account with another member or participant

who acts for the account of a client;

(b) dealing with another member or participant, where both are

executing orders on own account;

(c) acting for the account of both the buyer and seller;

(d) acting for the account of the buyer, where another member

or participant acts for the account of the seller;

(e) trading for own account against a client order.

Article 3 of the MiFID Regulation

Transactions related to an individual share in a portfolio trade and volume

weighted average price transactions

(1) A transaction related to an individual share in a portfolio

trade shall be considered, for the purposes of Article

18(1)(b)(ii) [(see REC 2.6.10 EU)], as a transaction subject to conditions other than the current market price.

(2) A volume weighted average price transaction shall be considered, for the purposes of Article 18(1)(b)(ii) [(see REC 2.6.10 EU)]

, as a transaction subject to conditions other than the current

market price.

Article 20 of the MiFID Regulation

Waivers in relation to transactions which are large in scale

An order shall be considered to be large in scale compared with normal

market size if it is equal to or larger than the minimum size of order specified in Table 2 in Annex II [(see REC 2.6.14 EU)]. For the purposes of determining whether an order is large in scale compared to normal market size, all

shares admitted to trading on a regulated market shall be classified in accordance with their average daily turnover, which shall be calculated in accordance with the procedure set out in Article 33.

Table 2 in Annex II to the MiFID Regulation: Orders large in scale

compared with normal market size

Class in ADT < €500 000 < €1 000 000 €25 000 ADT < €50

terms of €500 000 ADT < €1 < ADT < 000 < ADT 000 000

average 000 000 €25 000 < €50 000

daily turn- 000 000

over (ADT)

Minimum €50 000 €100 000 €250 000 €400 000 €500 000

size of order qualifying as

large in

scale compared with

normal

market

size
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Article 27(1) of the MiFID Regulation

Post-trade transparency obligation

1. ... regulated markets, and ... market operators operating an

MTF shall, with regard to transactions in respect of shares admitted to trading on regulated markets concluded ... within

their systems, make public the following details:

(a) the details specified in points 2, 3, 6, 16, 17, 18 and

21 of Table 1 of Annex I [(see REC 2.6.16 EU)]

(b) an indication that the exchange of shares is determined by factors other than the current market

valuation of the share, where applicable [(see REC

2.6.17 EU)];

(c) an indication that the trade was a negotiated

trade, where applicable;

(d) any amendments to previously disclosed information, where applicable.

Those details shall be made public either by reference to each

transaction or in a form aggregating the volume and price of

all transactions in the same share taking place at the same

price at the same time.

Points 2, 3, 6, 16, 17, 18 and 21 of Table 1 of Annex I of the MiFID

Regulation

2. Trading Day The trading day on which the transaction was executed.

3. Trading Time The time at which the transaction was

executed, reported in the local time of

the competent authority to which the

transaction will be reported, and the

basis in which the transaction is reported expressed as Co-ordinated Universal Time (UTC) +/- hours.

6. Instrument Identi- This shall consist in:

fication

- a unique code to be decided by the

competent authority (if any) to which

the report is made identifying the

[share] which is the subject of the

transaction;

- if the [share] in question does not

have a unique identification code, the

report must include the name of the

[share] ...

16. Unit Price The price per [share] excluding commission and (where relevant) accrued interest. ...

17. Price Notation The currency in which the price is expressed ...

18. Quantity The number of units of the [shares].

21. Venue identification Identification of the venue where the

transaction was executed. That identification shall consist ... [of the regu-
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lated market or MTF's] ... unique harmonised identification code;

... Article 3 of the MiFID Regulation

Transactions related to an individual share in a portfolio trade and volume

weighted average price transactions

1. A transaction related to an individual share in a portfolio

trade ... shall ... be considered, for the purposes of Article

27(1)(b) [(see REC 2.6.15 EU)] as a transaction where the exchange of shares is determined by factors other than the current market valuation of the share.

2. A volume weighted average price transaction ... shall be considered, for the purposes of Article 27(1)(b) [(see REC 2.6.15

EU)] as a transaction where the exchange of shares is determined by factors other than the current market valuation of

the share.

Article 28 of the MiFID Regulation

Deferred publication of large transactions

The deferred publication of information in respect of transactions may be

authorised, for a period no longer than the period specified in Table 4 in

Annex II [(see REC 2.6.20 EU)] for the class of share and transaction concerned, provided the following criteria are satisfied:

(a) the transaction is between [a MiFID investment firm] dealing

on own account and a client of that firm;

(b) the size of that transaction is equal to or exceeds the relevant

minimum qualifying size, as specified in Table 4 in Annex II

[(see REC 2.6.20 EU)].

In order to determine the relevant minimum qualifying size for the purposes of point (b), all shares admitted to trading on a regulated market

shall be classified in accordance with their average daily turnover to be calculated in accordance with Article 33.

Article 29(3), second sentence of the MiFID Regulation

Each constituent transaction [of a portfolio trade] shall be assessed separately for the purposes of determining whether deferred publication in respect of that transaction is available under Article 28 (see REC 2.6.18 EU).

Table 4 in Annex II to the MiFID Regulation: Deferred publication

thresholds and delays

The table below shows, for each permitted delay for publication and each

class of shares in terms of average daily turnover (ADT), the minimum

qualifying size of transaction that will qualify for that delay in respect of a

share of that type.
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Class of shares in terms of average daily turnover (ADT)

€1 000 000

€100 000 < < ADT <

ADT< €100 ADT < €1 €50 000 ADT < €50

000 000 000 000 000 000

Minimum qualifying size of transaction for permitted delay

Permitted 60 minutes €10 000 Greater of Lower of Lower of

delay for 5% of ADT 10% of 10% of

publication and €25 ADT and ADT and

000 €3 500 000 €7 500 000

180 €25 000 Greater of Lower of Lower of

minutes 15% of 15% of 20% of

ADT and ADT and ADT and

€75 000 €5 000 000 €15 000

000

Until end €45 000 Greater of Lower of Lower of

of trading 25% of 25% of 30% of

day (or ADT and ADT and ADT and

roll-over to €100 000 €10 000 €30 000

noon of 000 000

next trading day if

trade undertaken

in final 12

hours of

trading

day)

Until end €60 000 Greater of Greater of 100% of

of trading 50% of 50% of ADT

day next ADT and ADT and

after trade €100 000 €1 000 000

Until end €80 000 100% of 100% of 250% of

of second ADT ADT ADT

trading

day next

after trade

Until end 250% of 250% of

of third ADT ADT

trading

day next

after trade

Article 29 of the MiFID Regulation

Publication and availability of pre- and post-trade transparency data

1. A regulated market [or] MTF ... shall be considered to publish

pre-trade information on a continuous basis during normal

trading hours if that information is published as soon as it becomes available during the normal trading hours of the regulated market [or] MTF concerned, and remains available until

it is updated.

2. Pre-trade information, and post-trade information relating to

transactions taking place on [regulated markets or MTFs] and

within normal trading hours, shall be made available as close
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to real time as possible. Post-trade information relating to

such transactions shall be made available in any case within

three minutes of the relevant transaction. 3. Information relating to a portfolio trade shall be made available with respect to each constituent transaction as close to

real time as possible, having regard to the need to allocate

prices to particular shares. ...

4. Post-trade information referring to transactions taking place

on a [regulated market or MTF] but outside its normal trading

hours shall be made public before the opening of the next

trading day of the [regulated market or MTF] on which the

transaction took place.

Recital 18 to the MiFID Regulation

Information which is required to be made available as close to real time as

possible should be made available as close to instantaneously as technically

possible, assuming a reasonable level of efficiency and of expenditure on

systems on the part of the person concerned. The information should only

be published close to the three minute maximum limit in exceptional cases

where the systems available do not allow for a publication in a shorter

time

Article 30 of the MiFID Regulation

Public availability of pre- and post-trade information

... pre- and post-trade information shall be considered to be made public or

available to the public if it is made available generally through one of the

following to investors located in the Community:

(a) the facilities of a regulated market or an MTF;

(b) the facilities of a third party;

(c) proprietary arrangements.

Article 32 of the MiFID Regulation

Arrangements for making information public

Any arrangement to make information public, adopted for the purposes of

Article ... 30 [(see REC 2.6.23 EU)] ... , shall satisfy the following conditions:

(a) it must include all reasonable steps necessary to ensure that the

information to be published is reliable, monitored continuously

for errors, and corrected as soon as errors are detected;

(b) it must facilitate the consolidation of the data with similar data

from other sources;

(c) it must make the information available to the public on a nondiscriminatory commercial basis at a reasonable cost.

[deleted]

In determining whether:

(1) business conducted by means of a UK RIE's facilities is conducted so;
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(2) [deleted]

as to afford proper protection to investors, the FCA may, in addition to the

matters dealt with in ■ REC 2.7 to ■ REC 2.12, have regard to all the

arrangements made by the UK recognised body concerning the operation of

its facilities. The FCA may also have regard to the extent to which the UK recognised

body's rules, procedures and the arrangements for monitoring and

overseeing the use of its facilities:

(1) include appropriate measures to prevent the use of its facilities for

abusive or improper purposes;

(2) provide appropriate safeguards for investors against fraud or

misconduct, recklessness, negligence or incompetence by users of its

facilities;

(3) provide appropriate information to enable users of its facilities to

monitor their use of the facilities;

(4) include appropriate arrangements to enable users of its facilities to

raise queries about any use of those facilities which they are reported

to have made;

(5) include appropriate arrangements to enable users of its facilities to

comply with any relevant regulatory or legal requirements; and

(6) include appropriate arrangements to reduce the risk that those

facilities will be used in ways which are incompatible with relevant

regulatory or legal requirements;

and in this paragraph "appropriate" should be taken to mean appropriate

having regard to the nature and scale of the UK recognised body's facilities, the types of persons who will use the facilities and the use which they will

make of those facilities. Orderly markets ......................................................................................................

In determining whether a UK RIE is ensuring that business conducted by

means of its facilities is conducted in an orderly manner (and so as to afford

proper protection to investors), the FCA may have regard to the extent to

which the UK RIE's rules and procedures:

(1) are consistent with the Code of Market Conduct (see ■ MAR 1);

(2) prohibit abusive trading practices or the deliberate reporting or

publication of false information about trades; and

(3) prohibit or prevent:

(a) trades in which a party is improperly indemnified against losses;

(b) trades intended to create a false appearance of trading activity

("wash trades");

(c) cross trades executed for improper purposes;
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(d) improperly prearranged or prenegotiated trades;

(e) trades intended to assist or conceal any potentially identifiable

trading abuse ("accommodation trades"); and

(f) trades which one party does not intend to close out or settle.

In determining whether a UK RIE is ensuring that business conducted by

means of its facilities is conducted in an orderly manner (and so as to afford

proper protection to investors), the FCA may have regard to whether the UK

RIE's arrangements and practices:

(1) enable members and clients for whom they act to obtain the best

price available at the time for their size and type of trade;

(2) ensure:

(a) sufficient pre-trade transparency in the UK RIE's markets taking

account of the practices in those markets and the trading systems

used; and

(b) sufficient post-trade transparency in the UK RIE's markets taking

into account the nature and liquidity of the specified investments

traded, market conditions and the scale of transactions, the need

(where appropriate) to preserve anonymity for members and

clients for whom they act, and the needs of different market

participants for timely price information;

(2A) (2) does not apply to a UK RIE's markets for shares admitted to

trading on a regulated market. For pre-trade and post-trade

transparency for a UK RIE's markets for shares admitted to trading on

a regulated market, see in particular ■ REC 2.6.3 UK and ■ REC 2.6.4 UK

and ■ REC 2.6.7 EU to ■ REC 2.6.24 EU;

(3) include procedures which enable the UK RIE to influence trading

conditions or suspend trading promptly when necessary to maintain

an orderly market; and

(4) if they include arrangements to support or encourage liquidity:

(a) are transparent;

(b) are not likely to encourage any person to enter into transactions

other than for proper trading purposes (which may include

hedging, investment, speculation, price determination, arbitrage

and filling orders from any client for whom he acts);

(c) are consistent with a reliable, undistorted price-formation

process; and

(d) alleviate dealing or other identified costs associated with trading

on the UK RIE's markets and do not subsidise a market position

of a user of its facilities.

(1) The FCA accepts that block trading, upstairs trading and other types

of specialist transactions (such as the "exchange of futures for

physicals" in certain commodity markets) can have a legitimate

commercial rationale consistent with the orderly conduct of business

and proper protection for investors. They may therefore be permitted
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under the rules of a UK RIE, subject to any necessary safeguards,

where appropriate.

(2) (1) does not apply to a UK RIE's markets for shares admitted to

trading on a regulated market. For pre-trade and post-trade

transparency for a UK RIE's markets for shares admitted to trading on

a regulated market, see in particular ■ REC 2.6.3 UK and ■ REC 2.6.4 UK

and ■ REC 2.6.7EU to ■ REC 2.6.24 EU. Waiver of pre-trade transparency requirements and deferral of

post-trade transparency requirements ...................................................................................................... The FCA has exercised its power referred to in ■ REC 2.6.3 UK(3) to waive the

pre-trade transparency requirements referred to in ■ REC 2.6.3 UK(1). The

waivers granted are those based on market model (see ■ REC 2.6.10 EU1), type

of order (see ■ REC 2.6.10 EU2) and transactions which are large in scale (see

■ REC 2.6.13 EU). These waivers apply to all regulated markets and MTFs

operated by UK RIEs. The FCA has exercised its power referred to in ■ REC 2.6.4 UK(3) to permit the

deferral of the post-trade transparency requirements referred to in

■ REC 2.6.4 UK(1). This permission is with respect to large transactions (see

■ REC 2.6.17 EU). This permission applies to all regulated markets and MTFs

operated by UK RIEs. Arrangements for making information public ...................................................................................................... The FCA considers that for the purposes of ensuring that published

information is reliable, monitored continuously for errors, and corrected as

soon as errors are detected (see ■ REC 2.6.24 EU(a)), a verification process

should be established which does not need to be external from the

organisation of the publishing entity, but which should be an independent

cross-check of the accuracy of the information generated by the trading

process. This process should have the capability to at least identify price and

volume anomalies, be systematic and conducted in real-time. The chosen

process should be reasonable and proportionate in relation to the business.

(1) In respect of arrangements facilitating the consolidation of data as

required in ■ REC 2.6.24 EU(b), the FCA considers information as being

made public in accordance with ■ REC 2.6.24 EU(b), if it:

(a) is accessible by automated electronic means in a machinereadable way;

(b) utilises technology that facilitates consolidation of the data and

permits commercially viable usage; and

(c) is accompanied by instructions outlining how users can access the

information.

(2) The FCA considers that an arrangement fulfils the 'machine-readable'

criteria where the data:

(a) is in a physical form that is designed to be read by a computer;

(b) is in a location on a computer storage device where that location

is known in advance by the party wishing to access the data; and
REC 2 : Recognition Section 2.6 : General safeguards for

requirements investors, provision of pre and post-trade

information about share trading and...

2

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(c) is in a format that is known in advance by the party wishing to

access the data.

(3) The FCA considers that publication on a non-machine-readable

website would not meet the MiFID requirements.

(4) The FCA considers that information that is made public in accordance

with ■ REC 2.6.24 EU should conform to a consistent and structured

format based on industry standards. Regulated markets or market

operators operating an MTF can choose the structure that they use.
REC 2 : Recognition Section 2.7 : Access to facilities

requirements

2

2.7.1 UK

2.7.1A UK

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2.7 Access to facilities

Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(a)

Without prejudice to the generality of sub-paragraph [4(1)], the [UK RIE]

must ensure that -

access to the [UK RIE's] facilities is subject to criteria designed to protect

the orderly functioning of the market and the interests of investors and is

in accordance with paragraph 7B;

Schedule to the Recognition Requirements Regulations, Paragraph 7B

(1) The [UK RIE] must make transparent and non-discriminatory

rules, based on objective criteria, governing access to, or membership of, its facilities. (2) In particular those rules must specify the obligations for users

or members of its facilities arising from -

(a) the constitution and administration of the [UK RIE]

;

(b) rules relating to transactions on the market;

(c) its professional standards for staff of any investment firm or credit institution having access to or

membership of a financial market operated by the

[UK RIE];

(d) conditions established under sub-paragraph (3)(c)

for access to or membership of a financial market

operated by the [UK RIE] by persons other than investment firms or credit institutions; and

(e) the rules and procedures for clearing and settlement of transactions concluded on a financial market operated by the [UK RIE].

(3) Rules of the [UK RIE] about access to, or membership of, a financial market operated by it must permit the [UK RIE] to give

access to or admit to membership (as the case may be) only -

(a) an investment firm, (b) a credit institution, or

(c) a person who -

(i) is fit and proper,

(ii) has a sufficient level of trading ability

and competence,

(iii) where applicable, has adequate organisational arrangements, and
REC 2 : Recognition Section 2.7 : Access to facilities

requirements

2

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2.7.2 UK

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(iv) has sufficient resources for the role he

is to perform, taking into account the

[UK RIE's] arrangements under paragraph 4(2)(d).

(4) Rules under this paragraph must enable -

(a) an investment firm authorised under Article 5 of

[MiFID], or

(b) a credit institution authorised under the Banking

Consolidation Directive, by the competent authority of another EEA State (including a

branch established in the United Kingdom of such a firm or institution) to have direct or remote access to or membership of,

any financial market operated by the [UK RIE] on the same

terms as a UK firm. (5) The [UK RIE] must make arrangements regularly to provide the

[FCA] with a list of users or members of its facilities. (6) This paragraph is without prejudice to the generality of paragraph 4.

Schedule to the Recognition Requirements Regulations, Paragraph 7C

(1) This paragraph applies to [a UK RIE] which provides central

counterparty, clearing or settlement facilities. (2) The [UK RIE] must make transparent and non-discriminatory

rules based on objective criteria, governing access to those facilities. (3) The rules under sub-paragraph (2) must enable an investment

firm or a credit institution authorised by the competent authority of another EEA State (including a branch established in the

United Kingdom of such a firm or institution) to have access to

those facilities on the same terms as a UK firm for the purposes

of finalising or arranging the finalisation of transactions in financial instruments. (4) The [UK RIE] may refuse access to those facilities on legitimate

commercial grounds.

[deleted]

[deleted]

In assessing whether access to a UK recognised body's facilities is subject to

criteria designed to protect the orderly functioning of the market, or of

those facilities, and the interests of investors, the FCA may have regard to

whether:

(1) the UK recognised body limits access as a member to persons:

(a) over whom it can with reasonable certainty enforce its rules

contractually;

(b) who have sufficient technical competence to use its facilities;

(c) whom it is appropriate to admit to membership having regard to

the size and sophistication of users of its facilities and the nature
REC 2 : Recognition Section 2.7 : Access to facilities

requirements

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2.7.4 G

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of the business effected by means of, or cleared through, its

facilities; and

(d) (if appropriate) who have adequate financial resources in relation

to their exposure to the UK recognised body or its central

counterparty;

(2) [deleted]

(3) indirect access to the UK recognised body'sfacilities is subject to

suitable criteria, remains the responsibility of a member of the UK

recognised body and is subject to its rules; and

(4) where access is granted to members outside the United Kingdom, there are adequate safeguards against financial crime (see also

■ REC 2.10).

■ REC 2.7.3 G does not apply to a UK RIE's arrangements to grant access to

investment firms or credit institutions. Electronic access ...................................................................................................... The FCA may have regard to the arrangements made to permit electronic

access to the UK recognised body's facilities and to prevent and resolve

problems likely to arise from the use of electronic systems to provide indirect

access to its facilities by persons other than its members, including:

(1) the rules and guidance governing members' procedures, controls and

security arrangements for inputting instructions into the system;

(2) the rules and guidance governing the facilities members provide to

clients to input instructions into the system and the restrictions placed

on the use of those systems;

(3) the rules and practices to detect, identify, and halt or remove

instructions breaching any relevant restrictions;

(4) the quality and completeness of the audit trail of any transaction

processed through an electronic connection system; and

(5) procedures to determine whether to suspend trading by those

systems or access to them by or through individual members.
REC 2 : Recognition Section 2.8 : Settlement and clearing

requirements facilitation services

2

2.8.1 UK

2.8.1A UK

2.8.2 UK

2.8.3 G

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2.8 Settlement and clearing facilitation

services

Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(d)

Without prejudice to the generality of sub-paragraph [4(1)], the [UK RIE]

must ensure that -

satisfactory arrangements which comply with paragraph 7D 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 [UK RIE] (being rights and liabilities in relation to those

transactions);

Schedule to the Recognition Requirements Regulations, Paragraph 7D

(1) The rules of the [UK RIE] must permit a user or member of a

regulated market operated by it to use whatever settlement facility he chooses for a transaction.

(2) Sub-paragraph (1) only applies where -

(a) such links and arrangements exist between the

chosen settlement facility and any other settlement facility as are necessary to ensure the efficient and economic settlement of the transaction; and

(b) the [UK RIE] is satisfied that the smooth and orderly

functioning of the financial markets will be

maintained.

[deleted]

In determining whether there are satisfactory arrangements for securing the

timely discharge of the rights and liabilities of the parties to transactions, the

FCA may have regard to the UK recognised body's:

(1) rules and practices relating to clearing and settlement including its

arrangements with another person for the provision of clearing and

settlement services;

(2) arrangements for matching trades and ensuring that the parties are

in agreement about trade details;

(3) where relevant, arrangements for making deliveries and payments, in

all relevant jurisdictions;
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requirements facilitation services

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(4) procedures to detect and deal with the failure of a member to settle

in accordance with its rules;

(5) arrangements for taking action to settle a trade if a member does not

settle in accordance with its rules;

(6) arrangements for monitoring its members' settlement performance;

and

(7) (where appropriate) default rules and default procedures.

A UK recognised body will not be regarded as failing to comply with the

recognition requirement merely because it is unable to arrange for a specific

transaction to be settled.
REC 2 : Recognition Section 2.9 : Transaction recording

requirements

2

2.9.1 UK

2.9.2 UK

2.9.3 G

2.9.4 G

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2.9 Transaction recording

Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(e)

Without prejudice to the generality of sub-paragraph [4(1)], the [UK RIE]

must ensure thatsatisfactory arrangements are made for recording transactions effected on

the [UK RIE], and transactions (whether or not effected on the [UK RIE ])

which are cleared or to be cleared by means of itsfacilities;

[deleted]

In determining whether a UK recognised body has satisfactory arrangements

for recording the transactions effected on its facilities, or cleared or to be

cleared by another person by means of, its facilities, the FCA may have

regard to:

(1) whether the UK recognised body has arrangements for creating,

maintaining and safeguarding an audit trail of transactions for at

least three years (five years in respect of transactions carried out by

members who are not incorporated in the United Kingdom if the UK

recognised body is a regulated market); and

(2) the type of information recorded and the extent to which the record

includes details for each transaction of:

(a) the name of the investment (and, if relevant, the underlying

asset) and the price, quantity and date of the transaction;

(b) the identities and, where appropriate, the roles of the

counterparties to the transaction;

(c) if the UK recognised body's rules make provision for transactions

or clearing facilitation services to be effected, in more than one

type of facility, or under more than one part of its rules, the type

of facility in which, or the part of its rules under which, the

transaction or clearing facilitation service was effected; and

(d) the date and manner of settlement of the transaction.

[deleted]
REC 2 : Recognition Section 2.10 : Financial crime and market

requirements abuse

2

2.10.1 UK

2.10.2 UK

2.10.3 G

2.10.4 G

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2.10 Financial crime and market abuse

Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(f)

Without prejudice to the generality of sub-paragraph [4(1)], the [UK RIE]

must ensure thatappropriate measures (including the monitoring of transactions effected

on the [UK RIE]) are adopted to reduce the extent to which the [UK RIE's ]

facilities can be used for a purpose connected withmarket abuse orfinancial crime, and to facilitate their detection and monitor their incidence;

[deleted]

In determining whether a UK recognised body's measures are appropriate to

reduce the extent to which its facilities can be used for a purpose connected

with market abuse or financial crime, to facilitate their detection and to

monitor their incidence, the FCA may have regard to:

(1) whether the rules of the UK recognised body enable it to disclose any

information to the FCA, or other appropriate bodies involved in the

detection, prevention or pursuit of market abuse or financial crime in

the United Kingdom or overseas; and

(2) whether the arrangements, resources, systems, and procedures of the

UK recognised body enable it to:

(a) monitor the use made of its facilities so as to obtain information

regarding possible patterns of normal, abnormal or improper use

of those facilities;

(b) detect possible instances of market abuse and financial crime, for

example, by detecting suspicious patterns in the use of its

facilities;

(c) communicate information about market abuse and financial

crime promptly and accurately to appropriate organisations; and

(d) cooperate with all relevant bodies in the prevention,

investigation and pursuit of market abuse and financial crime. The law on market abuse and financial crime, including Part VI of the

Criminal Justice Act 1988 and the Money Laundering Regulations, applies to

UK recognised bodies. This recognition requirement (and this guidance) does

not restrict, diminish or alter the obligations contained in that legislation.
REC 2 : Recognition Section 2.11 : Custody

requirements

2

2.11.1 UK

2.11.2 UK

2.11.3 G

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2.11 Custody

Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(g)

Without prejudice to the generality of sub-paragraph [4(1)], the [UK RIE]

must ensure thatwhere the [UK RIE's]facilitiesinclude making provision for the safeguarding and administration of assets belonging to users of thosefacilities, satisfactory arrangements are made for that purpose.

[deleted]

In determining whether a UK recognised body has made satisfactory

arrangements for the safeguarding and administration of assets belonging to

the users of its facilities, the FCA may have regard to:

(1) the level of protection which the arrangements provide against the

risk of theft or other types or causes of loss;

(2) whether the arrangements ensure that assets are only used or

transferred in accordance with the instructions of the owner of those

assets or in accordance with the terms of the agreement by which the

UK recognised body undertook to safeguard and administer those

assets;

(3) whether the arrangements ensure that the assets are not transferred

to the UK recognised body or to any other person to settle the debts

of the owner (or other person with the appropriate rights over the

assets) except in accordance with valid instructions from a person

entitled to give those instructions, or in accordance with the terms of

the agreement by which the UK recognised body undertook to

safeguard and administer those assets;

(4) whether the arrangements include satisfactory procedures to ensure

that any rights arising in relation to the assets held as a result of any

actions by the issuers of those assets (or other relevant persons) are

held, transferred or acted upon in a timely and accurate manner in

accordance with the instructions of the owner of those assets or in

accordance with the terms of the agreement by which the UK

recognised body undertook to safeguard and administer those assets;

(5) whether there are adequate arrangements to ensure the proper

segregation of assets belonging to the UK recognised body (or to

undertakings in the same group) from those belonging to the users

of its facilities for the safeguarding and administration of assets;
REC 2 : Recognition Section 2.11 : Custody

requirements

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(6) whether the arrangements include satisfactory procedures for the

selection, oversight and review of custodians or sub-custodians used

to hold the assets;

(7) whether the agreements by which the UK recognised body

undertakes to safeguard and administer assets belonging to users of

its facilities include appropriate information regarding the terms and

conditions of that service and the obligations of the UK recognised

body to the user of the service and of the user of the service to the

UK recognised body;

(8) whether the records kept of those assets and the operation of the

safeguarding services provide sufficient accurate and timely

information:

(a) to identify the legal and beneficial owners of the assets and of

any persons who have charges over, or other interests, in the

assets;

(b) to record separately any additions, reductions and transfers in

each account of assets held for safeguarding or administration;

and

(c) to identify separately the assets owned by (or, where appropriate,

on behalf of) different persons, including, where appropriate, the

assets owned by members of the UK recognised body and their

clients;

(9) the frequency of reconciliation of the assets held by (or on behalf of)

the UK recognised body with the accounts held with the UK

recognised body by the users of its safeguarding and administration

services and the extent of the arrangements for resolving a shortfall

identified in any reconciliation; and

(10) the frequency with which statements of their holdings are provided

to the users of the safeguarding and administration services, to the

owners of the assets held and other appropriate persons in

accordance with the terms of the agreement by which the UK

recognised body undertook to safeguard and administer those assets.

Where a UK recognised body arranges for other persons to provide services

for the safeguarding and administration services of assets belonging to users

of its facilities, it will also need to satisfy the recognition requirement in

Regulation 6 of the Recognition Requirements Regulations (see ■ REC 2.2).
REC 2 : Recognition Section 2.12 : Availability of relevant

requirements information and admission of financial

instruments to trading (UK RIEs only)

2

2.12.1 UK

2.12.2 UK

2.12.2A UK

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 2/49

2.12 Availability of relevant information

and admission of financial

instruments to trading (UK RIEs

only)

Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(c)

Without prejudice to the generality of sub-paragraph [4(1)], the [UK RIE]

must ensure that -

(c) appropriate arrangements are made forrelevant informationto be made available (whether by the [UK

RIE] or, where appropriate, byissuersof the [specified

investments]) topersonsengaged indealingin [specified

investments] on the [UK RIE];

Schedule to the Recognition Requirements Regulations, Paragraph 4(3)

In sub-paragraph [4(2)(c)], "relevant information" means information which is relevant in determining the current value of the [specified investments].

Schedule to the Recognition Requirements Regulations, Paragraph 7A

(1) The [UK RIE] must make clear and transparent rules concerning

the admission of financial instruments to trading on any financial market operated by it.

(2) The rules must ensure that all financial instruments admitted to

trading on any regulated market operated by the [UK RIE] are

capable of being traded in a fair, orderly and efficient manner

(in accordance with Chapter V of the [MiFID Regulation], where

applicable).

(3) The rules must ensure that -

(a) all transferable securities admitted to trading on a

regulated market operated by the [UK RIE] are freely

negotiable (in accordance with Chapter V of the

[MiFID Regulation], where applicable); and

(b) all contracts for derivatives admitted to trading on a

regulated market operated by the [UK RIE] are designed so as to allow for their orderly pricing as well

as for the existence of effective settlement

conditions.

(4) The [UK RIE] must maintain arrangements to provide sufficient

publicly available information (or satisfy itself that sufficient information is publicly available) to enable the users of a multilat-
REC 2 : Recognition Section 2.12 : Availability of relevant

requirements information and admission of financial

instruments to trading (UK RIEs only)

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REC 2/50 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

eral trading facility operated by it to form investment judgments, taking into account both the nature of the users and the

types of instrument traded.

(5) The [UK RIE] must maintain effective arrangements to verify

that issuers of transferable securities admitted to trading on a

regulated market operated by it comply with the disclosure obligations. (6) The [UK RIE] must maintain arrangements to assist users of a

regulated market operated by it to obtain access to information

made public under the disclosure obligations. (7) The [UK RIE] must maintain arrangements regularly to review

whether the financial instruments admitted to trading on a regulated market operated by it comply with the admission requirements for those instruments.

(8) The rules must provide that where a [UK RIE], without obtaining

the consent of the issuer, admits to trading on a regulated market operated by it a transferable security which has been admitted to trading on another regulated market, the [UK RIE] -

(a) must inform the issuer of that security as soon as is

reasonably practicable; and

(b) may not require the issuer of that security to demonstrate compliance with the disclosure obligations. (9) The rules must provide that where a [UK RIE], without obtaining

the consent of the issuer, admits to trading on a multilateral

trading facility operated by it a transferable security which has

been admitted to trading on a regulated market, it may not require the issuer of that security to demonstrate compliance with

the disclosure obligations.

... (11) This paragraph is without prejudice to the generality of paragraph 4.

Article 35 of the MiFID Regulation

Transferable securities

1. Transferable securities shall be considered freely negotiable for

the purposes of Article 40(1) of [MiFID] [(see REC 2.12.2A UK)] if

they can be traded between the parties to a transaction, and

subsequently transferred without restriction, and if all securities

within the same class as the security in question are fungible.

2. Transferable securities which are subject to a restriction on transfer shall not be considered as freely negotiable unless the restriction is not likely to disturb the market.

3. Transferable securities that are not fully paid may be considered

as freely negotiable, if arrangements have been made to ensure

that the negotiability of such securities is not restricted and that

adequate information concerning the fact that the securities are

not fully paid, and the implications of that fact for shareholders, is publicly available.

4. When exercising its discretion whether to admit a share to trading, a regulated market shall, in assessing whether the share is

capable of being traded in a fair, orderly and efficient manner,

take into account the following:

(a) the distribution of those shares to the public; and
REC 2 : Recognition Section 2.12 : Availability of relevant

requirements information and admission of financial

instruments to trading (UK RIEs only)

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2.12.2D EU

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Transferable securities

(b) such historical financial information, information

about the issuer, and information providing a business overview as is required to be prepared under

[the PD], or is or will be otherwise publicly available.

5. A transferable security that is officially listed in accordance with

[CARD], and the listing of which is not suspended, shall be deemed to be freely negotiable and capable of being traded in a

fair, orderly and efficient manner.

6. For the purposes of Article 40(1) of [MiFID] [(see REC 2.12.2A UK)],

when assessing whether a transferable security referred to Article 4(1)(18)(c) of [MiFID] is capable of being traded in a fair, orderly and efficient manner, the regulated market shall take into

account, depending on the nature of the security being admitted, whether the following criteria are satisfied:

(a) the terms of the security are clear and unambiguous

and allow for a correlation between the price of the

security and the price or other value measure of the

underlying;

(b) the price or other value measure of the underlying is

reliable and publicly available;

(c) there is sufficient information publicly available of a

kind needed to value the security;

(d) the arrangements for determining the settlement

price of the security ensure that this price properly reflects the price or other value measure of the underlying;

(e) where the settlement of the security requires or provides for the possibility of the delivery of an underlying security or asset rather than cash settlement,

there are adequate settlement and delivery procedures for that underlying as well as adequate arrangements to obtain relevant information about that underlying.

Recital 19 to the MiFID Regulation

For the purposes of the provisions of [the MiFID Regulation] as to the admission to trading on a regulated market of a transferable security as defined in article 4(1)(18)(c) of [MiFID], [(see REC 2.12.2B EU6(c))], in the case of

a security within the meaning of [the PD], there should be considered to be

sufficient information publicly available of a kind needed to value that financial instrument. Article 36 of the MiFID Regulation

Units in collective investment undertakings

1. A regulated market shall, when admitting to trading units in a

collective investment undertaking, whether or not that undertaking is constituted in accordance with [the UCITS Directive],

satisfy itself that the collective investment undertaking complies

or has complied with the registration, notification or other procedures which are a necessary precondition for the marketing

of the collective investment undertaking in the jurisdiction of

the regulated market.
REC 2 : Recognition Section 2.12 : Availability of relevant

requirements information and admission of financial

instruments to trading (UK RIEs only)

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Units in collective investment undertakings

2. Without prejudice to [the UCITS Directive] or any other Community legislation or national law relating to collective investment undertakings, Member States may provide that compliance with the requirements referred to in paragraph 1 is not a

necessary precondition for the admission of units in a collective

investment undertaking to trading on a regulated market. 3. When assessing whether units in an open-ended collective investment undertaking are capable of being traded in a fair, orderly and efficient manner in accordance with Article 40(1) of

[MiFID] [(see REC 2.12.2A UK)], the regulated market shall take

the following aspects into account:

(a) the distribution of those units to the public;

(b) whether there are appropriate market-making arrangements, or whether the management company of the

scheme provides appropriate alternative arrangements

for investors to redeem the units;

(c) whether the value of the units is made sufficiently

transparent to investors by means of the periodic publication of the net asset value.

4. When assessing whether units in a closed-end collective investment undertaking are capable of being traded in a fair, orderly

and efficient manner, in accordance with Article 40(1) of [MiFID]

[(see REC 2.12.2A UK)], the regulated market shall take the following aspects into account:

(a) the distribution of those units to the public;

(b) whether the value of the units is made sufficiently

transparent to investors, either by publication of information on the fund's investment strategy or by the

periodic publication of net asset value.

Article 37 of the MiFID Regulation

Derivatives

1. When admitting to trading a financial instrument of a kind

listed in points 4 to 10 of Section C of Annex I to [MiFID], regulated markets shall verify that the following conditions are

satisfied:

(a) the terms of the contract establishing the financial instrument must be clear and unambiguous, and enable

a correlation between the price of the financial instrument and the price or other value measure of the underlying;

(b) the price or other value measure of the underlying

must be reliable and publicly available;

(c) sufficient information of a kind needed to value the derivative must be publicly available;

(d) the arrangements for determining the settlement price

of the contract must be such that the price properly reflects the price or other value measure of the underlying;

(e) where the settlement of the derivative requires or provides for the possibility of the delivery of an underlying

security or asset rather than cash settlement, there

must be adequate arrangements to enable market par-
REC 2 : Recognition Section 2.12 : Availability of relevant

requirements information and admission of financial

instruments to trading (UK RIEs only)

2

2.12.3 D

2.12.4 G

2.12.5 G

2.12.6 G

2.12.7 G

2.12.8 G

2.12.9 G

2.12.10 G

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Derivatives

ticipants to obtain relevant information about that underlying, as well as adequate settlement and delivery

procedures for the underlying.

2. Where the financial instruments concerned are of a kind listed

in Sections C (5), (6), (7) or (10) of Annex I to [MiFID], point (b)

of paragraph 1 shall not apply if the following conditions are

satisfied:

(a) the contract establishing that instrument must be likely

to provide a means of disclosing to the market, or enabling the market to assess, the price or other value

measure of the underlying, where the price or value

measure is not otherwise publicly available;

(b) the regulated market must ensure that appropriate supervisory arrangements are in place to monitor trading

and settlement in such financial instruments;

(c) the regulated market must ensure that settlement and

delivery, whether physical delivery or by cash settlement, can be effected in accordance with the contract

terms and conditions of those financial instruments.

[deleted]

Electronic access ...................................................................................................... [deleted]

Electronic access ...................................................................................................... [deleted]

Electronic access ...................................................................................................... [deleted]

[deleted]

[deleted]

Electronic access ...................................................................................................... [deleted]

Electronic access ...................................................................................................... [deleted]
REC 2 : Recognition Section 2.12 : Availability of relevant

requirements information and admission of financial

instruments to trading (UK RIEs only)

2

2.12.11 G

2.12.12 G

2.12.13 G

2.12.14 G

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Proper information ......................................................................................................

In determining whether appropriate arrangements have been made to make

relevant information available to persons engaged in dealing in specified

investmentsadmitted to trading on the UK RIE, the FCA may have regard to:

(1) the extent to which members and clients for whom they act are able

to obtain information about those specified investments, either

through accepted channels for dissemination of information or

through other regularly and widely accessible communication media,

to make a reasonably informed judgment about the value and the

risks associated with those specified investments in a timely fashion;

(2) what restrictions, if any, there are on the dissemination of relevant

information to the UK RIE's members and clients for whom they act;

and

(3) whether relevant information is or can be kept to restricted groups of

persons in such a way as to facilitate or encourage dealing in

contravention of the Code of Market Conduct (see ■ MAR 1).

Own means of dissemination ...................................................................................................... UK RIEs do not need to maintain their own arrangements for disseminating

news or information about specified investments (or underlying assets) to

their members where they have made adequate arrangements for other

persons to do so on their behalf or there are other effective and reliable

arrangements for this purpose.

Own means of dissemination ...................................................................................................... [deleted]

Rules concerning the admission of financial instruments to

trading on a multilateral trading facility ......................................................................................................

In determining whether a UK RIE has clear and transparent rules concerning

the admission of financial instruments to trading on any multilateral trading

facility operated by it, the FCA considers that it is reasonable that the rules

be based on criteria designed to promote fair and orderly trading (see

■ REC 2.6.2 UK). In determining whether the rules are based on such criteria,

the FCA may have regard to:

(1) whether there is a sufficient range of persons already holding the

financial instrument (or, where relevant, the underlying asset) or

interested in dealing in it to bring about adequate forces of supply

and demand;

(2) the extent to which there are any limitations on the persons who may

hold or deal in the financial instrument, or the amounts of the

financial instrument which may be held; and

(3) whether the UK RIE has adequate procedures for obtaining

information relevant for determining whether or not to suspend or

discontinue trading in that financial instrument.
REC 2 : Recognition Section 2.13 : Promotion and maintenance

requirements of standards

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2.13 Promotion and maintenance of

standards

Schedule to the Recognition Requirements Regulations, Paragraph 6

(1) The [UK RIE] 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 [UK

RIE].

(2) The [UK RIE] must be able and willing to cooperate by the sharing of

information or otherwise, with the [FCA].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.

[deleted]

In determining whether a UK recognised body is able and willing to promote

and maintain high standards of integrity and fair dealing in the carrying on

of regulated activities, the FCA may have regard to the extent to which the

UK recognised body seeks to promote and encourage, through its rules,

practices and procedures, conduct in regulated activities which is consistent

with the Code of Market Conduct (see ■ MAR 1) and with any other codes of

conduct, rules or principles relating to behaviour in regulated activities which

users of the UK financial system would normally expect to apply to the

regulated activity and the conduct in question.

In assessing the ability of a UK recognised body to cooperate with the FCA

and other appropriate bodies, the FCA may have regard to the extent to

which the constitution and rules of the UK recognised body and its

agreements with its members enable it to obtain information from members

and to disclose otherwise confidential information to the FCA and other

appropriate bodies.

In assessing the willingness of a UK recognised body to cooperate with the

FCA and other appropriate bodies, the FCA may have regard to:

(1) the extent to which the UK recognised body is willing to provide

information about it and its activities to assist the FCA in the exercise

of its functions;
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(2) the extent to which the UK recognised body is open with the FCA or

other appropriate bodies in regulatory matters;

(3) how diligently the UK recognised body investigates or pursues

enquiries from the FCA or other appropriate bodies; and

(4) whether the UK recognised body participates in appropriate

international fora.

For the purpose of this section, 'information' includes information held

about large positions held by members of a UK recognised body.
REC 2 : Recognition Section 2.14 : Rules and consultation

requirements

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2.14 Rules and consultation

Schedule to the Recognition Requirements Regulations, paragraph 7

(1) The [UK RIE] 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

[UK RIE's ] facilitiesin appropriate cases.

(3) The [UK RIE ] must consult users of itsfacilities on any arrangements it

proposes to make for dealing with penalty income in accordance with

paragraph 8(3) ... (or on any changes it proposes to make to those arrangements).

[deleted]

In determining whether a UK recognised body has appropriate procedures

for it to make rules, for keeping its rules under review and for amending

them, the FCA may have regard to:

(1) the arrangements made for taking decisions about making and

amending rules in the UK recognised body, including the level at

which the decisions are taken and any provision for the delegation of

decisions by the governing body;

(2) the arrangements made for determining whether or not it is

appropriate to consult members or other users of the UK recognised

body's facilities;

(3) the procedures for consulting members and other users of its facilities

in appropriate cases; and

(4) the arrangements for notifying members (and other appropriate

persons) of rule changes.

(1) In determining whether a UK recognised body's procedures include

procedures for consulting users of its facilities in appropriate cases,

the FCA may have regard to whether those procedures include

provision for consulting users of those facilities before changes are

made to any rules relating to its regulatory functions. (2) In the FCA's view, a UK recognised body's procedures may not need

to contain provision for consulting users of its facilities before making
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minor changes to any rules of an administrative or commercial

character.

(1) In determining whether a UK recognised body's procedures for

consulting members and other users of its facilities are appropriate,

the FCA may have regard to the range of persons to be consulted by

the UK recognised body under those procedures.

(2) In the FCA's view, consultation with a smaller range of persons may

be appropriate where limited, technical changes to a UK recognised

body's rules are proposed.

(3) In the FCA's view, a UK recognised body's procedures may include

provision to restrict consultation where it is essential to make a

change to the rules without delay in order to ensure continued

compliance with the recognition requirements or other obligations

under the Act.

In determining whether a UK recognised body's procedures for consulting

members and other users of its facilities are appropriate, the FCA may have

regard to the extent to which the procedures include:

(1) informal discussions at an early stage with users of its facilities or

appropriate representative bodies;

(2) publication to users of its facilities of a formal consultation paper

which includes clearly expressed reasons for the proposed changes

and an appropriately detailed assessment of the likely costs and

benefits;

(3) adequate time for users of its facilities to respond to the consultation

paper and for the UK recognised body to take their responses

properly into account;

(4) adequate arrangements for making responses to consultation

available for inspection by users of its facilities, unless the respondent

requests otherwise;

(5) adequate arrangements for ensuring that the UK recognised body has

proper regard to the representations received; and

(6) publication, no later than the publication of the amended rules, of a

reasoned account of the UK recognised body's decision to amend its

rules.
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2.15 Discipline

Schedule to the Recognition Requirements Regulations, Paragraph 8

(1) The [UK RIE] must have -

(a) effective arrangements (which include the monitoring of

transactions effected on the [UK RIE]) for monitoring and

enforcing compliance with its rules, including rules in relation to the provision of clearing services in respect of

transactions other than transactions effected on the [UK

RIE]);

(b) effective arrangements for monitoring and enforcing compliance with the arrangements made by it as mentioned

in paragraph 4(2)(d); and

(c) effective arrangements for monitoring transactions effected on the [UK RIE] in order to identify disorderly trading conditions.

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

procedures for -

(a) investigating complaints made to the [UK RIE] about the

conduct ofpersonsin the course of using the [UK RIE's ] facilities; and

(b) the fair, independent and impartial resolution of appeals

against decisions of the [UK RIE].

(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 [UK RIE] 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 [UK RIE] in relation to that

breach;

(b) for the benefit of users of the [UK RIE's ] facilities;

(c) for charitable purposes.

[deleted]

In determining whether a UK recognised body has effective arrangements

for monitoring and enforcing compliance with its rules (including its

settlement arrangements), the FCA may have regard to:
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(1) the UK recognised body's ability to:

(a) monitor and oversee the use of its facilities;

(b) assess its members' compliance with its rules (and settlement

arrangements, where appropriate);

(c) assess the significance of any non-compliance;

(d) take appropriate disciplinary action against members in breach of

its rules (and settlement arrangements, where appropriate);

(e) suspend a member's access to its facilities;

(f) refer members' or others' conduct to other appropriate

authorities for possible action or further investigation;

(g) retain authority over a member for at least one year after he has

ceased to be a member;

(h) where appropriate, enforce its rules (and settlement

arrangements, where appropriate) against users (other than

members) of its facilities; and

(i) take action against suppliers of services to members (for example,

warehouses) whose performance or conduct may be critical to

ensuring compliance with its rules (and settlement arrangements,

where appropriate);

(2) the position, management and resources of the departments

responsible for monitoring and overseeing the use of the UK

recognised body'sfacilities and for enforcing compliance with its rules

(and settlement arrangements, where appropriate); and

(3) the arrangements made for the determination of disciplinary matters

including the arrangements for disciplinary hearings and the

arrangements made for appeals from the UK recognised body's

decisions in those matters.

In assessing whether the procedures made by a UK recognised body to

investigate complaints about the users of its facilities are satisfactory, the

FCA may have regard to:

(1) whether these procedures include arrangements which enable the UK

recognised body to:

(a) acknowledge complaints promptly;

(b) consider and investigate these complaints objectively, promptly

and thoroughly;

(c) provide a timely reply to the complainant; and

(d) keep adequate records of complaints and investigations;

(2) the arrangements made to enable a person who is the subject of a

complaint to respond in an appropriate manner to that complaint;

and

(3) the documentation of these procedures and the arrangements made

to ensure that the existence of these procedures is brought to the

attention of persons who might wish to make a complaint.
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In assessing whether the arrangements include procedures for the fair,

independent and impartial resolution of appeals against decisions of a UK

recognised body, the FCA may have regard to at least the following factors:

(1) the appeal procedures of the UK recognised body, including the

composition and roles of any appeal committees or tribunals, and

their relationship to the governing body;

(2) the arrangements made to ensure prompt hearings of appeals from

decisions made by the UK recognised body;

(3) the format, organisation and rules of procedure of those hearings;

(4) the arrangements made to select the persons to preside over those

hearings and to serve as members of any appeal tribunal;

(5) the provision for determining whether or not such hearings should be

in public;

(6) the provision made to enable an appellant to be aware of the

procedure at any appeal hearing and to have the opportunity to

prepare and present his case at that hearing;

(7) the provision made for an appeal tribunal to give an explanation of

its decision;

(8) the provision for publicity for any appeals or for determining whether

or not publicity should be given to the outcome of any appeal.

In assessing whether a UK recognised body's arrangements include

appropriate provision for ensuring the application of any financial penalties

in ways described in the recognition requirement, the FCA may have regard

to:

(1) the UK recognised body's policy regarding the application of financial

penalties;

(2) the arrangements made for applying that policy in individual cases;

but the FCA does not consider that it is necessary for UK recognised bodies

to follow any specific policy in order to meet this recognition requirement.
REC 2 : Recognition Section 2.16 : Complaints

requirements

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2.16 Complaints

Schedule to the Recognition Requirements Regulations, Paragraph 9

(1) The [UK RIE] must have effective arrangements for the investigation and resolution of complaints arising in connection with the

performance of, or failure to perform, any of itsregulatory

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

(a) complaints about the content of rules made by the [UK

RIE], 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). (3) The arrangements must include arrangements for a complaint to

be fairly and impartially investigated by apersonindependent of

the [UK RIE], and for him to report on the result of his investigation to the [UK RIE] and to the complainant. (4) The arrangements must confer on thepersonmentioned in subparagraph (3) the power to recommend, if he thinks appropriate,

that the [UK RIE] -

(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 [UK RIE]

from making arrangements for the initial investigation of a complaint to be conducted by the [UK RIE].

[deleted]

In determining whether a UK recognised body has 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, the FCA may have regard to the extent to which the UK recognised body's

resources and procedures enable it to:

(1) acknowledge complaints promptly;

(2) make an objective, prompt and thorough initial investigation of

complaints;

(3) provide a timely reply to the complainant after that initial

investigation;
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(4) inform the complainant of his right to apply to the UK recognised

body'scomplaints investigator; and

(5) keep adequate records of complaints and investigations.

In determining whether a UK recognised body's arrangements for the

investigation of complaints include appropriate arrangements for the

complaint to be fairly and impartially investigated by an independent person

(a "complaints investigator"), the FCA may have regard to:

(1) the arrangements made for appointing (and removing) a complaints

investigator, including the terms and conditions of such an

appointment and the provision for remuneration of a complaints

investigator;

(2) the complaints investigator's access to, and relationship with, the UK

recognised body'sgoverning body and key individuals;

(3) the arrangements made for giving complainants access to the

complaints investigator;

(4) the facilities made available to the complaints investigator to enable

him to pursue his investigation and prepare his report and

recommendations, including access to the UK recognised body's

records, key individuals and other staff (including, where appropriate

suppliers, contractors or other persons to whom any functions have

been outsourced and their staff); and

(5) the arrangements made for the UK recognised body to consider the

complaints investigator's report and recommendations.
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requirements trading facility

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2.16A Operation of a multilateral

trading facility

Schedule to the Recognition Requirements Regulations, Paragraph 9A

(1) [A UK RIE] operating a multilateral trading facility must also operate a regulated market. (2) [A UK RIE] operating a multilateral trading facility must comply

with those requirements of-

(a) Chapter I of Title II of [MiFID], and

(b) MiFID implementing Directive, which are applicable to a market operator ... operating such a

facility.

(3) The requirements of this paragraph do not apply for the purposes of section 292(3)(a) of the Act (requirements for overseas

investment exchanges and overseas clearing houses).

In determining whether a UK RIE operating a multilateral trading facility

complies with those requirements of Chapter I of Title II of MiFID and the

MiFID implementing Directive which are applicable to a market operator

operating such a facility, the FCA will have regard to the compliance of the

UK RIE with equivalent recognition requirements.
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2.17 Recognition requirements relating

to the default rules of UK RIEs

The text of part of regulation 3 (Interpretation) of and Parts II and IV of the

Schedule to the Recognition Requirements Regulations is set out below.

Regulation 3 (Interpretation) of the Recognition Requirements Regulations:

..."default fund" means the sum of the default fund contributions by the

members or designated non-members of a [recognised investment exchange]

to that exchange or by one [recognised investment exchange] to another or

by the members of a [recognised clearing house] to that clearing house or by

one [recognised clearing house] to another to the extent those contributions

have not been returned or otherwise applied;

"default fund contribution" has the same meaning as in section 188(3A) of

the Companies Act [1989];"...

Schedule to the Recognition Requirements Regulations, Part II

Paragraph 10 (Default rules in respect of market contracts)

(1) The [UK RIE] must have default rules which, in the event of a member of the [UK RIE] being or appearing to be unable to meet his obligations in respect of one or more market contracts, enable action

to be taken in respect of unsettled market contracts to which he is

party. (2) The [default rules] may authorise the taking of the same or similar

action in relation to a member who appears to be likely to become

unable to meet his obligations in respect of one or more market

contracts. (3) The [default rules] must enable action to be taken in respect of all

unsettled market contracts, other than those entered into for the

purposes of or in connection with the provision of clearing services

for the [UK RIE].

(4) Sub-paragraph (5) applies where the exchange has arrangements

for transacting business with, or in relation to common members

of, a [recognised clearing house] or another [recognised investment

exchange].

(5) A [UK RIE] must have [default rules] which in the event of the clearing house or the investment exchange being or appearing to be unable to meet its obligations in respect of one or more [market contracts], enable action to be taken in respect of unsettled [market

contracts] to which that person is a party.

Paragraph 11 (Content of rules)
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(1) This paragraph applies as regards contracts falling within section

155(2)(a) of the Companies Act [1989].

(2) The [default rules] must provide -

(a) for all rights and liabilities between those party as principal

to unsettled market contracts to which the defaulter is party

as principal to be discharged and for there to be paid by one

party to the other such sum of money (if any) as may be determined in accordance with the [default rules];

(b) for the sums so payable in respect of different contracts between the same parties to be aggregated or set off so as to

produce a net sum; and

(c) for the certification by or on behalf of the [UK RIE] of the

net sum payable or, as the case may be, of the fact that no

sum is payable. (3) The reference in sub-paragraph (2) to rights and liabilities between

those party as principal to unsettled market contracts does not include rights and liabilities -

(a) in respect of margin; or

(b) arising out of a failure to perform a market contract. (4) The [default rules] may make the same or similar provision, in relation to [designated non-members] designated in accordance with

the procedures mentioned in sub-paragraph (5), as in relation to

members of the [UK RIE].

(5) If such provision is made as is mentioned in sub-paragraph (4), the

[UK RIE] must have adequate procedures -

(a) for designating the persons, or descriptions of person, in respect of whom action may be taken;

(b) for keeping under review the question which persons or descriptions of person should be or remain so designated; and

(c) for withdrawing such designation.

(6) The procedures must be designed to secure that -

(a) a person is not, or does not remain, designated if failure by

him to meet his obligations in respect of one or more market contracts would be unlikely adversely to affect the operation of the market; and

(b) a description of persons is not, or does not remain, designated if failure by a person of that description to meet his

obligations in respect of one or more market contracts

would be unlikely adversely to affect the operation of the

market. (7) The [UK RIE] must have adequate arrangements -

(a) for bringing a designation or withdrawal of designation to

the attention of the person or description of persons concerned; and

(b) where a description of persons is designated, or the designation of a description of persons is withdrawn, for ascertaining which persons fall within that description. Paragraph 12 (Content of rules)

(1) This paragraph applies as regards contracts falling within section

155(2)(b) or (c) of the Companies Act [1989].

(2) The [default rules] must provide -
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(a) for all rights and liabilities of the defaulter under or in respect of unsettled market contracts to be discharged and for

there to be paid by or to the defaulter such sum of money

(if any) as may be determined in accordance with the

[default rules];

(b) for the sums so payable by or to the defaulter in respect of

different contracts entered into by the defaulter in one capacity for the purposes of section 187 of the Companies Act

[1989] to be aggregated or set off so as to produce a net

sum;

(bb) if relevant, for that sum to be aggregated with, or set off

against, any sum owed by or to the investment exchange by

or to AP under an indemnity given or reimbursement or similar obligation in respect of a margin set off agreement in

which the defaulter chose to participate so as to produce a

net sum;

(c) for the net sum referred to in [(2)](b) or, if relevant, the net

sum referred to in [(2)](bb) -

(i) if payable by the defaulter to the exchange, to be set

off against -

(aa) any property provided by or on behalf of the defaulter as cover for margin (or the proceeds of realisation of such property);

(bb) to the extent (if any) that any sum remains after

set off under (aa), any default fund contribution provided by the defaulter remaining after any application of such contribution;

(ii) to the extent (if any) that any sum remains after set

off under (i), to be paid from such other funds, including the default fund, or resources as the exchange

may apply under its default rules;

(iii) if payable by the exchange to the defaulter, to be aggregated with -

(aa) any property provided by or on behalf of the defaulter as cover for margin (or the proceeds of realisation of such property);

(bb) any default fund contribution provided by the defaulter remaining after any application of such contribution; and

(d) for the certification by or on behalf of the [UK RIE] of the

sum finally payable or, as the case may be, of the fact that

no sum is payable. (2A) In sub-paragraph (2), "margin set off agreement" means an agreement between the exchange and AP permitting any eligible position to which the Participant Member is party with the exchange

and any eligible position to which the Participant Member is party

with AP to be taken into account in calculating a net sum owed by

or to the Participant Member to either the exchange or AP and/or

margin to be provided to, either or both, the exchange and AP.

(2B) In sub-paragraph (2) -

"AP" means a [recognised clearing house] or another [recognised

investment exchange] of whom a Participant Member is a member;

"eligible position" means any position which may be included in

the set off calculation;

"Participant Member" means a person who
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(a) is a member of the exchange;

(b) is a member or participant of AP; and

(c) chooses to participate, in accordance with the rules of the exchange, in such agreement.

(2C) The property, contribution, funds or resources referred to in (2)(c),

against which the net sum is to be set off (or with which it is to

be aggregated) are subject to any unsatisfied claims arising out of

the default of a defaulter before the default in relation to which

the calculation is being made.

(3) The reference in sub-paragraph (2) to the rights and liabilities of a

defaulter under or in respect of an unsettled market contract includes (without prejudice to the generality of that provision)

rights and liabilities arising in consequence of action taken under

provisions of the [default rules] authorising -

(a) the effecting by the [UK RIE] of corresponding contracts in

relation to unsettled market contracts to which the defaulter is party;

(b) the transfer of the defaulter's position under an unsettled

market contract to another member of the [UK RIE];

(c) the exercise by the UK RIE of any option granted by an unsettled market contract. (4) A "corresponding contract" means a contract on the same terms

(except as to price or premium) as the market contract but under

which the person who is the buyer under the market contract

agrees to sell and the person who is the seller under the market

contract agrees to buy. (5) Sub-paragraph (4) applies with any necessary modifications in relation to a market contract which is not an agreement to sell. (6) The reference in sub-paragraph (2) to the rights and liabilities of a

defaulter under or in respect of an unsettled market contract does

not include, where he acts as agent, rights or liabilities of his arising out of the relationship of principal and agent.

Paragraph 12A (Content of rules)

The rules of the [UK RIE] must provide that, in the event of a default,

any default fund contribution provided by the defaulter shall only be

used in accordance with paragraph 12(2)(c)(i) or (ii).

Paragraph 13 (Notification to other parties affected)

The [UK RIE] must have adequate arrangements for ensuring that -

(a) in the case of unsettled market contracts with a defaulter

acting as principal, parties to the contract are notified as

soon as reasonably practicable of the default and of any decision taken under the [default rules] in relation to contracts

to which they are a party; and

(b) in the case of unsettled market contracts with a defaulter

acting as agent, parties to the contract and the defaulter's

principals are notified as soon as reasonably practicable of

the default and of the identity of the other parties to the

contract. Paragraph 14 (Cooperation with other authorities)

The [UK RIE] must be able and willing to cooperate, by the sharing of information and otherwise, with the Secretary of State, any relevant officeholder and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a member of the [UK
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RIE] or any [designated non-member] or the default of a [recognised clearing house] or another [recognised investment exchange].

[deleted]

[deleted]

[deleted]

The Companies Act 1989 contains provisions which protect action taken by a

UK recognised body under its default rules from the normal operation of

insolvency law which might otherwise leave this action open to challenge by

a relevant office-holder.
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Recognised Investment Exchanges and Recognised Cle

Chapter 2A

Recognised Auction Platforms

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Platforms

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2A.1.2 G

2A.1.3 G

REC 2A/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

2A.1 Introduction

This chapter applies to an RAP or to a UK RIE applying to become an RAP. Regulation 2 of the RAP regulations provides that an entity must have UK

RIE status before it can apply for RAP status.

The RAP recognition requirements must be satisfied by an RAP applicant for

recognition to be granted. These requirements apply both on initial

recognition and throughout the period that RAP status is held. Therefore,

the term RAP in the guidance should be understood to also refer to an

applicant where appropriate and where not otherwise stated.

The RAP regulations apply modified provisions of the Act to an RAP. For

example, an RAP is an exempt person in respect of its business as an auction

platform due to the application of section 285 of the Act as modified by the

the RAP regulations. Similarly, section 293 of the Act is applied and modified

by the RAP regulations to provide for notification rules and notification

requirements in relation to RAPs.
REC 2A : Recognised Auction Section 2A.2 : Method of satisfying the RAP

Platforms recognition requirements

2A

2A.2.1 UK

2A.2.2 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 2A/3

2A.2 Method of satisfying the RAP

recognition requirements

Recognised Auction Platforms Regulations, regulation 13

(1) In considering whether [an RAP] or applicant satisfies the [RAP recognition requirements], the [FCA] may-

(a) treat compliance by the [RAP] or applicant with the [recognition requirements or MiFID implementing requirements] applying to it as a [UK

RIE] as conclusive evidence that the [RAP] or applicant satisfies any equivalent [RAP recognition requirements] applying to it under these [RAP regulations], taking into account any arrangements that would be necessary to

meet the [RAP recognition requirements], and

(b) take into account all relevant circumstances including the constitution

of the person concerned.

(2) Without prejudice to the generality of paragraph (1), [an RAP] or applicant may satisfy [RAP recognition requirements] by making arrangements

for functions to be performed on its behalf by any other person. (3) Where [an RAP] or applicant makes arrangements of the kind mentioned in paragraph (2), the arrangements do not affect the responsibility

imposed by these [RAP regulations] on the [RAP] or applicant to satisfy the

[RAP recognition requirements], but it is in addition [an RAP recognition requirement] applying to the [RAP] or applicant that the person who performs (or is to perform) the functions is a fit and proper person who is

able and willing to perform them.

The FCA will request information from an RAP or RAP applicant in order to

determine whether it meets the RAP recognition requirements.
REC 2A : Recognised Auction Section 2A.3 : Guidance on RAP recognition

Platforms requirements

2A

2A.3.1 G

2A.3.2 G

REC 2A/4 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

2A.3 Guidance on RAP recognition

requirements

In assessing compliance with the RAP recognition requirements, the FCA will

have regard to relevant guidance in ■ REC 2 on the equivalent requirements

set out in the Recognition Requirement Regulations. The FCA may also take

into account compliance by the RAP or RAP applicant with the recognition

requirements (see ■ REC 2A.2.1 UK). The FCA will not make a separate

assessment of compliance with the recognition requirements during the

course of examining an application to become an RAP or as part of its

ongoing supervision of an RAP, unless there is a specific reason to do so.

The guidance in relation to the recognition requirements in the sections of

■ REC 2 listed in Column A of the table below applies to an RAP in relation to

the equivalent RAP recognition requirements listed in Column C and (if

shown) with the modifications in Column B.

Table: Guidance on RAP recognition requirements

Column A Column B Column C

REC 2 guidance which Modification to REC 2 Relevant RAP recogniapplies to an RAP guidance for an RAP tion requirement

REC 2.2.2 G to REC 2.2.7 G Reg 13

(Relevant circumstances

and Outsourcing)

REC 2.3.3 G to REC 2.3.9 G Reg 14

(Financial resources)

REC 2.4.3 G to REC 2.4.6 G In addition to the mat- Reg 15

(Suitability) ters set out in REC 2.4.3

G to REC 2.4.6 G, the

FCA will have regard

to whether a key individual has been allocated responsibility for

overseeing the auction

platform of the UK recognised body. REC 2.5.3 G to REC 2.5.20 Reg 16 and 17(2)(f)

G (Systems and controls

and conflicts) and REC

2.5A (Guidance on Public Interest Disclosure

Act: Whistleblowing)
REC 2A : Recognised Auction Section 2A.3 : Guidance on RAP recognition

Platforms requirements

2A

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 2A/5

Column A Column B Column C

REC 2 guidance which Modification to REC 2 Relevant RAP recogniapplies to an RAP guidance for an RAP tion requirement

REC 2.6.26 G to REC 2.6.34 Reg 17

G (Safeguards for

investors)

REC 2.7.3 G to REC 2.7.4 G The FCA shall have re- Reg 17(2)(a) and 20

(Access to facilities) gard to whether an

RAP provides access to

bid at auctions only to

those persons eligible

to bid under article 18

of the auction regulation. REC 2.8.3 G to REC 2.8.4 G Reg 17(2)(d) and 21

(Settlement and clearing services)

REC 2.9.3 G to REC 2.9.4 G Reg 17(2)(e)

(Transaction recording)

REC 2.10.3 G to REC 2.10.4 Reg 17(2)(g)

G (Financial crime and

market abuse)

REC 2.11.3 G to REC 2.11.4 REC 2.11.4 G is replaced Reg 17(2)(h)

G (Custody) with the following for

an RAP:

Where an RAP arranges for other persons to provide services

for the safeguarding

and administration services of assets belonging to users of its

facilities, it will also

need to satisfy the RAP

recognition requirement in regulation

17(2)(h) of the RAP regulations (see REC

2A.2.1 UK).

REC 2.12.11 G to REC REC 2.12.11 G to REC Reg 17(2)(c)

2.12.12 G (Availability of 2.12.12 G are replaced

relevant information) with the following for

an RAP:

REC 2.12.11 G

In determining

whether appropriate

arrangements have

been made to make relevant information

available to persons engaged in dealing in

emissions auction products the FCA may have

regard to:
REC 2A : Recognised Auction Section 2A.3 : Guidance on RAP recognition

Platforms requirements

2A

REC 2A/6 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

Column A Column B Column C

REC 2 guidance which Modification to REC 2 Relevant RAP recogniapplies to an RAP guidance for an RAP tion requirement

(1) the extent to which

auction bidders are

able to obtain information in a timely fashion

about the terms of

those emissions auction

products and the terms

on which they will be

auctioned, either

through accepted channels for dissemination

of information or

through other regularly and widely accessible communication

media;

(2) what restrictions, if

any, there are on the

dissemination of relevant information to auction bidders; and

(3) whether relevant information is, or can be,

kept to restricted

groups of persons in

such a way as to facilitate or encourage market abuse. REC 2.12.12 G

An RAP does not need

to maintain its own arrangements for providing information on the

terms of emissions auction products to auction bidders where it

has made adequate arrangements for other

persons to do so on its

behalf or there are

other effective and reliable arrangements for

this purpose.

REC 2.13.3 G to REC 2.13.6 Reg 18

G (Promotion and maintenance of standards)

REC 2.14.3 G to REC 2.14.6 Reg 19

G (Rules and consultation)

REC 2.15.3 G to REC 2.15.6 Reg 22

G (Discipline)

REC 2.16.3 G to REC 2.16.4 Reg 23

G (Complaints)
REC 2A : Recognised Auction Section 2A.4 : Power and procedure for RAP

Platforms penalties and censures

2A

2A.4.1 G

2A.4.2 G

2A.4.3 G

2A.4.4 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 2A/7

2A.4 Power and procedure for RAP

penalties and censures

Under regulation 5A (Power to impose civil penalties) of the RAP

Regulations, where the FCA considers that an RAP has contravened any

requirement in articles 19, 20(7), 21(1) or (2), or 54 of the auction regulation, the FCA has the power to impose a civil penalty on that RAP. Where the FCA is entitled to impose a penalty on an RAP, it may instead

publish a statement censuring it.

The provisions of the auction regulation referred to in ■ REC 2A.4.1 G are

directly applicable to an RAP and require it to, in summary:

(1) only grant admission to bid to applicants that comply with the

conditions set out in article 19 of the auction regulation, including

the prerequisite that the applicants are eligible to bid in accordance

with article 18 of the auction regulation;

(2) require an applicant for admission to bid to ensure that its clients,

and the clients of its clients, are able to comply with information

requirements, interviews, investigations and verifications carried out

or required by the RAP;

(3) refuse to grant admission to bid, or revoke or suspend that admission,

to any person:

(a) that is not, or is no longer, eligible to bid (under article 18 of the

auction regulation); does not meet, or no longer meets, the

requirements of articles 18, 19 or 20 of the auction regulation; or

is wilfully or repeatedly in breach of the auction regulation, the

terms and conditions of its admission to bid or other related

instructions or agreements; or

(b) where the RAP suspects the person is involved with money

laundering, terrorist financing, criminal activity or market abuse,

provided that such refusal, revocation or suspension is unlikely to

frustrate efforts by the competent national authorities under the

auction regulation to pursue or apprehend the perpetrators of

those activities; and

(4) monitor the relationship with bidders admitted to bid in its auctions.

The power in regulation 5A of the RAP Regulations to impose a civil penalty

or publish a statement adds to the FCA's other supervisory powers in relation
REC 2A : Recognised Auction Section 2A.4 : Power and procedure for RAP

Platforms penalties and censures

2A

2A.4.5 G

2A.4.6 G

2A.4.7 G

2A.4.8 G

2A.4.9 G

2A.4.10 G

2A.4.11 G

REC 2A/8 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

to RAPs (see ■ REC 4) and its power to impose penalties on an RAP under the

Money Laundering Regulations. The FCA will use this power under the RAP

Regulations where it is appropriate to do so and with regard to the relevant

factors listed in ■ DEPP 6.2.1 G. In deciding between a civil penalty or a public

statement, the FCA will also have regard to the relevant factors listed in

■ DEPP 6.4. The FCA will notify the subject of the investigation that it has appointed

officers to carry out an investigation under either or both the RAP

Regulations or the Money Laundering Regulations and the reasons for the

appointment, unless notification is likely to prejudice the investigation or

otherwise result in it being frustrated. The FCA expects to carry out a scoping

visit early on in the enforcement process in most cases.

Where the FCA uses the power to impose a penalty, it will be for an amount

that is effective, proportionate and dissuasive and with regard to relevant

factors listed in ■ DEPP 6.5 to ■ DEPP 6.5D in determining the appropriate level

of financial penalty.

The FCA will also have regard to whether the person followed any of the

FCA's guidance and will not take action under regulation 5A where there are

reasonable grounds for it to be satisfied that the person took all reasonable

steps and exercised all due diligence to ensure that the requirement was

complied with.

When the FCA proposes or decides to take action against an RAP in exercise

of its power in regulation 5A of the RAP Regulations, it must give the RAP a

warning notice or a decision notice respectively. Those notices must state the

amount of the penalty or set out the terms of the statement, as applicable.

On receiving a warning notice, the RAP has a right to make representations

on the FCA's proposed decision.

Where the FCA is proposing or deciding to publish a statement censuring an

RAP or impose a penalty on the RAP under regulation 5A of the RAP

Regulations, the FCA's decision maker will be the RDC. This is to ensure that

the FCA's power to censure or impose a penalty on an RAP has the same

layer of separation in the decision making process, and is exercised

consistently with, similar penalty and censure powers of the FCA under other

legislation. The RDC will make its decisions following the procedure set out

in ■ DEPP 3.2 or, where appropriate, ■ DEPP 3.3. An RAP that receives a

decision notice under regulation 5A of the RAP Regulations may refer the

matter to the Tribunal. Sections 393 and 394 of the Act apply to notices referred to in this section.

See ■ DEPP 2.4 (Third party rights and access to FCA material).

As with cases under the Act, the FCA may settle or mediate appropriate cases

to assist it to exercise its functions in the most efficient and economic way.

The settlement discount scheme set out in ■ DEPP 6.7 applies to penalties

imposed under the RAP Regulations.
REC 2A : Recognised Auction Section 2A.4 : Power and procedure for RAP

Platforms penalties and censures

2A

2A.4.12 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 2A/9

The FCA will apply the approach to publicity that it has outlined in ■ EG 6.
REC 2A : Recognised Auction Section 2A.4 : Power and procedure for RAP

Platforms penalties and censures

2A

REC 2A/10 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015
Recognised Investment Exchanges and Recognised Clearing Houses

Chapter 3

Notification rules for UK

recognised bodies

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/1
REC 3 : Notification rules for UK Section 3.1 : Application and purpose

recognised bodies

3

3.1.1 R

3.1.2 G

3.1.3 G

3.1.3A G

3.1.4 G

REC 3/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.1 Application and purpose

Application ...................................................................................................... (1) The notification rules in this chapter, which are made under section

293 of the Act (Notification requirements), apply to all UK recognised

bodies. (2) The rules relating to the form and method of notification in ■ REC 3.2

also apply to overseas recognised bodies. The notification rules for overseas recognised bodies are set out in ■ REC 6. The guidance set out at ■ REC 3.3 in relation to the waiving and modification

of notification rules also applies to the notification rules in this chapter and

to the notification rules in ■ REC 6. The notification rules in this chapter are in addition to the requirements on

UK RIEs to give notice or information to the FCA and if applicable, the Bank

of England under sub-sections 293(5) and (6) of the Act. The notification rules in this chapter which apply to an RAP are without

prejudice to notification rules which apply to a UK RIE which operates the

RAP. However, a UK RIE which operates an RAP may make a single

notification where a notification is required both in its capacity as a UK RIE

and an RAP. Purpose ...................................................................................................... The notification rules in this chapter are made by the FCA in order to ensure

that it is provided with notice of events and information which it reasonably

requires for the exercise of its functions under the Act.
REC 3 : Notification rules for UK Section 3.2 : Form and method of

recognised bodies notification

3

3.2.1 R

3.2.2 R

3.2.3 R

3.2.4 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/3

3.2 Form and method of notification

Form of notification ...................................................................................................... Where a recognised body is required to give any notice or information under

any notification rule, it may do so (unless that rule expressly provides

otherwise) orally or in writing, whichever is the more appropriate in the

circumstances, but, where it gives notice or information orally, it must

confirm that notice or information in writing promptly.

Method of notification ...................................................................................................... Unless otherwise stated in the notification rule, a written notification

required from a recognised body under any notification rule must be:

(1) given to, or addressed for the attention of, the recognised body's

usual supervisory contact at the FCA;

(2) delivered to the FCA by one of the methods in ■ REC 3.2.3 R. Methods of notification

Method of delivery

(1) Post to the address in REC 3.2.4 R

(2) Leaving the notification at the address in REC 3.2.4 R and obtaining

a time-stamped receipt

(3) Electronic mail to an address for the recognised body's usual supervisory contact at the FCA and obtaining an electronic confirmation of receipt

(4) Hand delivery to the recognised body's usual supervisory contact

at the FCA

(5) Fax to a fax number for the recognised body's usual supervisory

contact at the FCA, provided that the FCA receives a copy of the

notification by one of methods (1) - (4) in this table within five

business days after the date of the faxed notification

The address for a written notification to the FCA is:

The Financial Conduct Authority

25 The North Colonnade

Canary Wharf

London E14 5HS
REC 3 : Notification rules for UK Section 3.2 : Form and method of

recognised bodies notification

3

3.2.5 R

3.2.6 G

REC 3/4 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

Timely notification ......................................................................................................

If a notification rule requires notification within a specified period:

(1) the recognised body must give the notification so as to be received by

the FCA no later than the end of that period; and

(2) if the end of that period falls on a day which is not a business day, the notification must be given so as to be received by the FCA no

later than the first business day after the end of that period.

Service of Notice Regulations ...................................................................................................... The Financial Services and Markets Act 2000 (Service of Notices) Regulations

2001 (SI 2001/1420) do not apply to notifications required under the

notification rules in this chapter and in ■ REC 6 because of the specific rules

in this section.
REC 3 : Notification rules for UK Section 3.3 : Waivers

recognised bodies

3

3.3.1 G

3.3.2 G

3.3.3 G

3.3.4 G

3.3.5 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/5

3.3 Waivers

Statutory power ...................................................................................................... Under section 294 of the Act (Modification or waiver of rules), the FCA may,

on the application or with the consent of a recognised body (including an

ROIE), direct that any notification rule is not to apply to the body or is to

apply with such modifications as may be specified in the waiver. A waiver given under section 294 of the Act may be made subject to

conditions.

Under section 294(4) of the Act, before the FCA may give a waiver of

notification rules, it must be satisfied that:

(1) compliance by the recognised body with those notification rules, or

with those rules as unmodified, would be unduly burdensome or

would not achieve the purpose for which those rules were made; and

(2) the waiver would not result in undue risk to persons whose interests

those rules are designed to protect.

Applications ...................................................................................................... Where a recognised body wishes to make an application to the FCA for a

waiver of a notification rule, it should in the first instance inform its usual

supervisory contact at the FCA. There is no application form, but applicants should make their application

formally and in writing and in accordance with any direction the FCA may

make under section 294(2) of the Act. Each application should set out at

least:

(1) full particulars of the waiver which is requested;

(2) the reason why the recognised body believes that the criteria set out

in section 294(4) (and described in ■ REC 3.3.3 G) would be met, if this

waiver were granted; and

(3) where the recognised body believes that these criteria would be met

if the FCA gave a waiver under section 294 subject to any condition,

particulars of the kind of condition contemplated.
REC 3 : Notification rules for UK Section 3.3 : Waivers

recognised bodies

3

3.3.6 G

3.3.7 G

3.3.8 G

3.3.9 G

3.3.10 G

REC 3/6 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

The FCA may request further information from the applicant, before

deciding whether to give a waiver under section 294 of the Act. Waivers ...................................................................................................... Any waiver given by the FCA under section 294 of the Act will be made in

writing, stating:

(1) the name of the recognised body in respect of which the waiver is

made;

(2) the notification rules which are to be waived or modified in respect

of that body;

(3) where relevant, the manner in which any rule is to be modified;

(4) any condition or time limit to which the waiver is subject; and

(5) the date from which the waiver is to take effect.

Where the FCA considers that it will not give the waiver which has been

applied for, the FCA will give reasons to the applicant for its decision. The

FCA will endeavour, where practicable, to inform an applicant in advance

where it seems that an application is likely to fail unless it is amended or

expanded, so that the applicant will have the opportunity to make any

necessary amendments or additions before the application is considered.

Where the FCA wishes to give a waiver under section 294 of the Act with the

consent of a recognised body (rather than on the application of a recognised

body), the FCA will correspond or discuss this with that body in order to

agree an appropriate waiver. Reviews of waivers ...................................................................................................... The FCA will periodically review any waiver it has given. The FCA has the

right to revoke a waiver under section 294(6) of the Act. This right is likely to

be exercised in the event of a material change in the circumstances of the

recognised body or in any fact on the basis of which the waiver was given.
REC 3 : Notification rules for UK Section 3.4 : Key individuals and internal

recognised bodies organisation

3

3.4.1 G

3.4.2 R

3.4.2A R

3.4.2B R

3.4.3 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/7

3.4 Key individuals and internal

organisation

Purpose ...................................................................................................... The purpose of ■ REC 3.4 is to enable the FCA to monitor changes in the

arrangements a UK recognised body makes for the carrying out of its

relevant functions or for overseeing the work of key individuals or

departments responsible for its relevant functions. Key individuals ...................................................................................................... [deleted]

Where, in relation to a UK RIE a proposal has been made to appoint or elect

a person as a key individual, that UK RIE must at least 30 days before the

date of the appointment or election give notice of that event, and give the

information specified for the purposes of this rule in ■ REC 3.4.4A R to the

FCA. [Note: Article 37(1), paragraph 1, second sentence of MiFID]

Where, in relation to a UK RIE a person has resigned as, or has ceased to be,

a key individual, that UK RIE must immediately give notice of that event, and

give the name of the person. [Note: Article 37(1), paragraph 1, second sentence of MiFID]

(1) Key individuals include the persons who, under the operational or

managerial arrangements of the UK recognised body, are appointed

to manage the departments responsible for carrying out its relevant

functions, whether or not they are members of its governing body. A

person appointed to carry out specific tasks, such as to conduct a

particular investigation into a specific set of facts, would not usually

be a key individual. (2) A key individual need not be an employee of a UK recognised body. For example, an employee of an undertaking in the same group or a

self-employed contractor of a UK recognised body might be a key

individual, depending on the role he plays in that body.

(3) A department of a UK recognised body should be regarded as

responsible for carrying out a relevant function if it is responsible for

any activity or activities which form a significant part of a relevant
REC 3 : Notification rules for UK Section 3.4 : Key individuals and internal

recognised bodies organisation

3

3.4.4 R

3.4.4A R

3.4.5 R

3.4.6 R

3.4.7 G

REC 3/8 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

function or which make a significant contribution to the performance

of a relevant function. (4) The FCA does not need to be notified where minor changes are made

to the responsibilities of a key individual, but where a major change

in responsibilities is made which amounts to a new appointment, the

FCA should be notified under ■ REC 3.4.2A R.

[deleted]

The following information is specified for the purposes of ■ REC 3.4.2A R:

(1) that person's name;

(2) his date of birth;

(3) a description of the responsibilities which he will have in the post to

which he is to be appointed or elected, including for a UK RIE which

operates an RAP where the person has responsibilities both in the UK

RIE and RAP, a description of the responsibilities he has in respect of

each body.

[Note: Article 37(1), paragraph 1, second sentence of MiFID]

Standing committees ...................................................................................................... Where the governing body of a UK recognised body delegates any of its

functions (which relate to that UK recognised body'srelevant functions) to a

standing committee, or appoints a standing committee to manage or oversee

the carrying out of any of that UK recognised body'srelevant functions, that

UK recognised body must immediately notify the FCA of that event and give

the FCA the following information:

(1) the names of the members of that standing committee; and

(2) the terms of reference of that standing committee (including a

description of any powers delegated to that committee and any

conditions or limitations placed on the exercise of those powers).

Where:

(1) there is any change in the composition or the terms of reference of

any standing committee referred to in ■ REC 3.4.5 R; or

(2) any such committee is dissolved;

the UK recognised body must immediately notify the FCA of that event and

give particulars of any change referred to in (1) to the FCA.

(1) Standing committees include permanent committees with executive,

supervisory, policy-making or rule-making responsibilities. Committees

appointed for particular tasks or committees established for purely
REC 3 : Notification rules for UK Section 3.4 : Key individuals and internal

recognised bodies organisation

3

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/9

consultative or advisory purposes would not usually be considered to

be standing committees.

(2) Committees which include persons who are not members of the

governing body can be standing committees.
REC 3 : Notification rules for UK Section 3.5 : Disciplinary action and events

recognised bodies relating to key individuals

3

3.5.1 R

3.5.2 R

3.5.3 R

REC 3/10 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.5 Disciplinary action and events

relating to key individuals

Disciplinary action ...................................................................................................... Where any key individual of a UK recognised body:

(1) is the subject of any disciplinary action because of concerns about his

alleged misconduct;

(2) resigns as a result of an investigation into his alleged misconduct; or

(3) is dismissed for misconduct;

that body must immediately give the FCA notice of that event, and give the

information specified for the purposes of this rule in ■ REC 3.5.2 R. The following information is specified for the purposes of ■ REC 3.5.1 R:

(1) the name of the key individual and his responsibilities within the UK

recognised body;

(2) details of the acts or alleged acts of misconduct by that key

individual; and

(3) details of any disciplinary action which has been or is proposed to be

taken by that body in relation to that key individual. Other events ...................................................................................................... Where a UK recognised body becomes aware that any of the following

events has occurred in relation to a key individual, it must immediately give

the FCA notice of that event:

(1) a petition for bankruptcy is presented (or similar or analogous

proceedings under the law of a jurisdiction outside the United

Kingdom are commenced) against that key individual; or

(2) a bankruptcy order (or a similar or analogous order under the law of

a jurisdiction outside the United Kingdom) is made against him; or

(3) he enters into a voluntary arrangement (or a similar or analogous

arrangement under the law of a jurisdiction outside the United

Kingdom) with his creditors.
REC 3 : Notification rules for UK Section 3.6 : Constitution and governance

recognised bodies

3

3.6.1 R

3.6.2 R

3.6.3 G

3.6.4 R

3.6.5 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/11

3.6 Constitution and governance

Where a UK recognised body is to circulate any notice or other document

proposing any amendment to its memorandum or articles of association (or

other similar agreement or document relating to its constitution) to:

(1) its shareholders (or any group or class of them); or

(2) its members (or any group or class of them); or

(3) any other group or class of persons which has the power to make

that amendment or whose consent or approval is required before it

may be made;

that UK recognised body must give notice of that proposed amendment, and

give the information specified for the purposes of this rule in ■ REC 3.6.2 R to

the FCA, at the same time as that notice or document is circulated.

The following information is specified for the purposes of ■ REC 3.6.1 R:

(1) the proposed amendments referred to in ■ REC 3.6.1 R;

(2) the reasons for the proposal; and

(3) a description of the group or class of persons to whom the proposal is

to be circulated.

A UK recognised body which is incorporated as a company in the United

Kingdom will, in many circumstances, be able to comply with ■ REC 3.6.1 R by

providing a copy of the notice of special resolution issued to its shareholders.

Where a UK recognised body makes an amendment to its memorandum or

articles of association (or other similar agreement or document relating to its

constitution), that UK recognised body must immediately give the FCA notice

of that event, and give written particulars of that amendment and of the

date on which it is to become or became effective.

A UK recognised body which is incorporated as a company in the United

Kingdom will, in many circumstances, be able to comply with ■ REC 3.6.4 R by

providing a copy of the special resolution effecting the amendment.
REC 3 : Notification rules for UK Section 3.6 : Constitution and governance

recognised bodies

3

3.6.6 R

3.6.7 G

REC 3/12 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

Where any change is made to an agreement which relates to the

constitution or governance of a UK recognised body:

(1) between that UK recognised body and another person; or

(2) between the owners of that UK recognised body; or

(3) between the owners of that UK recognised body and another person;

or

(4) between other persons;

that UK recognised body must give the FCA notice of that event as soon as it

is aware of it, and give written particulars of that change and of the date on

which it is to become or became effective.

The purpose of ■ REC 3.6.6 R is to ensure that the FCA is informed of changes

to agreements which specify the arrangements by which a UK recognised

body will be governed or by which important decisions will be taken within

that body. It is not intended to cover any agreement by which someone is

appointed to be a key individual or which covers the terms and conditions of

service in such an appointment.
REC 3 : Notification rules for UK Section 3.7 : Auditors

recognised bodies

3

3.7.1 R

3.7.2 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/13

3.7 Auditors

Where the auditors of a UK recognised body cease to act as such, that UK

recognised body must immediately give the FCA notice of that event, and

the following information:

(1) whether the appointment of those auditors expired or was

terminated;

(2) the date on which they ceased to act; and

(3) if it terminated, or decided not to renew, their appointment, its

reasons for taking that action or decision.

Where a UK recognised body appoints new auditors, that body must

immediately give the FCA notice of that event, and the following

information:

(1) the name and business address of those new auditors; and

(2) the date of their appointment as auditors.
REC 3 : Notification rules for UK Section 3.8 : Financial and other information

recognised bodies

3

3.8.1 R

3.8.2 R

3.8.3 R

3.8.4 R

REC 3/14 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.8 Financial and other information

A UK recognised body must give the FCA:

(1) a copy of its annual report and accounts; and

(2) a copy of the consolidated annual report and accounts:

(a) of any group in which the UK recognised body is a subsidiary

undertaking; or

(b) (if the UK recognised body is not a subsidiary undertaking in any

group) of any group of which the UK recognised body is a parent

undertaking;

no later than the time specified for the purpose of this rule in ■ REC 3.8.2 R. The time specified for the purpose of ■ REC 3.8.1 R is the latest of:

(1) four months after the end of the financial year to which the

document which is to be given to the FCA relates; or

(2) the time when the documents described in ■ REC 3.8.1 R (1) or

■ REC 3.8.1 R (2)(b) are sent to the members or shareholders of the UK

recognised body; or

(3) the time when the document described in ■ REC 3.8.1 R (2)(a) are sent

to the shareholders in a parent undertaking of the group to which

that document relates.

Where an audit committee of a UK recognised body has prepared a report in

relation to any period or any matter relating to any relevant function of that

UK recognised body, the UK recognised body must immediately give the FCA

a copy of that report.

A UK recognised body must give the FCA a copy of:

(1) its quarterly management accounts; or

(2) its monthly management accounts;

within one month of the end of the period to which they relate.
REC 3 : Notification rules for UK Section 3.8 : Financial and other information

recognised bodies

3

3.8.5 G

3.8.6 R

3.8.7 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/15

A UK recognised body is not required to provide quarterly and monthly

management accounts in respect of the same period, but management

accounts (whether quarterly or monthly) should be submitted for all periods.

A UK recognised body may choose whichever method is the more suitable

for it, but where it intends to change from providing monthly to quarterly

management accounts (or from quarterly to monthly management accounts),

it should inform the FCA of that fact.

A UK recognised body must give the FCA:

(1) a statement of its anticipated income, expenditure and cashflow for

each financial year; and

(2) an estimated balance sheet showing its position as it is anticipated at

the end of each financial year;

before the beginning of that financial year.

Where the accounting reference date of a UK recognised body is changed,

that body must immediately give notice of that event to the FCA and inform

it of the new accounting reference date.
REC 3 : Notification rules for UK Section 3.9 : Fees and incentive schemes

recognised bodies

3

3.9.1 G

3.9.2 R

REC 3/16 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.9 Fees and incentive schemes

The purpose of ■ REC 3.9.2 R is to enable the FCA to obtain information on

changes to standard tariffs for matters such as membership and trading and

of any scheme introduced by the UK recognised body for rebating or waiving

fees or charges. A UK recognised body is not required to inform the FCA of

fees or charges for which the UK recognised body does not charge according

to a standard tariff.

A UK recognised body must give the FCA a summary of:

(1) any proposal to change the fees or charges levied on its members (or

any group or class of them), at the same time as the proposal is

communicated to those members; and

(2) any such change, no later than the date when it is published or

notified to those members.
REC 3 : Notification rules for UK Section 3.10 : Complaints

recognised bodies

3

3.10.1 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/17

3.10 Complaints

Where a UK recognised body's complaints investigator has investigated a

complaint arising in connection with the performance of, or failure to

perform, any of its regulatory functions, and that complaints investigator has

made a recommendation in respect of that complaint that the UK recognised

body should:

(1) make a compensatory payment to any person; or

(2) remedy the matter which was the subject of that complaint;

the UK recognised body must immediately notify the FCA of that event, and

give the FCA a copy of the complaints investigator's report and particulars of

his recommendations as soon as that report or those recommendations are

available to it.
REC 3 : Notification rules for UK Section 3.11 : Insolvency events

recognised bodies

3

3.11.1 R

REC 3/18 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.11 Insolvency events

On:

(1) the presentation of a petition for the winding up of a UK recognised

body (or the commencement of any similar or analogous proceedings

under the law of a jurisdiction outside the United Kingdom); or

(2) the appointment of a receiver, administrator, liquidator, trustee or

sequestrator of assets of that body (or of any similar or analogous

appointment under the laws of a jurisdiction outside the United

Kingdom); or

(3) the making of a voluntary arrangement by that body with its

creditors (or of any similar or analogous arrangement under the law

of a jurisdiction outside the United Kingdom);

that body must immediately give the FCA notice of that event.
REC 3 : Notification rules for UK Section 3.12 : Legal proceedings

recognised bodies

3

3.12.1 R

3.12.2 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/19

3.12 Legal proceedings

If any civil or criminal legal proceedings are instituted against a UK

recognised body, it must, unless ■ REC 3.12.2 R applies, immediately give

notice of that event and give the following information to the FCA:

(1) in the case of civil proceedings, the name of the claimant, particulars

of the claim, the amount of damages and any other remedy sought

by the claimant, and particulars of any allegation that any act or

omission of that body was in bad faith; and

(2) in the case of criminal proceedings, particulars of the offence with

which that body is charged.

A UK recognised body is not required to give notice of civil legal proceedings

or information about them to the FCA under ■ REC 3.12.1 R, where:

(1) the amount of damages claimed would not significantly affect that

UK recognised body's financial resources, if the claim were successful;

(2) the claim would not have a significant adverse effect on the

reputation and standing of that body, if that claim were successful;

and

(3) the claim does not relate to that body's regulatory functions.
REC 3 : Notification rules for UK Section 3.13 : Delegation of relevant

recognised bodies functions

3

3.13.1 G

3.13.2 R

3.13.3 R

REC 3/20 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.13 Delegation of relevant functions

(1) The purpose of ■ REC 3.13 is to enable the FCA to monitor any

significant instances where UK recognised bodies outsource their

functions to other persons (as permitted under Regulation 6 of the

Recognition Requirements Regulations or, in relation to an RAP, under

regulation 13 of the RAP regulations. See ■ REC 2.2 and ■ REC 2A.2).

(2) The FCA does not need to be notified of every instance of

outsourcing by a UK recognised body, but only where an activity or

activities which form a significant part of a relevant function or which

make a significant contribution to the performance of a relevant

function are outsourced.

Where a UK recognised body makes an offer or agrees to delegate any of its

relevant functions to another person, it must immediately give the FCA

notice of that event, and:

(1) inform the FCA of the reasons for that delegation or proposed

delegation;

(2) inform the FCA of the reasons why it is satisfied that it will continue

to meet the recognition requirements or (for an RAP) RAP recognition

requirements following that delegation;

(3) where it makes such an offer by issuing a written invitation to tender

to another body or person, give the FCA a copy of that invitation to

tender; and

(4) where it makes such an agreement, give the FCA a copy of that

agreement.

A UK recognised body must immediately give the FCA notice, where it makes

an offer or agrees to undertake any relevant function of another UK

recognised body.
REC 3 : Notification rules for UK Section 3.14 : Products, services and normal

recognised bodies hours of operation

3

3.14.1 G

3.14.2 R

3.14.2A R

3.14.3 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/21

3.14 Products, services and normal

hours of operation

Purpose ...................................................................................................... The purpose of ■ REC 3.14 is to ensure that the FCA is informed of planned

changes to the services a UK recognised body intends to provide and of the

normal hours of operation of those services. Unplanned suspensions of those

services, unplanned changes in hours of operation and events causing a UK

recognised body to be unable to provide those services should be notified to

the FCA under the rules in ■ REC 3.15. Products and services ...................................................................................................... Where a UK RIE proposes to admit to trading (or to cease to admit to

trading) by means of its facilities:

(1) a specified investment (other than a security or an option in relation

to a security); or

(2) a type of security or a type of option in relation to a security;

it must give the FCA notice of that event, and the information specified for

the purposes of this rule in ■ REC 3.14.6 R to the FCA, at the same time as that

proposal is first formally communicated to its members or shareholders (or

any group or class of them).

When a UK RIE removes a financial instrument from trading on a regulated

market, it must immediately give the FCA notice of that event and relevant

information including particulars of that financial instrument and the

reasons for the action taken.

[Note: Article 41(1), paragraph 2 of MiFID]

Where a UK recognised body proposes to provide (or to cease to provide)

clearing facilitation services in respect of:

(1) a specified investment (other than a security or an option in relation

to a security); or

(2) a type of security or a type of option in relation to a security;

it must give the FCA notice of that event and the information specified for

the purposes of this rule in ■ REC 3.14.6 R, at the same time as that proposal is
REC 3 : Notification rules for UK Section 3.14 : Products, services and normal

recognised bodies hours of operation

3

3.14.4 R

3.14.5 G

3.14.6 R

3.14.7 R

3.14.8 R

3.14.9 R

REC 3/22 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

first formally communicated to its members or shareholders (or any group or

class of them).

[deleted]

Securities falling within the same article in Part III of the Regulated Activities

Order which may be given the same generic description (for example, shares

admitted to the UKofficial list) will normally be regarded as being of the

same type. Options in relation to the same type of security will normally be

regarded as being options of the same type.

The following information is specified for the purposes of ■ REC 3.14.2 R and

■ REC 3.14.3 R:

(1) a description of the specified investment to which the proposal

relates;

(2) where that specified investment is a derivative, the proposed terms of

that derivative; and

(3) in the case of a UK RIE which is admitting that specified investment

to trading, the name of any RCH which will provide clearing services

in respect of that specified investment under an agreement with that

UK RIE. Where:

(1) a UK RIE proposes to amend the standard terms of any derivative

admitted to trading by means of its facilities; or

(2) a UK RIE proposes to amend the standard terms relating to any

derivative in respect of which it provides clearing facilitation services;

it must give the FCA notice of that event, and written particulars of those

proposed amendments, at the same time as that proposal is first formally

communicated to its members or shareholders (or any group or class of

them).

Where a UK recognised body proposes to make (or to cease to make)

arrangements for the safeguarding and administration of assets belonging to

any other person (other than an undertaking in the same group), that

recognised body must give the FCA notice of that event, and the information

specified for the purposes of this rule in ■ REC 3.14.9 R, at the same time as

that proposal is first formally communicated to its members or shareholders

(or any group or class of them).

The following information is specified for the purposes of ■ REC 3.14.8 R:

(1) a description of the assets (or types of assets) to which the proposal

relates; and
REC 3 : Notification rules for UK Section 3.14 : Products, services and normal

recognised bodies hours of operation

3

3.14.10 G

3.14.11 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/23

(2) the date or dates on which arrangements referred to in ■ REC 3.14.8 R

will be made (or cease to be made).

The FCA does not need to be notified of proposals to offer (or to withdraw

offers of) safeguarding and administration services for individual assets of

the same type. Specified investments (other than securities) falling within the

same article in Part III of the Regulated Activities Order will normally be

regarded as being of the same type. Securities falling within the same article

in Part III of the Regulated Activities Order which may be given the same

generic description (for example, shares admitted to the UK official list) will

also normally be regarded as being of the same type.

Hours of operation ...................................................................................................... Where a UK recognised body proposes to change its normal hours of

operation or (for RAPs) the timing, frequency or duration of its bidding

windows, it must give the FCA notice of that proposal, and particulars of,

and the reasons for, the actions proposed, at the same time as the proposal

is first formally communicated to its members or shareholders, or any group

or class of them.
REC 3 : Notification rules for UK Section 3.14A : Operation of a regulated

recognised bodies market or MTF

3

3.14A.1 G

3.14A.2 R

3.14A.3 R

3.14A.4 R

3.14A.5 R

REC 3/24 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.14A Operation of a regulated market

or MTF

Purpose ...................................................................................................... The purpose of ■ REC 3.14A is to ensure that the FCA is informed of planned

changes to a UK RIE markets and their regulatory status as either a regulated

market or MTF. Operation of a regulated market

...................................................................................................... Where a UK RIE proposes to operate a new regulated market or close an

existing regulated market it must give the FCA notice of that event and the

information specified for the purposes of this rule in ■ REC 3.14A.3 R, at the

same time as that proposal is first formally communicated to its members or

shareholders (or any group or class of them).

The following information is specified for the purposes of ■ REC 3.14A.2 R:

(1) where the UK RIE proposes to operate a new regulated market:

(a) a description of the regulated market; and

(b) a description of the specified investments which will be admitted

to trading on that regulated market. (2) where the UK RIE proposes to close a regulated market, the name of

that regulated market. Operation of an MTF ...................................................................................................... Where a UK RIE proposes to operate a new MTF or close an existing MTF it

must give the FCA notice of that event and the information specified for the

purposes of this rule in ■ REC 3.14A.5 R, at the same time as that proposal is

first formally communicated to its members or shareholders (or any group or

class of them).

The following information is specified for the purposes of ■ REC 3.14A.4 R:

(1) where the UK RIE proposes to operate a new MTF:

(a) a description of the MTF; and
REC 3 : Notification rules for UK Section 3.14A : Operation of a regulated

recognised bodies market or MTF

3

3.14A.6 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/25

(b) a description of the specified investments which will be admitted

to trading on that MTF. (2) where the UK RIE proposes to close a MTF, the name of that MTF. Operation of a recognised auction platform ......................................................................................................

If a UK RIE proposes to operate an RAP, it will need to make a separate

application to be recognised as an RAP (see ■ REC 5 (Applications)).
REC 3 : Notification rules for UK Section 3.15 : Suspension of services and

recognised bodies inability to operate facilities

3

3.15.1 G

3.15.2 R

3.15.2A R

3.15.3 R

REC 3/26 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.15 Suspension of services and

inability to operate facilities

Purpose ...................................................................................................... (1) The purpose of ■ REC 3.15.2 R to ■ REC 3.15.5 G is to enable the FCA to

obtain information where a UK recognised body decides to suspend

the provision of its services in relation to particular investments or

(for an RAP) decides to cancel an auction. Planned changes to the

provision of services should be notified to the FCA under ■ REC 3.14. (2) ■ REC 3.15.6 R to ■ REC 3.15.7 R provide for notification to the FCA

where a UK recognised body is unable to operate or provide its

facilities for reasons outside its control or where it decides to extend

its hours of operation in an emergency.

(3) ■ REC 3.15.8 R to ■ REC 3.15.9 G provide for notification to the FCA

where an RAP has to cancel an auction in specified circumstances.

Suspension of services ...................................................................................................... Where, for any reason, an RIE:

(1) suspends trading in any derivative (other than an option in relation

to a security), in any type of security or in any type of option in

relation to a security; or

(2) temporarily calls a trading halt in respect of any type of security or in

any type of option in relation to a security;

it must immediately give the FCA notice of that event, particulars of that

derivative, type of security or type of option in relation to a security, as the

case may be, and the reasons for the action taken.

When a UK RIE suspends trading on a regulated market in any financial

instrument, it must immediately give the FCA notice of that event and

relevant information including particulars of that financial instrument and

the reasons for the action taken.

[Note: Article 41(1), paragraph 2 of MiFID]

Where a UK recognised body suspends providing clearing facilitation services

generally in respect of any derivative (other than an option in relation to a

security), type of security or type of option in relation to a security, it must

immediately give the FCA notice of that event, particulars of that derivative,
REC 3 : Notification rules for UK Section 3.15 : Suspension of services and

recognised bodies inability to operate facilities

3

3.15.4 R

3.15.5 G

3.15.6 R

3.15.7 R

3.15.8 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/27

type of security or type of option in relation to a security, as the case may

be, and the reasons for the action taken.

Where a UK recognised body suspends any arrangements it makes for the

safeguarding and administration of any type of asset belonging to any other

person (other than an undertaking in the same group), that UK recognised

body must immediately give the FCA notice of that event, particulars of that

type of asset and the reasons for the action taken.

Specified investments (other than securities or options in relation to

securities) falling within the same article in Part III of the Regulated Activities

Order will normally be regarded as being assets of the same type. Securities

falling within the same article in Part III of the Regulated Activities Order

which may be given the same generic description (for example, shares

admitted to the UK official list) will normally be regarded as being of the

same type. Options in relation to the same type of security will normally be

regarded as being options of the same type.

Inability to operate facilities ...................................................................................................... Where, because of the occurrence of any event or circumstances, a UK

recognised body is unable to operate any of its facilities within its normal

hours of operation, it must immediately give the FCA notice of that inability

and inform the FCA:

(1) which facility it is unable to operate;

(2) what event or circumstance has caused it to become unable to

operate that facility within those hours; and

(3) what action, if any, it is taking or proposes to take to enable it to

recommence operating that facility. Extension of hours of operation ...................................................................................................... Where, because of the occurrence of any event or circumstances, a UK

recognised body extends its hours of operation, it must immediately give the

FCA notice of that event, and inform the FCA:

(1) what event or circumstance has caused it to do so;

(2) the new hours of operation; and

(3) the date on which it expects to revert to its normal hours of

operation.

Recognised auction platforms - cancellation of auctions ...................................................................................................... Where an RAP has to cancel an auction in the circumstances set out in

articles 7(5) or 7(6) of the auction regulation, it must immediately give the

FCA notice of that cancellation.
REC 3 : Notification rules for UK Section 3.15 : Suspension of services and

recognised bodies inability to operate facilities

3

3.15.9 G

REC 3/28 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

Under article 7(7) of the auction regulation, an RAP is required to notify the

FCA of:

(1) the methodology used to determine the application of article 7(6) of

the auction regulation; and

(2) modifications to that methodology made between bidding windows.
REC 3 : Notification rules for UK Section 3.16 : Information technology

recognised bodies systems

3

3.16.1 G

3.16.2 R

3.16.3 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/29

3.16 Information technology systems

The purpose of ■ REC 3.16 is to ensure that the FCA receives a copy of the UK

recognised body's plans and arrangements for ensuring business continuity if

there are major problems with its computer systems. The FCA does not need

to be notified of minor revisions to, or updating of, the documents

containing a UK recognised body's business continuity plan (for example,

changes to contact names or telephone numbers).

Where a UK recognised body changes any of its plans for action in the event

of a failure of any of its information technology systems resulting in

disruption to the operation of its facilities, it must immediately give the FCA

notice of that event, and a copy of the new plan.

Where any reserve information technology system of a UK recognised body

fails in such a way that, if the main information technology system of that

body were also to fail, it would be unable to operate any of its facilities

during its normal hours of operation, that body must immediately give the

FCA notice of that event, and inform the FCA:

(1) what action that UK recognised body is taking to restore the

operation of the reserve information technology system; and

(2) when it is expected that the operation of that system will be

restored.
REC 3 : Notification rules for UK Section 3.17 : Inability to discharge

recognised bodies regulatory functions

3

3.17.1 R

REC 3/30 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.17 Inability to discharge regulatory

functions

Where, because of the occurrence of any event or circumstances, a UK

recognised body is unable to discharge any regulatory function, it must

immediately give the FCA notice of its inability to discharge that function,

and inform the FCA:

(1) what event or circumstance has caused it to become unable to do so;

(2) which of its regulatory functions it is unable to discharge; and

(3) what action, if any, it is taking or proposes to take to deal with the

situation and, in particular, to enable it to recommence discharging

that regulatory function.
REC 3 : Notification rules for UK Section 3.18 : Membership

recognised bodies

3

3.18.1 G

3.18.2 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/31

3.18 Membership

(1) The purpose of ■ REC 3.18 is to enable the FCA to monitor changes in

the types of member admitted by UK recognised bodies and to

ensure that the FCA has notice of foreign jurisdictions in which the

members of UK recognised bodies are based. UK recognised bodies

may admit persons who are not authorised persons or persons who

are not located in the United Kingdom, provided that the recognition

requirements or (for RAPs) RAP recognition requirements continue to

be met.

(2) ■ REC 3.18.2 R focuses on the admission of persons who are not

authorised persons (whether or not they are located in the United

Kingdom) and on whether the specific recognition requirement or

(for an RAP) RAP recognition requirement relating to access to

facilities can still be met. ■ REC 3.18.3 R focuses on the admission of

members from outside the UK and whether all relevant recognition

requirements or (for an RAP) RAP recognition requirements can be

met.

(3) The information required under ■ REC 3.18 is relevant to the FCA's

supervision of the UK recognised body's obligations in relation to the

enforceability of compliance with the UK recognised body's rules. It is

also relevant to the FCA's broader responsibilities concerning integrity

of the UK financial system and, in particular, its functions in relation

to market abuse and financial crime. It may also be necessary in the

case of members based outside the United Kingdom to examine the

implications for the enforceability of default rules or collateral and

the settlement of transactions, and thus the ability of the UK RIE to

continue to meet the recognition requirements. It follows that the

admission of a member from outside the United Kingdom who is not

an authorised person could require notification under both

■ REC 3.18.2 R and ■ REC 3.18.3 R, although a single report from the UK

recognised body covering both notifications would be acceptable to

the FCA. Where a UK recognised body admits a member who is not an authorised

person of a type of which, immediately before that time, that UK recognised

body had not admitted to membership, it must immediately give the FCA

notice of that event, and:

(1) a description of the type of person whom it is admitting to

membership;
REC 3 : Notification rules for UK Section 3.18 : Membership

recognised bodies

3

3.18.3 R

3.18.4 G

REC 3/32 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

(2) (in relation to a UK RIE ) particulars of its reasons for considering

that, in admitting that type of person to membership, it is able to

continue to satisfy the recognition requirement in paragraph 4(2)(a)

of the Schedule to the Recognition Requirements Regulations which

applies to it; and

(3) (in relation to an RAP) particulars of its reasons for considering that,

in admitting that type of person to membership, it is able to continue

to satisfy the RAP recognition requirement in regulation 20 (Access to

auctions) which applies to it.

Where a UK recognised body admits for the first time a member whose head

or registered office is in a jurisdiction from which that UK recognised body

has not previously admitted members, it must immediately give the FCA

notice of that event, and:

(1) the name of that jurisdiction;

(2) the name of any regulatory authority in that jurisdiction which

regulates that member in respect of activities relating to specified

investments or (for an RAP) relating to emissions auction products;

and

(3) particulars of its reasons for considering that, in admitting a member

from that jurisdiction to membership, it is able to continue to satisfy

the recognition requirements or (for an RAP) the RAP recognition

requirements which apply to it.

A type of member means the description of any group of members to whom

the same generic description could be applied. For example, the description

of any group of members separately identified or defined in the rules might

constitute a type of member for the purposes of this section.
REC 3 : Notification rules for UK Section 3.19 : Investigations

recognised bodies

3

3.19.1 R

3.19.2 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 3/33

3.19 Investigations

Where a UK recognised body becomes aware that a person has been

appointed by any regulatory body (other than the FCA or a UK recognised

body) to investigate:

(1) any business transacted by means of its facilities or

(2) any aspect of the clearing facilitation services which it provides;

it must immediately give the FCA notice of that event.

A UK recognised body need not give the FCA notice of:

(1) routine inspections or visits undertaken in the course of regular

monitoring, complaints handling or as part of a series of 'theme

visits'; or

(2) routine requests for information; or

(3) investigations into the conduct of members of the UK recognised

body or of other users of its facilities where the use of its facilities is a

small or incidental part of the subject matter of the investigation.
REC 3 : Notification rules for UK Section 3.20 : Disciplinary action relating to

recognised bodies members

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REC 3/34 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.20 Disciplinary action relating to

members

Where a UK recognised body has taken any disciplinary action against any

member or any employee of a member, in respect of a breach of a rule

relating to the carrying on by the UK recognised body of any of its

regulatory functions, that body must immediately notify the FCA of that

event, and give:

(1) the name of the person concerned;

(2) details of the disciplinary action taken by the UK recognised body;

and

(3) the UK recognised body's reasons for taking that disciplinary action.

Where an appeal is lodged against any disciplinary action referred to in

■ REC 3.20.1 R, the UK recognised body must immediately give the FCA notice

of that event, and:

(1) the name of the appellant and the grounds on which the appeal is

based, immediately; and

(2) the outcome of the appeal, when known.
REC 3 : Notification rules for UK Section 3.21 : Criminal offences and civil

recognised bodies prohibitions

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3.21 Criminal offences and civil

prohibitions

Where a UK recognised body has evidence tending to suggest that any

person has:

(1) been carrying on any regulated activity in the United Kingdom in

contravention of the general prohibition; or

(2) been engaged in market abuse; or

(3) committed a criminal offence under the Act or subordinate legislation

made under the Act; or

(4) committed a criminal offence under Part V of the Criminal Justice Act

1993 (Insider dealing); or

(5) committed a criminal offence under the Money Laundering

Regulations;

it must immediately give the FCA notice of that event, and full details of

that evidence in writing.

[Note: Article 26(2), first sentence (part) and Article 43(2), first sentence

(part) of MiFID. The rest of Article 26(2), first sentence (in so far as it relates

to market operators operating an MTF) and Article 43(2), first sentence of

MiFID is implemented by ■ REC 3.25.1 R]
REC 3 : Notification rules for UK Section 3.22 : Restriction of, or instruction to

recognised bodies close out, open positions

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REC 3/36 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

3.22 Restriction of, or instruction to

close out, open positions

Where a UK RIE decides to:

(1) restrict the open position on any of the contracts of a member; or

(2) issue instructions to a member to close out its positions on any

contracts;

that UK RIE must immediately give the FCA notice of that event, and the

member's name, the nature and size of any position to be restricted or

closed out and the reasons for the UK RIE's decision.

Where an RAP proposes to impose a maximum bid size or take other

remedial measures to mitigate risks of market abuse, financial crime or anticompetitive behaviour in accordance with article 57 of the auction

regulation, the RAP must give the FCA notice of that event and details of the

remedial measures proposed.
REC 3 : Notification rules for UK Section 3.23 : Default

recognised bodies

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3.23 Default

Where a UK RIE decides to put a member into default, it must immediately

give notice of that event, and give the following information to the FCA, at

the same time as that decision is communicated to that member or to any

other member (or group or class of them) of that body:

(1) the name of the member and (where relevant) the class of

membership;

(2) the reasons for that decision; and

(3) the names of any other exchange, clearing house or auction platform

on which, to the best of that UK RIE's knowledge, that member clears

business or transacts for, or in respect of, its clients.
REC 3 : Notification rules for UK Section 3.24 : Transfers of ownership

recognised bodies

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3.24 Transfers of ownership

When a UK RIE becomes aware of a transfer of ownership of the UK RIE

which gives rise to a change in the persons who are in a position to exercise

significant influence over the management of the UK RIE or (in the case of a

UK RIE that is also an RAP) over the management of the RAP, whether

directly or indirectly, it must immediately notify the FCA of that event, and:

(1) give the name of the person(s) concerned; and

(2) give details of the transfer.

[Note: Article 38(2)(b) of MiFID]

The FCA may regard a person who falls within any of the cases in section

301(B)(2) of the Act as being in a position to exercise significant influence.
REC 3 : Notification rules for UK Section 3.25 : Significant breaches of rules

recognised bodies and disorderly trading conditions

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3.25 Significant breaches of rules and

disorderly trading conditions

A UK RIE and an RAP must immediately notify the FCA of:

(1) significant breaches of its rules; or

(2) disorderly trading conditions on any of its markets or auctions.

[Note: Article 26(2), first sentence (part) and Article 43(2), first sentence

(part) of MiFID. The rest of Article 26(2), first sentence (in so far as it relates

to market operators operating an MTF) and Article 43(2), first sentence of

MiFID is implemented by ■ REC 3.21.1 R (2)]
REC 3 : Notification rules for UK Section 3.26 : Proposals to make regulatory

recognised bodies provision

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3.26 Proposals to make regulatory

provision

Statutory power ...................................................................................................... Under section 300B(1) of the Act (Duty to notify proposal to make regulatory

provision), a UK RIE that proposes to make any regulatory provision must

give written notice of the proposal to the FCA without delay.

Under section 300B(2) of the Act, the FCA may, by rules under section 293

(Notification requirements):

(1) specify descriptions of regulatory provision in relation to which, or

circumstances in which, the duty in section 300B(1) does not apply, or

(2) provide that the duty applies only to specified descriptions of

regulatory provision or in specified circumstances.

Under section 300B(3) of the Act, the FCA may also by rules under section

293:

(1) make provision as to the form and contents of the notice required,

and

(2) require the UK recognised body to provide such information relating

to the proposal as may be specified in the rules or as the FCA may

reasonably require.

Disapplication of duty to notify proposal to make regulatory

provision ...................................................................................................... The duty in section 300B(1) of the Act does not apply to any of the

following:

(1) any regulatory provision which is required under EU law or any

enactment or rule of law in the United Kingdom; or

(2)

(a) the specification of the standard terms of any derivative which a

UK RIE proposes to admission to trading, or the amendment of

the standard terms of any derivative already admitted to trading;

or

(b) the specification or any amendment of standard terms relating to

the provision of clearing facilitation servicesfor any derivative; or
REC 3 : Notification rules for UK Section 3.26 : Proposals to make regulatory

recognised bodies provision

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(c) the specification or any amendment of operating procedures

which are reasonably consequential on any regulatory provision

falling within (a) or (b); or

(3) any regulatory provision which is expressed to have effect for no

longer than three months which is made by a UK recognised body in

response to an emergency event (including, without limitation, a war,

terrorist attack or labour strike); or

(4) any regulatory provision which does not impose a requirement

(including any obligation or burden) on persons affected (directly or

indirectly) by it; or

(5) any other regulatory provision which has not been excluded under

(1), (2), (3) or (4) other than any such provision which (taken together

with any other regulatory provision not otherwise the subject of a

notice under section 300B(1) of the Act):

(a) materially increases disclosure, reporting or corporate governance

requirements imposed on any person (whether directly or

indirectly); or

(b) imposes a material limitation affecting any person (whether

directly or indirectly including, without limitation, through an

amendment to fees or charges) on the type or nature of financial

instruments which may be listed or the subject of admission to

trading on the facilities operated by the UK RIE proposing to

make the regulatory provision; or

(c) materially limits access to, or use by, any person (whether directly

or indirectly including, without limitation, through an

amendment to fees or charges) of the facilities operated by the

UK recognised body proposing to make the regulatory provision;

or

(d) materially limits or restricts the ability of any person to supply

services (including, without limitation, trading, clearing,

settlement or information services) to persons who are users of

the facilities operated by the UK RIE proposing to make the

regulatory provision (whether directly or indirectly, including by

the imposition of an obligation or burden on the supplier or on a

user of the UK RIE); or

(e) materially adds to the circumstances in which any person

(whether directly or indirectly) may be liable to penalties or other

sanctions or have liability in damages.

Notice to the FCA ...................................................................................................... A notice under section 300B(1) of the Act of a proposal to make a regulatory

provision must be in writing and state expressly that it is a notice for the

purpose of that section. To be effective, a notice must:

(1) contain full particulars of the proposal to make a regulatory provision

which is the subject of that notice; and

(2) either be accompanied by sufficient supporting information to enable

the FCA to assess the purpose and effect of the proposed regulatory

provision or refer to such information in circumstances where such

information has already been provided to the FCA.
REC 3 : Notification rules for UK Section 3.26 : Proposals to make regulatory

recognised bodies provision

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In determining whether a UK RIE has provided sufficient supporting

information, the FCA may have regard to the extent to which the

information includes:

(1) clearly expressed reasons for the proposed regulatory provision; and

(2) an appropriately detailed assessment of the likely costs and benefits

of the proposed regulatory provision. A UK RIE must provide such additional information in connection with a

notice under section 300B(1) of the Act as the FCA may reasonably require.

Where a UK RIE wishes to give notice to the FCA for the purposes of section

300B(1) of the Act, it should in the first instance inform its usual supervisory

contact at the FCA. The FCA expects that an advanced draft of any consultation document a UK

RIE intends to publish in connection with a proposed regulatory provision

could provide some or all of the information described in ■ REC 3.26.5 R.
Recognised Investment Exchanges and Recognised Clearing Houses

Chapter 4

Supervision

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 4/1
REC 4 : Supervision Section 4.1 : Application and purpose

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REC 4/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

4.1 Application and purpose

Application ...................................................................................................... ■ REC 4.2 to ■ REC 4.2E, ■ REC 4.3, ■ REC 4.5 and ■ REC 4.6A apply to UK

recognised bodies. ■ REC 4.2F to ■ REC 4.2G■ REC 4.4 and ■ REC 4.6 to ■ REC 4.8

apply to all recognised bodies. ■ REC 4.8 applies to applicants for recognition

as a recognised body. Purpose ...................................................................................................... This chapter sets out the FCA's approach to the supervision of recognised

bodies and contains guidance on:

(1) the arrangements for investigating complaints about recognised

bodies made under section 299 of the Act (Complaints about

recognised bodies) (■ REC 4.4);

(2) the FCA's approach to the exercise of its powers under:

(a) (for RIEs) section 296 of the Act (Appropriate regulator's power

to give directions) or (for RAPs) regulation 3 of the RAP

regulations to give directions to recognised bodies (■ REC 4.6);

(b) (for RIEs)section 297 of the Act (Revoking recognition) or (for

RAPs) regulation 4 of the RAP regulations to revoke recognition

orders (■ REC 4.7);

and the procedure to be followed in those cases and where the FCA

decides to refuse an application for recognition as a recognised body

(■ REC 4.8); and

(3) the FCA's approach to, and procedures for, the exercise of its powers

under sections 166 and 167 of the Companies Act 1989 to give

directions to UK RIEs in relation to action under their default rules

(■ REC 4.5).

The FCA's general approach to supervision is intended to ensure that:

(1) the FCA has sufficient assurance that recognised bodies continue at

all times to satisfy the recognised body requirements; and

(2) the FCA's supervisory resources are allocated, and supervisory effort is

applied, in ways which reflect the actual risks to the regulatory

objectives.
REC 4 : Supervision Section 4.1 : Application and purpose

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In applying these principles of risk based supervision to the supervision of

recognised bodies, the FCA has had particular regard to the special position

of recognised bodies under the Act as well as to its general duties set out in

section 2 of the Act (The FCA's general duties).

More information on the supervision of UK recognised bodies is given in

■ REC 4.2 and ■ REC 4.3. More information on the supervision of overseas

recognised bodies is given in ■ REC 6.
REC 4 : Supervision Section 4.2 : The supervisory relationship

with UK recognised bodies

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REC 4/4 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

4.2 The supervisory relationship with

UK recognised bodies

The FCA expects to have an open, cooperative and constructive relationship

with UK recognised bodies to enable it to have a broad picture of the UK

recognised body's activities and its ability to meet the recognised body

requirements. This broad picture is intended to complement the information

which the FCA will obtain under section 293 of the Act (Notification

requirements) or under notification rules made under that section (see

■ REC 3). The FCA will usually arrange meetings between the Markets Division

and key individuals of the UK recognised body for this purpose. The

frequency and nature of these meetings may vary in accordance with the risk

profile of the UK recognised body. UK recognised bodies are likely to develop and adapt their businesses in

response to customer demand and new market opportunities. Where such

developments involve changes to the way the UK recognised body operates,

they are likely to involve changes to the way it satisfies the recognised body

requirements. The FCA expects a UK recognised body to take its own steps to assure itself

that it will continue to satisfy the recognised body requirements when

considering any changes to its business or operations.

However, the FCA also expects that UK recognised bodies will keep it

informed of all significant developments and of progress with their plans

and operational initiatives, and will provide it with appropriate assurance

that the recognised body requirements will continue to be satisfied.
REC 4 : Supervision Section 4.2A : Publication of information by

UK RIEs and RAPs

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■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 4/5

4.2A Publication of information by UK

RIEs and RAPs

Under subsections 292A(1) and (2) of the Act, a UK RIE must as soon as

practicable after a recognition order is made in respect of it publish such

particulars of the ownership of the UK RIE, including the identity and scale

of interests of the persons who are in a position to exercise significant

influence over the management of the UK RIE or (where the UK RIE is also

an RAP) the RAP, whether directly or indirectly, as the FCA may reasonably

require.

Under subsections 292A(3) and (4) of the Act, a UK RIE must as soon as

practicable after becoming aware of a transfer of ownership of the UK RIE

which gives rise to a change of persons who are in a position to exercise

significant influence over the management of the UK RIE or (where the UK

RIE is also an RAP) the RAP, whether directly or indirectly, publish such

particulars of any such transfer as the FCA may reasonably require.

Under subsection 292A(5) of the Act, a UK RIE must publish such particulars

of any decision it makes to suspend or remove a financial instrument from

trading on a regulated market operated by it as the FCA may reasonably

require.
REC 4 : Supervision Section 4.2B : Exercise of passport rights by

a UK RIE

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REC 4/6 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

4.2B Exercise of passport rights by a

UK RIE

Under section 312C of the Act, if a UK RIE wishes to make arrangements in

an EEA State other than the UK to facilitate access to or use of a regulated

market, multilateral trading facility or auction platform operated by it, it

must give the FCA written notice of its intention to do so. The notice must:

(1) describe the arrangements; and

(2) identify the EEA State in which the UK RIE intends to make them.

The FCA must, within one month of receiving the UK RIE's notice, send a

copy of it to the Host State regulator. The UK RIE may not make the arrangements until the FCA has sent a copy of

the notice to the Host State regulator. The requirements that a UK RIE must give the FCA written notice and the UK

RIE may not make the arrangements until the FCA has sent a copy of it to

the Host State regulator do not apply to arrangements made by a UK RIE on

or before 31 October 2007.
REC 4 : Supervision Section 4.2C : Control over a UK RIE

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4.2C.7 G

4.2C.8 G

4.2C.9 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 4/7

4.2C Control over a UK RIE

Section 301A(1) of chapter 1A of Part XVIII of the Act places an obligation on

a person who decides to acquire or increase control (see sections 301D and

301E of the Act) over a UK RIEto notify the FCA, before making the

acquisition. Furthermore, those persons are required to obtain the FCA's

approval before acquiring control or increasing the level of control held.

The FCA will approve an acquisition or an increase in control if it is satisfied

that the acquisition by the person seeking approval does not pose a threat

to the sound and prudent management of any financial market operated by

the UK RIE (see section 301F(4) of the Act). The reference to any financial

market is to be read as including a reference to any auction platform as a

result of the RAP regulations.

If a proposed acquirer has complied with the obligation to notify, the

procedure the FCA will follow if it approves or does not approve of that

person acquiring or increasing control is set out in sections 301F and 301G of

the Act.

[deleted]

[deleted]

The FCA's internal arrangements provide for any decisions to refuse to

approve an acquisition or object to an existing control to be taken at an

appropriately senior level.

If the FCA refuses to approvean acquisition or objects to an existing control,

the person concerned may refer the matter to the Tribunal (see ■ EG 2.39).

The powers the FCA can exercise in the event that a person acquires or

continues to exercise control notwithstanding the FCA's refusal to approve

the acquisition of control or the FCA's objection to the exercise of control

are set out in sections 301J and 301K of the Act. The offences for which a person who fails to comply with the obligations set

out in Chapter 1A of Part XVIII of the Act is liable are set out in section 301L

of the Act.
REC 4 : Supervision Section 4.2D : Suspension and removal of

financial instruments from trading

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REC 4/8 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

4.2D Suspension and removal of

financial instruments from trading

(1) Under section 313A of the Act, the FCA may for the purpose of

protecting:

(a) the interests of investors; or

(b) the orderly functioning of the financial markets;

require a UK RIE to suspend or remove a financial instrument from

trading.

(2) If the FCA exercises this power, the UK RIE concerned may refer the

matter to the Tribunal. The procedure the FCA will follow if it exercises its power to require a UK

RIE to suspend or remove a financial instrument from trading is set out in

sections 313B to 313BE of the Act. The FCA's internal arrangements provide

for decisions to exercise this power to be taken at an appropriately senior

level. If the FCA exercises this power, the UK RIE concerned and the issuer (if

any) of the relevant financial instrument may refer the matter to the

Tribunal(see ■ EG 2.39).

Under section 313C(1) of the Act, if the FCA exercises its power to require a

UK RIE to suspend or remove a financial instrument from trading, it must as

soon as reasonably practicable:

(1) publish its decision in such manner as it considers appropriate, unless

the decision has already been published under section 313B(2)(b) of

the Act; and

(2) inform ESMA and the competent authorities of all other EEA States of

its decision.

Under section 313C(2) of the Act, if the FCA receives notice from a UK RIE

that the UK RIE has suspended or removed a financial instrument from

trading on a regulated market operated by it, the FCA must inform the

competent authorities of all other EEA States of the action taken by the UK

RIE. Under sections 313C(3) and (4) of the Act, if the FCA receives notice from the

competent authority of another EEA State that that authority, pursuant to

Article 41.2 of MiFID has required the suspension of a financial instrument
REC 4 : Supervision Section 4.2D : Suspension and removal of

financial instruments from trading

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from trading, the FCA must require each UK RIE to suspend the instrument

from trading on any regulated market or multilateral trading facility

operated by the UK RIE. Under sections 313C(3) and (5) of the Act, if the FCA receives notice from the

competent authority of another EEA State that that authority, pursuant to

Article 41.2 of MiFID has required the removal of a financial instrument from

trading, the FCA must require each UK RIE to remove the instrument from

trading on any regulated market or multilateral trading facility operated by

the UK RIE.
REC 4 : Supervision Section 4.2E : Information: compliance of UK

recognised bodies with EU requirements

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4.2E Information: compliance of UK

recognised bodies with EU

requirements

Under section 293A of the Act, the FCA may require a UK recognised body to

give such information as it reasonably requires in order to satisfy itself that

the UK recognised body is complying with any qualifying EU provision that is

specified, or of a description specified, for the purposes of section 293A of

the Act by the Treasury.
REC 4 : Supervision Section 4.2F : Information gathering power

on FCA’s own initiative

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4.2F Information gathering power on

FCA’s own initiative

(1) While the FCA will seek to obtain information from an RIE in the

context of an open, cooperative and constructive relationship with

the RIE, where it appears to the FCA that obtaining information in

that context will not achieve the necessary results, the FCA or (as the

case may be) its officers may, under section 165(7) of the Act, by

notice in writing, require any of the following persons to provide or

produce specified information or information of a specified

description, at a specified place and before the end of a reasonable

period, in such form and with such verifications or authentications as

it may reasonably require:

(a) the RIE; or

(b) a person who is connected with the RIE. (2) Under section 165(11) of the Act, a person is connected with a

recognised body if he is or has at any relevant time been:

(a) a member of the RIE's group; or

(b) a controller of the RIE; or

(c) any other member of a partnership of which the RIE is a member;

or

(d) a person mentioned in Part I of Schedule 15 of the Act (reading

references in that Part to the ‘authorised person’ as references to

the RIE).
REC 4 : Supervision Section 4.2G : Reports by skilled persons

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REC 4/12 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

4.2G Reports by skilled persons

(1) Where the FCA exercises its power conferred by section 166(1) of the

Act (Reports by skilled persons), ■ SUP 5.5.1 R, ■ SUP 5.5.5 R and

■ SUP 5.5.9 R (to the extent they relate to the FCA's powers under

section 166 of the Act) apply to a RIE in the same way as they apply

to a firm. (2) The guidance in ■ SUP 5 which relates to the FCA's power in section

166 of the Act also applies to a RIE in the same way as it applies to a

firm.
REC 4 : Supervision Section 4.3 : Risk assessments for UK

recognised bodies

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4.3 Risk assessments for UK recognised

bodies

Information is needed to support the FCA's risk based approach to the

supervision of all regulated entities. Risk based supervision is intended to

ensure that the allocation of supervisory resources and the supervisory

process are compatible with the regulatory objectives and the FCA's general

duties under the Act. The central element of the process of risk based

supervision is a systematic assessment by the FCA (a risk assessment) of the

main supervisory risks and concerns for each regulated entity.

For each UK recognised body, the FCA will conduct a periodic risk

assessment. This assessment will take into account relevant considerations

including the special position of recognised bodies under the Act, the nature

of the UK recognised body's members, the position of other users of its

facilities and the business environment more generally.

The risk assessment will guide the FCA's supervisory focus. It is important,

therefore, that there is good dialogue between the FCA and the recognised

body. The FCA expects to review its risk assessment with the staff of the UK

recognised body to ensure factual accuracy and a shared understanding of

the key issues, and may discuss the results of the risk assessment with key

individuals of the UK recognised body. If appropriate, the FCA may send a

detailed letter to the body's chief executive, chairman or both with proposals

for further action or work to address particular concerns or issues and seek

their comments on the risk assessment.
REC 4 : Supervision Section 4.4 : Complaints

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4.4 Complaints

Recognised body's arrangements ...................................................................................................... Recognised bodies may receive complaints from time to time from their

members and other people, both about the conduct of members and about

the recognised body itself. A UK recognised body will need to have

satisfactory arrangements to investigate these complaints in order to satisfy

the relevant recognition requirements (see ■ REC 2.15 and ■ REC 2.16) or RAP

recognition requirements (see ■ REC 2A.3.2 G).

The FCA's arrangements ...................................................................................................... The Act does not provide a mechanism for appeals to the FCA from decisions

by recognised bodies in relation to complaints. However, the FCA is required

by section 299 of the Act (Complaints about recognised bodies) to have

arrangements to investigate complaints (called relevant complaints in the

Act) which it considers relevant to the question of whether a recognised

body should remain recognised as such. This section describes aspects of the

FCA's arrangements for investigating relevant complaints. Where the FCA receives a complaint about a recognised body, it will, in the

first instance, seek to establish whether the complainant has approached the

recognised body. Where this is not the case, the FCA will ask the complainant

to complain to the recognised body. Where the complainant is dissatisfied

with the handling of the complaint, but has not exhausted the recognised

body's own internal complaints procedures (in the case of a complaint

against a UK recognised body, including by applying to that body's

complaints investigator), the FCA will encourage the complainant to do so.

The FCA will not usually consider a complaint which has not, in the first

instance, been made to the recognised body concerned, unless there is good

reason for believing that it is a relevant complaint which merits early

consideration by the FCA. When it is considering a relevant complaint, the FCA will make its own

enquiries as appropriate with the recognised body, the complainant and

other persons. It will usually ask the recognised body and the complainant to

comment upon any preliminary or draft conclusions of its review and to

confirm any matters of fact at that stage.

The FCA will communicate the outcome of its review of a relevant complaint

to the complainant and the recognised body, but will normally only discuss
REC 4 : Supervision Section 4.4 : Complaints

4

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 4/15

any action which it considers the recognised body should take with the

recognised body itself.
REC 4 : Supervision Section 4.5 : FCA supervision of action by UK

RIEs under their default rules

4

4.5.1 G

4.5.2 G

4.5.3 G

4.5.4 G

REC 4/16 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

4.5 FCA supervision of action by UK

RIEs under their default rules

UK RIEs which, under their rules, have market contracts are required to have

default rules enabling them (among other things) to take action in relation

to a member who appears to be unable to meet his obligations in respect of

one or more unsettled market contracts. The detailed recognition

requirements relating to the default rules are set out in ■ REC 2.17. The default rules are designed to ensure that rights and liabilities between

the defaulter and any counterparty to an unsettled market contract are

discharged, and for there to be paid between the defaulter and each

counterparty one net sum. The Companies Act 1989 contains provisions

which protect action taken under default rules from the normal operation of

insolvency law which might otherwise leave this action open to challenge by

a relevant office-holder. The Companies Act 1989 also gives the FCA powers to supervise the taking of

action under default rules. Under section 166 of the Companies Act 1989

(Powers of the appropriate regulator to give directions) (see ■ REC 4.5.4 G),

the FCA may direct a UK RIE to take, or not to take, action under its default

rules. Before exercising these powers the FCA must consult the UK RIE. The

FCA may also exercise these powers if a relevant office-holder applies to it

under section 167 of the Companies Act 1989 (Application to determine

whether default proceedings to be taken) (see ■ REC 4.5.9 G).

The Companies Act 1989: section 166

The FCA may issue a "positive" direction (to take action) under section

166(2)(a) of the Companies Act 1989:

Where in any case a [UK RIE] has not taken action under its default rules- if it appears to [the FCA] that it could take action, [the

FCA may direct it to do so,

but under section 166(3)(a) of the Companies Act 1989:

Before giving such a direction the [FCA] shall consult the [UK RIE]

in question; and [the FCA] shall not give a direction unless [the

FCA] is satisfied, in the light of that consultation that failure to

take action would involve undue risk to investors or other participants in the market, or that the direction is necessary having regard to the public interest in the financial stability of the United

Kingdom, or that the direction is necessary to facilitate a proposed or possible use of a power under Part 1 of the Banking Act

2009 or in connection with a particular exercise of a power under

that Part.
REC 4 : Supervision Section 4.5 : FCA supervision of action by UK

RIEs under their default rules

4

4.5.5 G

4.5.6 G

4.5.7 G

4.5.8 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 4/17

The FCA may issue a "negative" direction (not to take action) under section

166(2)(b) of the Companies Act 1989:

Where in any case a [UK RIE] has not taken action under its default rules - if it appears to the [FCA] that it is proposing to take

or may take action, [the FCA] may direct it not to do so.

but under section 166(3)(b) of the Companies Act 1989:

Before giving such a direction the [FCA] shall consult the [UK RIE]

in question; and the [FCA] shall not give a direction unless [the

FCA] is satisfied, in the light of that consultation that the taking

of action would be premature or otherwise undesirable in the interests of investors or other participants in the market, or that

the direction is necessary having regard to the public interest in

the financial stability of the United Kingdom, or that the direction

is necessary to facilitate a proposed or possible use of a power

under Part 1 of the Banking Act 2009 or in connection with a particular exercise of a power under that Part.

Other than in exceptional circumstances, the FCA will consult with the Bank

of England before exercising these powers.

Under section 166(6) of the Companies Act 1989, a negative direction cannot

be given if, in relation to the defaulter, either:

(1) a bankruptcy order or an award of sequestration of the defaulter's

estate has been made, or an interim receiver or interim trustee has

been appointed; or

(2) a winding-up order has been made, a resolution for voluntary

winding-up has been passed or an administrator, administrative

receiver or provisional liquidator has been appointed;

and any previous negative direction will cease to have effect on the making

or passing of any such order, award or appointment.

Under section 166(5) of the Companies Act 1989, a negative direction may be

expressed to have effect until a further direction is given, which may either

be a positive direction or a revocation of the earlier negative direction.

Under section 166(7) of the Companies Act 1989, where a UK RIE has taken

action either of its own accord or in response to a direction, the FCA may

direct it to do or not to do specific things subject to these being within the

powers of the UK RIE under its default rules. However,

(1) where the UK RIE is acting in accordance with a direction given by

the FCA to take action under section 166(2)(a) of the Act on the basis

that failure to take action would involve undue risk to investors or

other participants in the market, the FCA will not direct it to do or

not to do specific things which the UK RIE has power to do under its

default rules, unless the FCA is satisfied that this will not impede or

frustrate the proper and efficient conduct of the default proceedings;

and

(2) where the UK RIE has taken action under its default rules without

being directed to do so, the FCA will not direct it to do or not to do
REC 4 : Supervision Section 4.5 : FCA supervision of action by UK

RIEs under their default rules

4

4.5.9 G

4.5.10 G

4.5.11 G

REC 4/18 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

specific things which the UK RIE has power to do under its default

rules, unless the FCA is satisfied that:

(a) the direction will not impede or frustrate the proper and efficient

conduct of the default proceedings; or

(b) the direction is necessary:

(i) having regard to the public interest in the stability of the UK

financial system;

(ii) to facilitate a proposed or possible use of a power under Part

1 of the Banking Act 2009 (special resolution regime); or

(iii) in connection with a particular exercise of a power under

Part 1 of the Banking Act 2009.

...................................................................................................... Section 167 of the Companies Act 1989

Where, in relation to a member (or designated non-member) of a UK RIE :

(1) a bankruptcy order; or

(2) an award of sequestration of his estate; or

(3) an order appointing an interim receiver of his property; or

(4) an administration or winding-up order; or

(5) a resolution for a voluntary winding-up; or

(6) an order appointing a provisional liquidator;

has been made or passed and the UK RIE has not taken action under its

default rules as a result of this event or of the matters giving rise to it, a

relevant office-holder appointed in connection with the order, award or

resolution may make an application to the FCA under section 167 of the

Companies Act 1989 (Application to determine whether default proceedings

to be taken).

The effect of an application under section 167 of the Companies Act 1989 is

to require the UK recognised body concerned to take action under its default

rules or to require the FCA to take action under section 166 of the

Companies Act 1989 (see REC 4.5.4G).

The procedure is that the FCA must notify the UK recognised body of the

application and, unless within three business days after receipt of that

notice, the UK recognised body:

(1) takes action under its default rules; or

(2) notifies the FCA that it proposes to take action forthwith; or

(3) is directed to take action by the FCA under section 166(2)(a) of the

Companies Act 1989;

the provisions of sections 158 to 165 of the Companies Act 1989 do not apply

in relation to market contracts to which the member or designated non-
REC 4 : Supervision Section 4.5 : FCA supervision of action by UK

RIEs under their default rules

4

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 4/19

member is a party or to anything done by the UK recognised body for the

purpose of, or in connection with, the settlement of any market contracts.
REC 4 : Supervision Section 4.6 : The section 296 power to give

directions

4

4.6.1 G

4.6.2 G

4.6.3 G

4.6.4 G

REC 4/20 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

4.6 The section 296 power to give

directions

Under section 296 of the Act (FCA's power to give directions) and (for RAPs)

under regulation 3 of the RAP regulations, the FCA has the power to give

directions to a recognised body to take specified steps in order to secure its

compliance with the recognised body requirements. In the case of a UK RIE

(including one which operates an RAP) those steps may include granting the

FCA access to the UK RIE's premises for the purposes of inspecting those

premises or any documents on the premises and the suspension of the

carrying on of any regulated activity by the UK RIE for the period specified in

the direction.

[deleted]

The FCA is likely to exercise its power under section 296 of the Act or

regulation 3 of the RAP regulations if it considers that:

(1) there has been, or was likely to be, a failure to satisfy one or more of

the recognised body requirements which has serious consequences;

(2) compliance with the direction would ensure that one or more of the

recognised body requirements is satisfied; and

(3) the recognised body is capable of complying with the direction.

Under section 298(7) of the Act (Directions and revocation: procedure), and

(for RAPs) regulation 5(7) of the RAP regulations, the FCA need not follow

the consultation procedure set out in the rest of section 298 (see ■ REC 4.8) or

may cut short that procedure, if it considers it reasonably necessary to do so.

For RAPs, the FCA need not follow the procedure set out in regulation 5 of

the RAP regulations or may cut short the procedure, if it considers it essential

to do so.
REC 4 : Supervision Section 4.6A : The section 192C power to

direct qualifying parent undertakings

4

4.6A.1 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 4/21

4.6A The section 192C power to direct

qualifying parent undertakings

(1) Under section 192C of the Act (Power to direct qualifying parent

undertaking), the FCA has the power to give a direction to the

qualifying parent undertaking of a UK RIE if the general condition is

satisfied.

(2) For the purposes of section 192C of the Act, a parent undertaking of

a UK RIE is a ‘qualifying parent undertaking’ if:

(a) the parent undertaking is a body corporate which is incorporated

in the United Kingdom, or has a place of business in the United

Kingdom;

(b) the parent undertaking is not itself an authorised person, a RIE or

a RCH; and

(c) the parent undertaking is a financial institution of a kind

prescribed by the Treasury by order.

(3) For the purposes of section 192C of the Act, the general condition is

that the FCA considers that it is desirable to give the direction in

order to advance one of more of its operational objectives.

(4) In exercising or deciding whether to exercise its power under section

192(c) of the Act, the FCA will have regard to any statement of policy

published under this section and for the time being in force.

[Note:1. Treasury has issued a draft order for consultation prescribing

the types of financial institutions which are qualifying parent

undertakings. See the draft Financial Services and Markets Act 2000

(Prescribed Financial Institutions) Order 201*, as published in the

Treasury consultation paper titled ‘A new approach to financial

regulation: draft secondary legislation’: http://www.hmtreasury.gov.uk/d/condoc_fin_regulation_draft_secondary_leg.pdf .

2. The FCA has issued a statement of policy with respect to the giving

of directions under section 192C. http://www.fca.org.uk/news/firms/

fca-statement-of-policy-on-the-use-of-the-power-to-direct-qualifyingparent-undertakings ]
REC 4 : Supervision Section 4.7 : The section 297 power to

revoke recognition

4

4.7.1 G

4.7.2 G

4.7.2A G

4.7.3 G

REC 4/22 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

4.7 The section 297 power to revoke

recognition

Under section 297 of the Act (Revoking recognition) and (for RAPs) under

regulation 4 of the RAP regulations, the FCA has the power to revoke a

recognition order relating to a recognised body. The FCA will revoke a recognition order if:

(1) [deleted]

(2) the recognised body has asked the FCA to revoke the order.

Where the FCA makes a revocation order under section 297 of the Act in

relation to a UK RIE which is also an RAP, the FCA will also revoke the

recognition order relating to its status as an RAP. The FCA will usually consider revoking a recognition order if:

(1) the recognised body is failing or has failed to satisfy one or more of

the recognised body requirements and that failure has or will have

serious consequences; or

(2) it would not be possible for the recognised body to comply with a

direction under section 296 of the Act (FCA's power to give

directions) or (for RAPs) regulation 3 of the RAP regulations; or

(3) for some other reason, it would not be appropriate for the FCA to

give a direction under section 296 or (for RAPs) regulation 3 of the

RAP regulations; or

(4) in the case of a UK RIE, it has not carried on the business of an

investment exchange during the 12 months beginning with the day

on which the recognition order took effect in relation to it, or it has

not carried on the business of an investment exchange at any time

during the period of six months ending with the day the recognition

order is revoked; or

(5) in the case of an RAP in relation to its RAP recognition order, it has

not carried on the business of an auction platform during the 12

months beginning with the day on which the RAP recognition order

took effect in relation to it, or it has not carried on the business of an
REC 4 : Supervision Section 4.7 : The section 297 power to

revoke recognition

4

4.7.4 G

4.7.5 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 4/23

auction platform at any time during the period of six months ending

with the day the RAP recognition order is revoked.

The FCA would be likely to consider the conditions in ■ REC 4.7.3 G (2) or

■ REC 4.7.3 G (3) to be triggeredin the following circumstances:

(1) the recognised body appears not to have the resources or

management to be able to organise its affairs so as to satisfy one or

more of the recognised body requirements; or

(2) the recognised body does not appear to be willing to satisfy one or

more of the recognised body requirements; or

(3) the recognised body is failing or has failed to comply with a direction

made under section 296 of the Act or (for RAPs) regulation 3 of the

RAP regulations; or

(4) the recognised body has ceased to carry out regulated activities in the

United Kingdom, or has so changed the nature of its business that it

no longer satisfies one or more of the recognised body requirements

in respect of the regulated activities for which recognised body status

is relevant.

In addition to the relevant factors set out in ■ REC 4.7.4 G, the FCA will usually

consider that it would not be able to secure an ROIE's compliance with the

recognition requirements or other obligations in or under the Act by means

of a direction under section 296 of the Act, if it appears to the FCA that the

ROIE is prevented by any change in the legal framework or supervisory

arrangements to which it is subject in its home territory from complying with

the recognition requirements or other obligations in or under the Act.
REC 4 : Supervision Section 4.8 : The section 298 procedure

4

4.8.1 G

4.8.2 G

4.8.3 G

REC 4/24 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

4.8 The section 298 procedure

A decision to:

(1) revoke a recognition order under section 297 of the Act (Revoking

recognition) or (for RAPs) regulation 4 of the RAP regulations; or

(2) make a direction under section 296 (FCA's powers to give directions)

or (for RAPs) regulation 3 of the RAP regulations; or

(3) refuse to make a recognition order under section 290 (Recognition

orders) or 290A (Refusal of recognition on ground of excessive

regulatory provision) or (for RAPs) regulation 2 of the RAP

regulations;

is a serious one and section 298 of the Act (Directions and revocation:

procedure) and (for RAPs) regulation 5 of the RAP regulations set out

procedures (see ■ REC 4.8.9 G) which the FCA will follow unless, in the case of

a revocation of a recognition order, the recognised body concerned has

given its consent (see section 297(1) or regulation 4(1) of the RAP

regulations) or:

(a) in case where the FCA proposes to make a direction under

section 296 it considers it is reasonably necessary not to follow,

or to cut short, the procedure (see ■ REC 4.8.7 G); or

(b) (for RAPs) in a case where the FCA proposes to make a

direction under regulation 3 of the Rap regulations, it considers

it is essential not to follow, or to cut, short, the procedure.

The FCA's internal arrangements provide for any of these decisions to be

taken at an appropriately senior level.

In considering whether it would be appropriate to exercise the powers under

section 296 or section 297 of the Act or (for RAPs) regulation 3 or 4 of the

RAP regulations, the FCA will have regard to all relevant information and

factors including:

(1) its guidance to recognised bodies;

(2) the results of its routine supervision of the body concerned;

(3) the extent to which the failure or likely failure to satisfy one or more

of the recognised body requirements may affect the statutory

objectives.
REC 4 : Supervision Section 4.8 : The section 298 procedure

4

4.8.4 G

4.8.5 G

4.8.6 G

4.8.7 G

4.8.8 G

4.8.9 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 4/25

In considering whether or not to make a recognition order, the FCA will have

regard to all relevant information and factors, including its guidance to

recognised bodies and applicants and the information provided by

applicants. Details of the application processes and other guidance for

applicants are set out in ■ REC 5 and (for overseas applications) ■ REC 6. The procedures laid down in section 298 of the Act and (for RAPs) regulation

5 of the RAP regulations are summarised, with the FCA's guidance about the

actions it proposes to take in following these procedures, in the tables at

■ REC 4.8.9 G and ■ REC 4.8.10 G respectively.

Before exercising its powers under section 296 or section 297 of the Act or

(for RAPs) regulation 3 or 4 of the RAP regulations, the FCA will usually

discuss its intention, and the basis for this, with the key individuals or other

appropriate representatives of the recognised body. It will usually discuss its

intention not to make a recognition order with appropriate representatives

of the applicant.

[deleted]

[deleted]

Key steps in the section 298 procedure

The FCA will: Guidance

(1) give written notice to theRIE (or The notice will state why

applicant); the FCA intends to take

the action it proposes to

take, and include an invitation to make representations, and the

period within which representations should be

made (unless subsequently extended by

the FCA).

(2) receive representations from the RIE or The FCA will not usually

applicant concerned; consider oral representations without first receiving written representations from theRIE (or applicant). It will normally

only hear oral representations from the RIE

on request.

(3) write promptly to RIE (or applicant) The FCA will indicate

who requests the opportunity to make why it will not hear oral

oral representations if it decides not to representations and the

hear that person's representations; FCA will allow the RIE

(or applicant) further

time to respond.

(4) have regard to representations made;
REC 4 : Supervision Section 4.8 : The section 298 procedure

4

4.8.10 G

REC 4/26 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

The FCA will: Guidance

(5) (when it has reached its decision) notify

the RIE (or applicant) concerned in

writing.

For RAPs, key steps in the regulation 5 procedure

The FCA will: Guidance

(1) give written notice to the The notice will state why the FCA inRAP (or applicant); tends to take the action it proposes

to take, and include an invitation to

make representations, and the date

by which representations should be

made.

(2) take such steps as it con- The FCA will also notify persons indisiders reasonably practic- vidually (as far as it considers it reasable to bring the notice onably practicable to do so) if it conto the attention of the siders that the action it proposes to

members of the RAP or of take would affect them adversely in

the applicant, as the case a way which would be different

may be; from its effect on other persons of

the same class.

(3) publish the notice so as to

bring it to the attention

of other persons likely to

be affected;

(4) receive representations The FCA will not usually consider

from the RAP or applicant oral representations without first reconcerned, any member ceiving written representations from

of the RAP or applicant, the person concerned. It will normand any other person ally only hear oral representations

who is likely to be affec- from the RAP (or applicant) itself or

ted by the action the FCA of a person whom it has notified inproposes to take; dividually, on request.

(5) write promptly to any per- The FCA will indicate why it will not

son who requests the op- hear oral representations and the

portunity to make oral FCA will allow the person concerned

representations if it de- further time to respond.

cides not to hear that person's representations;

(6) have regard to representations made;

(7) (when it has reached its

decision) notify the RAP

(or applicant) concerned

in writing;

(8) (if it has decided to give a The FCA will usually give notice of

direction, or revoke or re- its decision to the same persons and

fuse to make a recogni- in the same manner as it gave notice

tion order) take such of its intention to act.

steps as it considers reasonably practicable to

bring its decision to the attention of members of

the RAP or applicant and

to other persons likely to

be affected.
REC 4 : Supervision Section 4.9 : Disciplinary measures

4

4.9.1 G

4.9.2 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 4/27

4.9 Disciplinary measures

(1) Under sections 312E and 312F of the Act, if the FCA considers that a

recognised body has contravened a requirement imposed by the FCA

under any provision of the Act that relates to a RIE, or under any

provision of the Act whose contravention constitutes an offence the

FCA has power to prosecute, or by a qualifying EU provision specified

by the Treasury, it may:

(a) publish a statement to that effect; or

(b) impose on the body a financial penalty of such amount as it

considers appropriate.

(2) The procedures and policies which the FCA will follow if it proposes

to publish a statement under section 312E or to impose a penalty

under section 312F, and if it decides to publish such statement or

impose such penalty, are set out in DEPP. (3) In exercising or deciding whether to exercise its power to impose a

penalty under section 312F of the Act, the FCA will also have regard

to any statement of policy published under this section and in force

at a time when the contravention in question occurred.

[Note:The FCA has issued a statement of policy for consultation with respect

to the exercise of its powers under section 312F of the Act.]

(1) Under section 192K of the Act, if the FCA considers that a qualifying

parent undertaking of a UK RIE has contravened a requirement of a

direction given by the FCA under section 192C of the Act, or a

provision of rules made by the FCA under section 192J of the Act, it

may:

(a) impose a penalty of such amount as it considers appropriate on

the qualifying parent undertaking of the UK RIE, or any person

who was knowingly concerned in the contravention; or

(b) publish a statement censuring the person.

(2) The procedures which the FCA will follow if it proposes to take

action, and if it decides to take action against a person, under section

192K are set out in DEPP. (3) In exercising or deciding whether to exercise its power under section

192K of the Act, the FCA will also have regard to any statement of

policy published under this section and in force at a time when the

contravention in question occurred.
REC 4 : Supervision Section 4.9 : Disciplinary measures

4

REC 4/28 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

[Note: The FCA has issued a statement of policy for consultation with respect

to the exercise of its powers under section 192K of the Act.]
Recognised Investment Exchanges and Recognised Clearing Houses

Chapter 5

Applications for Recognition

(UK recognised bodies)

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 5/1
REC 5 : Applications for Section 5.1 : Introduction and legal

Recognition (UK recognised background

bodies)

5 5.1.1 G

5.1.1A G

5.1.2 G

REC 5/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

5.1 Introduction and legal background

A body corporate or an unincorporated association may apply to the FCA for

recognition as a UK recognised body under sections 287 (Application by an

investment exchange) or 288 (Application by a clearing house) of the Act. A UK RIE may apply to the FCA for recognition as an RAP under regulation 2

of the RAP regulations. This chapter sets out guidance for UK applicants and for UK entities which

are considering making an application. Guidance for applicants and

prospective applicants for ROIE status is given in ■ REC 6.
REC 5 : Applications for Section 5.2 : Application process

Recognition (UK recognised

bodies)

5.2.1 G 5

5.2.1A G

5.2.2 G

5.2.3 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 5/3

5.2 Application process

An applicant for recognised body status needs to demonstrate to the FCA

that it is able to meet the recognised body requirements before a

recognition order can be made. Once it has been recognised, a recognised

body has to comply with the recognised body requirements at all times.

(Guidance on the recognised body requirements applicable to UK recognised

bodies (and applicants) is given in ■ REC 2 and ■ REC 2A).

In addition, under section 290A of the Act (Refusal of recognition on ground

of excessive regulatory provision), the FCA must refuse to make a recognition

order in relation to a body applying for recognition as a UK RIE if it appears

to the FCA that an existing or proposed regulatory provision of the applicant

in connection with the applicant's business as an investment exchange or the

provision by the applicant of clearing facilitation services imposes, or will

impose, an excessive requirement (as defined in section 300A of the Act) on

persons directly or indirectly affected by it.

(1) There is no standard application form. A prospective applicant should

contact the Markets Division at the FCA at an early stage for advice

on the preparation, scheduling and practical aspects of its application.

(2) It is very important, if an application is to be processed smoothly and

in a reasonable time, that it is comprehensively prepared and based

on a well-developed and clear proposal.

An application should:

(1) be made in accordance with any directions the FCA may make under

section 287 (Application by an investment exchange) of the Act or

(for RAPs) regulation 2 of the RAP regulations;

(2) in the case of an application under section 287 of the Act, be

accompanied by the applicant's regulatory provisions and in the case

of an application under section 287 of the Act information required

pursuant to sub-sections 287(3)(c), (d) and (e) of the Act (see

■ REC 5.2.3A G) (the material specifically prescribed in section 287 or

section 288);

(3) be accompanied by the information, evidence and explanatory

material (including supporting documentation) necessary to
REC 5 : Applications for Section 5.2 : Application process

Recognition (UK recognised

bodies)

5

5.2.3A G

5.2.4 G

5.2.5 G

5.2.5A G

5.2.6 G

5.2.6A G

5.2.7 G

REC 5/4 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

demonstrate to the FCA that the recognised body requirements will

be met; and

(4) be accompanied by the appropriate fee (see ■ REC 7).

The information required pursuant to sub-sections 287(c), (d) and (e) of the

Act is:

(1) a programme of operations which includes the types of business the

applicant proposes to undertake and the applicant's proposed

organisational structure;

(2) particulars of the persons who effectively direct the business and

operations of the exchange; and

(3) particulars of the ownership of the exchange, and in particular the

identity and scale of interests of the persons who are in a position to

exercise significant influence over the management of the exchange,

whether directly or indirectly.

Other information and documentation which should normally accompany an

application is listed in more detail in ■ REC 5.2.14 G. A prospective applicant who is an authorised person may wish to consult the

FCA about the extent to which information which it has already supplied in

connection with its status as an authorised person can be used to support an

application to become a UK recognised body. A UK RIE applying for recognition as an RAP may wish to consult the FCA

about the extent to which information which it has already supplied in

connection with its status as a UK RIE can be used to support an application

to be recognised as an RAP. Under section 289 of the Act (Applications: supplementary) or (for an RAP

applicant) regulation 2 of the RAP regulations, the FCA may require the

applicant to provide additional information, and may require the applicant

to verify any information in any manner. In view of their likely importance

for any application, the FCA will normally wish to arrange for its own

inspection of an applicant's information technology systems.

In the case of an application to become a UK RIE or an RAP, under subsection

290(1B) of the Act and (for an RAP applicant) regulation 2(8) of the RAP

regulations, the application must be determined by the FCA before the end

of the period of six months beginning with the date on which it receives the

completed application.

At any time after making a formal application, the applicant may make

amendments to its rules, guidance or any other part of its application

submitted to the FCA.
REC 5 : Applications for Section 5.2 : Application process

Recognition (UK recognised

bodies)

5

5.2.8 G

5.2.9 G

5.2.10 G

5.2.11 G

5.2.12 G

5.2.13 G

5.2.14 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 5/5

(1) The FCA will keep the applicant informed of the progress of the

application.

(2) It may be necessary to ask the applicant to clarify or amplify some

aspects of its proposals. The FCA may wish to discuss various aspects

of the application and may invite the applicant to attend one or

more meetings for that purpose. When requested to do so, the FCA

will explain the nature of the information which it has asked an

applicant to supply in connection with its application.

(1) [deleted]

(2) [deleted]

[deleted]

[deleted]

Where the FCA considers that it is unlikely to make a recognition order it

will discuss its concerns with the applicant as early as possible with a view to

enabling the applicant to make changes to its rules or guidance, or other

parts of the application (see ■ REC 5.2.7 G). If the FCA decides that it will not

make a recognition order, it will follow the procedure set out in section 298

of the Act (Directions and revocation: procedure) or (in the case of an RAP)

regulation 5 of the RAP regulations and described in more detail in ■ REC 4.8.

[deleted]

Information and supporting documentation (see ■ REC 5.2.4 G).

(1) Details of the applicant's constitution, structure and ownership, including its memorandum and articles of association (or similar or

analogous documents ) and any agreements between the applicant, its owners or other persons relating to its constitution or governance (if not contained in the information listed in REC 5.2.3A G).

An applicant for RAP status must provide details of the relationship between the governance arrangements in place for the UK

RIE and the RAP. (2) Details of all business to be conducted by the applicant, whether

or not a regulated activity (if not contained in the information

listed in REC 5.2.3A G).

(3) Details of the facilities which the applicant plans to operate, including details of the trading platform or (for an RAP) auction

platform, settlement arrangements, clearing facilitation services

and custody services which it plans to supply. An applicant for RAP

status must provide details on the relationship between the auction platform and any secondary market in emissions auction products which it operates or plans to operate.

(4) Copies of the last three annual reports and accounts and, for the

current financial year, quarterly management accounts.
REC 5 : Applications for Section 5.2 : Application process

Recognition (UK recognised

bodies)

5

REC 5/6 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

(5) Details of its business plan for the first three years of operation as

a UK recognised body (if not contained in the information listed

in REC 5.2.3A G).

(6) A full organisation chart and a list of the posts to be held by key

individuals (with details of the duties and responsibilities) and the

names of the persons proposed for these appointments when

these names are available (if not contained in the information

listed in REC 5.2.3A G).

(7) Details of its auditors, bankers, solicitors and any persons providing corporate finance advice or similar services (such as reporting

accountants) to the applicant.

(8) Details of any relevant functions to be outsourced or delegated,

with copies of relevant agreements.

(9) Details of information technology systems and of arrangements

for their supply, management, maintenance and upgrading, and

security.

(10) Details of all plans to minimise disruption to operation of its facilities in the event of the failure of its information technology

systems.

(11) Details of internal systems for financial control, arrangements for

risk management and insurance arrangements to cover operational and other risks.

(12) Details of its arrangements for managing any counterparty risks.

(13) Details of internal arrangements to safeguard confidential or privileged information and for handling conflicts of interest.

(14) Details of arrangements for complying with the notification rules

and other requirements to supply information to the FCA. (15) Details of the arrangements to be made for monitoring and enforcing compliance with its rules and with its clearing, settlement

and default arrangements.

(16) A summary of the legal due diligence carried out in relation to ascertaining the enforceability of its rules (including default rules)

and the results and conclusions reached.

(17) Details of the procedures to be followed for declaring a member

in default, and for taking action after that event to close out positions, protect the interests of other members and enforce its default rules. (18) Details of membership selection criteria, rules and procedures, including (for an RAP) details of how the rules of the UK RIE will

change in order to reflect RAP status.

(19) Details of arrangements for recording transactions effected by, or

cleared through, its facilities. (20) Details of arrangements for detecting financial crime and market

abuse , including arrangements for complying with money laundering law.

(21) Details of criteria, rules and arrangements for selecting specified

investments to be admitted to trading on (or cleared by) an RIE

and, where relevant, details of how information regarding specified investments will be disseminated to users of its facilities. (22) Details of arrangements for cooperating with the FCA and other

appropriate authorities, including draft memoranda of understanding or letters.

(23) Details of the procedures and arrangements for making and

amending rules, including arrangements for consulting on rule

changes.
REC 5 : Applications for Section 5.2 : Application process

Recognition (UK recognised

bodies)

5

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 5/7

(24) Details of disciplinary and appeal procedures, and of the arrangements for investigating complaints.
REC 5 : Applications for Section 5.2 : Application process

Recognition (UK recognised

bodies)

5

REC 5/8 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015
Recognised Investment Exchanges and Recognised Clearing Houses

Chapter 6

Overseas Investment

Exchanges

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 6/1
REC 6 : Overseas Investment Section 6.1 : Introduction and legal

Exchanges background

6

6.1.1 G

6.1.2 G

REC 6/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

6.1 Introduction and legal background

The Act prohibits any person from carrying on, or purporting to carry on,

regulated activities in the United Kingdom unless that person is an

authorised person or an exempt person. If an overseas investment exchange

wishes to undertake regulated activities in the United Kingdom, it will need

to:

(1) obtain a Part 4A permission from the FCA;

(2) (in the case of an EEA firm or a Treaty firm) qualify for authorisation

under Schedule 3 (EEA Passport Rights) or Schedule 4 (Treaty rights)

to the Act, respectively; or

(3) (in the case of an EEA market operator) obtain exempt person status

by exercising its passport rights under Articles 31(5) and 31(6) of

MiFID (in the case of arrangements relating to a multilateral trading

facility) or Article 42(6) of MiFID (in the case of arrangements relating

to a regulated market); or

(4) obtain exempt person status by being declared by the FCA to be an

ROIE. Having the status of an ROIE facilitates the participation of overseas

investment exchanges in UK markets. In comparison with authorisation, it

reduces the involvement which UK authorities need to have in the day-today affairs of an overseas recognised body because they are able to rely

substantially on the supervisory and regulatory arrangements in the country

where the applicant's head office is situated.
REC 6 : Overseas Investment Section 6.2 : Applications

Exchanges

6

6.2.1 G

6.2.2 G

6.2.3 G

6.2.4 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 6/3

6.2 Applications

(1) Overseas investment exchanges which are considering whether to

seek authorisation or recognition should first consider whether they

will be carrying on regulated activities in the United Kingdom. Overseas investment exchanges which do not carry on regulated

activities in the United Kingdom need take no action.

(2) Prospective applicants should discuss authorisation and recognition

with the FCA before deciding whether to seek authorisation or

recognition.

A prospective applicant may wish to contact the Markets Division at the FCA

at an early stage for advice on the preparation, scheduling and practical

aspects of an application to become an overseas recognised body. Applicants for authorised person status should refer to the FCA website

"How do I get authorised": http://www.fca.org.uk/firms/about-authorisation .

Applications for recognition as an overseas recognised body should be

addressed to:

The Financial Conduct Authority (Markets Division)

25 The North Colonnade

Canary Wharf

London E14 5HS

There is no standard application form for application for recognition as an

ROIE. An application should be made in accordance with any direction the

FCA may make under section 287 (Application by an investment exchange) of

the Act and should include:

(1) the information, evidence and explanatory material necessary to

demonstrate to the FCA that the recognition requirements (set out in

■ REC 6.3) will be met;

(2) the application fee (see ■ REC 7);

(3) the address of the applicant's head office in its home territory;

(4) the address of a place in the United Kingdom for the service on the

applicant of notices or other documents required or authorised to be

served on it under the Act (see section 292(1));
REC 6 : Overseas Investment Section 6.2 : Applications

Exchanges

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REC 6/4 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

(5) the applicant's regulatory provisions;

(6) one copy of each of the following documents:

(a) its most recent annual report and accounts; and

(b) the applicant's memorandum and articles of association or any

similar or analogous documents; and

(7) information identifying the following (if not contained in the

documents listed in (5) or (6) or the material referred to in (1)):

(a) any type of regulated activity which the applicant envisages

carrying on in the United Kingdom;

(b) any type of specified investment dealt in on, or arranged to be

cleared through the applicant;

(c) the date by which the applicant wishes the recognition order to

take effect; and

(d) any body or authority which supervises the applicant under the

law of the home territory, the status of the applicant under that

law, and the enactment or regulation under which the

supervision is conducted.

The FCA may require further information from the applicant and may need

to have discussions with the appropriate authorities in the applicant's home

territory. To allow sufficient time for applications to be processed and for the

necessary contacts to be made with the appropriate home territory

authorities, applications should be made not later than six months before

the applicant wishes the recognition order to take effect. No guarantee can

be given that a decision will be reached within this time, although the FCA

will endeavour to meet the applicant's reasonable timing requirements.

All material should be supplied in English, or accompanied, if appropriate, by

an accurate English translation. An English glossary of technical or statistical

terms may be sufficient to accompany tables of statistical or financial

information.
REC 6 : Overseas Investment Section 6.3 : Recognition requirements

Exchanges

6

6.3.1 G

6.3.2 UK

6.3.3 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 6/5

6.3 Recognition requirements

Before making a recognition order, the FCA will need to be satisfied that the

recognition requirements in section 292(3) of the Act (Overseas investment

exchanges) have been met. These requirements are the only recognition

requirements applicable to ROIEs. Sections 292(3) and 292(4) state:

Section 292(3)

The requirements are that-

(a) investors are afforded protection equivalent to that which they

would be afforded if the body concerned were required to comply

withrecognition requirements other than such requirements which

are expressed in regulations under section 286 not to apply for the

purposes of this paragraph;

(b) there are adequate procedures for dealing with a person who is unable, or likely to become unable, to meet his obligations in respect

of one or more market contracts connected with the [ROIE]

(c) the applicant is able and willing to co-operate with the[FCA] by the

sharing of information and in other ways; and

(d) adequate arrangements exist for co-operation between the[FCA]

and those responsible for the supervision of the applicant in the

country or territory in which the applicant's head office is situated.

Section 292(4)

In considering whether it is satisfied as to the requirements mentioned in

subsections (3)(a) and (b), the[FCA] is to have regard to-

(a) the relevant law and practice of the country or territory in which

the applicant's head office is situated;

(b) the rules and practices of the applicant. The reference to recognition requirements in section 292(3)(a) of the Act is a

reference to the requirements applicable to UK RIEs in the Recognition

Requirements Regulations. These requirements are set out, together with

guidance, in ■ REC 2.
REC 6 : Overseas Investment Section 6.5 : FCA decision on recognition

Exchanges

6

6.5.1 G

6.5.2 G

6.5.3 G

REC 6/6 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

6.5 FCA decision on recognition

If the FCA considers that the requirements of the Act are satisfied, it may

make a recognition order, which will state the date on which it takes effect.

Where the FCA considers that it is unlikely to make a recognition order, it

will discuss its concerns with the applicant with a view to enabling the

applicant to make changes to its rules or guidance, or other parts of the

application. If the FCA decides to refuse to make a recognition order, it will

follow the procedure set out in section 298 of the Act (Directions and

revocation: procedure) (which applies in consequence of section 290(5) of the

Act (Recognition orders)) which is described in more detail in ■ REC 4.8.

[deleted]
REC 6 : Overseas Investment Section 6.6 : Supervision

Exchanges

6

6.6.1 G

6.6.2 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 6/7

6.6 Supervision

An ROIE is required to notify the FCA of certain events and give information

to it on a regular basis and when certain specified events occur. Section 295

of the Act (Notification: overseas investment exchanges and overseas clearing

houses) requires each ROIE to provide the FCA with a report (at least once a

year) which contains:

(1) a statement as to whether any events have occurred which are likely

to affect the FCA's assessment of whether it is satisfied that the ROIE

continues to satisfy the recognition requirements set out in the

section 292(3) of the Act (Overseas investment exchanges and

overseas clearing houses) (see ■ REC 6.3);

(2) the information specified in the FCA's notification rules for ROIEs (see

■ REC 6.7).

The following events are examples of events likely to affect an assessment of

whether an ROIE is continuing to satisfy the recognition requirements

(1) significant changes to any relevant law or regulation in its home

territory, including laws or regulations:

(a) governing exchanges or, if relevant to an ROIE's satisfaction of

the recognition requirements, clearing houses;

(b) designed to prevent insider dealing, market manipulation or

other forms of market abuse or misconduct;

(c) designed to protect the interests of clients of members of the

ROIE, or of a class of bodies which includes the ROIE;

(d) which affect:

(i) the ability of the ROIE to seek information (whether

compulsorily or voluntarily) from its members, including

information relating to the price and volume of transactions,

the identity of parties to transactions, and the movement of

funds associated with transactions;

(ii) the ability of theROIE to pass such information, on request,

to UK authorities;

(2) significant changes to its internal organisation or structure;

(3) significant changes to the practices of the ROIE applying to any

regulated activities carried on by it in the United Kingdom;

(4) any other event or series of events in relation to the body which:
REC 6 : Overseas Investment Section 6.6 : Supervision

Exchanges

6

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6.6.4 G

6.6.5 G

6.6.6 G

REC 6/8 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

(a) affects or may significantly affect cooperation between the ROIE, or its supervisor in its home territory, and the FCA; or

(b) has or may have a substantial effect on the structure of the

markets in which the body operates; or

(c) brings about or may bring about a substantial change in the

nature and composition of its membership in the United

Kingdom; or

(d) brings about or may bring about a substantial change in the

regulated activities undertaken by it in the United Kingdom. The period covered by a report submitted under section 295(1) of the Act

starts on the day after the period covered by its last report or, if there is no

such report, after the making of the recognition order recognising theROIE

as such, and ends on the date specified in the report or, if no date is

specified, on the date of the report.

If an ROIE changes the period covered by its report, it should ensure that the

first day of the period covered by a report is the day immediately following

the last day of the period covered by the previous report.

The period covered by a report submitted under section 295(1) of the Act

would most conveniently be one year.

Copies of the report should be sent to the FCA within two months after the

end of the period to which it relates.
REC 6 : Overseas Investment Section 6.7 : Notification rules for overseas

Exchanges recognised bodies

6.7.1 R 6

6.7.2 G

6.7.3 R

6.7.4 R

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 6/9

6.7 Notification rules for overseas

recognised bodies

Application ...................................................................................................... The notification rules in this chapter, which are made under sections 293

(Notification requirements) and 295 of the Act (Notification: overseas

investment exchanges and overseas clearing houses), apply to all ROIEs. Purpose ...................................................................................................... The notification rules in this chapter are made by the FCA in order to ensure

that it is provided with notice of events and information which it reasonably

requires for the exercise of its functions under the Act. Reports under section 295 ...................................................................................................... Where an ROIE includes in its report made under section 295(1) of the Act

(Notification: overseas investment exchanges and overseas clearing houses) a

statement in compliance with section 295(2)(a) of the Act that an event has

occurred in the period covered by that report which is likely to affect the

FCA's assessment of whether it is satisfied as to the requirements set out in

section 292(3) (Overseas investment exchanges and overseas clearing houses),

it must include particulars of that event.

An ROIE must include in its report submitted in compliance with section

295(1) of the Act:

(1) particulars of any changes to:

(a) its memorandum and articles of association or any similar or

analogous documents;

(b) its regulatory provisions;

(c) its chairman or president, or chief executive (or equivalent);

(2) particulars of any disciplinary action (or any similar or analogous

action) taken against it by any supervisory authority in its home

territory, whether or not that action has been made public in that

territory;

(3) a copy of its annual report and accounts; and

(4) a statement as to whether any events have occurred which are likely

to have any material effect on competition;
REC 6 : Overseas Investment Section 6.7 : Notification rules for overseas

Exchanges recognised bodies

6

6.7.5 R

6.7.6 G

6.7.7 R

6.7.8 R

REC 6/10 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

where those events occurred, or the period covered by that annual report

and accounts ended, in the period covered by that report.

First report

...................................................................................................... An ROIE must include in the first report submitted under section 295(1) of

the Act after the recognition order in relation to that ROIE is made:

(1) particulars of any events of the kind described in section 295(2) of the

Act which occurred;

(2) particulars of any change specified in ■ REC 6.7.4 R (1) or disciplinary

action specified in ■ REC 6.7.4 R (2) which occurred; and

(3) any annual report and accounts which covered a period ending;

after the application for recognition was submitted to the FCA but which

were not included in the application or in any supplementary information

submitted to the FCA before the recognition order was made.

Guidance on the period covered by an ROIE's report submitted in compliance

with section 295(1) of the Act is given in ■ REC 6.6.3 G. Changes of address ...................................................................................................... Where an ROIE proposes to change:

(1) its address in the United Kingdom for the service of notices or other

documents required or authorised to be served on it under the Act;

or

(2) the address of its head office;

it must give notice to the FCA and inform it of the new address at least 14

days before the change is effected.

Revocation or modification of home territory licence,

permission or authorisation ...................................................................................................... Where an ROIE has notice that any licence, permission or authorisation

which it requires to conduct any regulated activity in its home territory has

been or is about to be:

(1) revoked; or

(2) modified in any way which would materially restrict the ROIE in

performing any regulated activity in its home territory or in the

United Kingdom;

it must immediately notify the FCA of that fact and must give the FCA the

information specified for the purposes of this rule in ■ REC 6.7.9 R, as soon as

that information is known to it.
REC 6 : Overseas Investment Section 6.7 : Notification rules for overseas

Exchanges recognised bodies

6

6.7.9 R

6.7.10 R

6.7.11 G

6.7.12 R

6.7.13 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 6/11

The following information is specified for the purposes of ■ REC 6.7.8 R:

(1) particulars of the licence, permission or authorisation which has been

or is to be revoked or modified, including particulars of the

ROIEsregulated activities to which it relates;

(2) an explanation of how the revocation or modification restricts or will

restrict the ROIE in carrying on any regulated activity in its home

territory or in the United Kingdom;

(3) the date on which the revocation or modification took, or will take,

effect and, if it is a temporary measure, any date on which, or any

conditions that must be met before which, it will cease to have effect;

and

(4) any reasons given for the revocation or modification.

Language of notice ...................................................................................................... Any notice to be given or information to be supplied under these

notification rules must be supplied in English, and any document to be

provided must be accompanied, if not in English, by an accurate English

translation.

An English glossary of technical or statistical terms may be sufficient to

accompany tables of statistical or financial information.

Form and method of notification ...................................................................................................... The rules relating to the form and method of notification in ■ REC 3.2 also

apply to ROIEs. Waivers ...................................................................................................... ROIEs may apply to the FCA for a waiver of any of the notification rules. The

procedure is the same as that for applications from UK recognised bodies. Guidance on the procedure is given in ■ REC 3.3.
REC 6 : Overseas Investment Section 6.8 : Powers to supervise

Exchanges

6

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6.8.2 G

REC 6/12 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

6.8 Powers to supervise

The FCA has similar powers to supervise ROIEs to those it has to supervise UK

RIEs. It may (in addition to any other powers it might exercise):

(1) give directions to an ROIE under section 296 of the Act (Authority's

power to give directions) if it has failed, or is likely to fail, to satisfy

the recognition requirements or if it has failed to comply with any

other obligation imposed by or under the Act; or

(2) revoke a recognition order under section 297 of the Act (Revoking

recognition) if an ROIE is failing, or has failed, to comply with the

recognition requirements or any other obligation in or under the Act;

or

(3) require an ROIE or a person connected with the ROIE, under section

165 of the Act, to provide or produce specified information or

information of a specified description, at a specified place and before

the end of a reasonable period, in such form and with such

verifications or authentications as it may reasonably require; or

(4) require any of the following persons, under section 166 of the Act, to

provide the FCA with a report on any matter, or appoint a skilled

person to provide the FCA with information or produce documents

with respect to any matter:

(a) the ROIE; or

(b) any other member of the ROIE's group; or

(c) a partnership of which the ROIE is a member; or

(d) a person who has at any time been a person falling within (a), (b)

or (c).

The FCA will follow the approach in ■ REC 4.6, ■ REC 4.7, ■ REC 4.8, ■ REC 4.2F

and ■ REC 4.2G if it is considering exercising these powers in relation to an

ROIE.
Recognised Investment Exchanges and Recognised Cle

Chapter 6A

EEA market operators in the

United Kingdom

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 6A/1
REC 6A : EEA market operators Section 6A.1 : Exercise of passport rights by

in the United Kingdom EEA market operator

6A

6A.1.1 G

6A.1.2 G

6A.1.3 G

6A.1.4 G

REC 6A/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

6A.1 Exercise of passport rights by EEA

market operator

Under section 312A of the Act, an EEA market operator may make

arrangements in the United Kingdom to facilitate access to, or use of, a

regulated market or multilateral trading facility operated by it if:

(1) the operator has given its Home State regulator notice of its

intention to make such arrangements; and

(2) the Home State regulator has given the FCA notice of the operator's

intention.

In making these arrangements, the operator has exempt person status as

respects any regulated activity, which is carried on as a part of its business of

operating the market or facility in question, or in connection with, or for the

purposes of that business.

An EEA market operator has exempt person status as respects any regulated

activity which is carried on as a part of its business of operating a regulated

market or multilateral trading facility if the operator made arrangements in

the United Kingdom on or before 31 October 2007 to facilitate access to, or

use of, that regulated market or multilateral trading facility.

In accordance with the RAP regulations, references in section 312A of the Act

to specified regulated market and market are to be read as including

reference to a specified auction platform and an auction platform as

applicable.
REC 6A : EEA market operators Section 6A.2 : Removal of passport rights

in the United Kingdom from EEA market operator

6A

6A.2.1 G

6A.2.2 G

6A.2.3 G

6A.2.4 G

6A.2.5 G

6A.2.6 G

6A.2.7 G

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 6A/3

6A.2 Removal of passport rights from

EEA market operator

Under section 312B of the Act, the FCA may prohibit an EEA market operator

from making or, as the case may be, continuing arrangements in the United

Kingdom, to facilitate access to, or use of, a regulated market, or

multilateral trading facility, operated by the operator if:

(1) the FCA has clear and demonstrable grounds for believing that the

operator has contravened a relevant requirement, and

(2) the FCA has first complied with sections 312B(3) to (9) of the Act. A requirement is relevant if it is imposed:

(1) by the operator's Home State regulator in the implementation of

MiFID or any EU legislation made under MiFID;

(2) by provision implementing MiFID, or any EU legislation made under

it, in the operator's Home State; or

(3) by any directly applicable EU regulation made under MiFID. The procedure the FCA will follow if it is to exercise this prohibition power is

set out in sections 313B(3) to (9) of the Act.

If the FCA exercises this prohibition power it must at the earliest opportunity

notify the Commission and ESMA of the action taken in relation to the

operator.

The operator's exempt person status ceases to apply if the FCA exercises this

prohibition power.

The operator's right to make arrangements in the United Kingdom, to

facilitate access to, or use of, a regulated market, or multilateral trading

facility, operated by the operator may be reinstated (together with its

exempt person status) if the FCA is satisfied that the contravention which led

the FCA to exercise its prohibition power has been remedied.

In accordance with the RAP regulations, references in section 312B of the Act

to regulated market are to be read as including reference to an auction
REC 6A : EEA market operators Section 6A.2 : Removal of passport rights

in the United Kingdom from EEA market operator

6A

REC 6A/4 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015

platform and references to MiFID are to be read as including reference to

the auction regulation.
Recognised Investment Exchanges and Recognised Clearing Houses

Chapter 7

Fees

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 7/1
■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 7/2
REC 7 : Fees Annex 1

7

[deleted: the provisions in relation to Recognised Investment Exchanges

and Recognised Clearing Houses are set out in FEES 4 Annex 6R]

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 7 Annex 1/1
REC 7 : Fees Annex 1

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REC 7 Annex 1/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015
REC 7 : Fees Annex 2

7

[deleted: the provisions in relation to Recognised Investment Exchanges

and Recognised Clearing Houses are set out in FEES?3 Annex 3R]

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC 7 Annex 2/1
REC 7 : Fees Annex 2

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REC 7 Annex 2/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015
REC Transitional provisions

Recognised Investment Exchanges and

Recognised Clearing Houses

REC TP 1

Transitional provisions

Introduction

1 This schedule sets out the transitional provisions in REC. 2 The Recognition Requirements Regulations also contain transitional provisions applying to recognised bodies. 3 GEN also contains some technical transitional provisions that apply throughout the

Handbook

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC TP 1/1
REC Transitional provisions

REC TP 1/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015
REC Schedule 1

Record keeping requirements

Recognised Investment Exchanges and

Recognised Clearing Houses

Schedule 1

Record keeping requirements

Sch 1.1 G

There are no record keeping requirements as such in REC. UK recognised bodies have obligations under the Recognition Requirements Regulations to

ensure that satisfactory arrangements are made for recording transactions effected by, or

cleared through, their facilities. See REC 2.9 for guidance (in the case of RAPs, see REC 2.9 as

applied by REC 2A.3.2 G).

RAPs also have separate record keeping obligations under the auction regulation.

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC Sch 1/1
REC Schedule 1

Record keeping requirements

REC Sch 1/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015
REC Schedule 2

Notification requirements

Recognised Investment Exchanges and

Recognised Clearing Houses

Schedule 2

Notification requirements

Sch 2.1 G

The following table summarises the notification requirements applicable to all recognised

bodies. The notification rules are set out in detail in Notification rules for UK recognised bodies

and REC 6.7 and, to avoid unnecessary repetition, are not set out in detail here. The notification rules for RAPs differ in some respects from the notification rules for UK RIEs (for example, due to requirements contained in the auction regulation).

For completeness, summary details of the main notification requirements in the Act itself

and the Companies Act 1989 are also included in the table. The summary of these statutory

provisions here should not be taken to imply that these are obligations imposed by the FCA

under its powers nor that the following summary supersedes or alters the meaning of these

provisions.

Guidance on the statutory notification requirements for ROIEs is given in REC 6.6. Sch 2.2 G

Reference to Matter to be Contents of noti- Trigger event Time

legislation or notified fication allowed

Handbook

UK RIEs

The Act 293(5) Changes to rules Details of change Change to rule or Without

and guidance guidance delay

The Act Proposal to make Details of proposal Proposal to make Without

s300B(1) regulatory provision regulatory delay

provision

Companies Act Proposed changes Details of proposed Proposal to change 14 days in

1989 s157 to default rules change default rules advance

of

change

The Act Changes to arrange- Details of change Change to ar- Without

s293(6)(a) ments for clearing rangements delay

facilitation services

in respect of on-exchange transactions

The Acts Changes to criteria Details of change Change to criteria Without

293(6)(b) determining to delay

whom it will provide clearing facilitation services

RAPs

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REC Schedule 2

Notification requirements

Reference to Matter to be Contents of noti- Trigger event Time

legislation or notified fication allowed

Handbook

The auction re- Either a methodo- See REC 3.15 Event concerned Without

gulation art- logy or a modifica- delay

icle 7(7) tion to that methodology as specified

by the auction regulation

Notification rules for UK recognised bodies (see Notification rules for UK recognised bodies)

REC 3.4 Key individuals and Details of change See REC 3.4 See REC

internal or- 3.4

ganisation

REC 3.5 Disciplinary action Details of disciplin- Disciplinary action Imand events relating ary action or event or awareness of mediately

to key individuals event

REC 3.6 Constitution and Details of proposals Communication of Imgovernance to amend constitu- proposal to amend mediately

tion, amendments constitution, makto constitution and ing amendment to

agreements relat- constitution or

ing to constitution awareness of agreement relating to

constitution

REC 3.7 Auditors Details of removal Removal or ap- Imor appointment of pointment of mediately

auditors auditors

REC 3.8 Financial and other See REC 3.8 See REC 3.8 See REC

information 3.8

REC 3.9 Fees and incentive Summary of pro- Communication to Imschemes posals to change members mediately

fees and charges

and changes to fees

and charges

REC 3.10 Complaints Copy of adverse re- Availability of re- Import and details of port or recom- mediately

recommendations mendations

from complaints investigator

REC 3.11 Insolvency events Notice of insolvency Insolvency event Imevent mediately

REC 3.12 Legal proceedings Details of legal pro- Institution of pro- Imceedings com- ceedings mediately

menced against UK

recognised body

REC 3.13 Delegation of relev- Details of offers or Making offer or Imant functions agreements to del- agreement to mediately

egate relevant func- delegate

tions and offers or

agreements to undertake relevant

functions on behalf

of another recognised body

REC 3.14 Products, services See REC 3.14 See REC 3.14 Imand normal hours mediately

of operation or (for

REC Sch 2/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015
REC Schedule 2

Notification requirements

Reference to Matter to be Contents of noti- Trigger event Time

legislation or notified fication allowed

Handbook

RAPs) the timing,

frequency or duration of its bidding

windows

REC 3.14A Operation of a Details of proposal Communication of Imregulated market to operate a new proposal to mem- mediately

or MTF regulated market bers or

or MTF or close an shareholders

existing regulated

market or MTF

REC 3.15 Suspension of ser- See REC 3.15 Event concerned Imvices and inability mediately

to operate facilities

or (for RAPs) the

cancellation of an

auction

REC 3.16 Information techno- Details of business Changes to business Imlogy systems continuity plans continuity plans mediately

and details of fail- and failure of reure of reserve in- serve information

formation techno- technology system

logy system

REC 3.17 Inability to dis- Details of inability Event concerned Imcharge regulatory to discharge a regu- mediately

functions latory functions

REC 3.18 Membership Information regard- Admission of new Iming new types of type of non-au- mediately

member and thorised person or

reasons for con- person from new

sidering the recog- non-UK jurisdiction

nition requirements to membership

or (for RAPs) the

RAP recognition requirement in regulation 20can still be

met

REC 3.19 Investigations Notice of appoint- Awareness of ap- Imment of person to pointment mediately

investigate use of

facilities or provision of services

REC 3.20 Disciplinary action Details of person Taking disciplinary Imagainst whom dis- action mediately

ciplinary action

taken

REC 3.21 Criminal offences Evidence tending to Having evidence Imand civil pro- suggest contra- concerned mediately

hibitions ventions of the general prohibition, certain criminal offences or market

abuse

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC Sch 2/3
REC Schedule 2

Notification requirements

Reference to Matter to be Contents of noti- Trigger event Time

legislation or notified fication allowed

Handbook

REC 3.22 Restriction or in- Details of decision Decision to take ac- Imstruction to close to restrict member's tion or (for RAPs) mediately

out, open positions open position or in- proposal to take

or (for RAPs) restric- struction to close action

tion on maximum out position or (for

bid size or other re- RAPs) details of the

medial measures event and remedial

measures proposed

REC 3.23 Default Notice of decision Communicating de- Imto put member into cision to member mediately

default concerned or any

other member

REC 3.24 Transfers of Details of transfer When the UK RIE Imownership of ownership becomes aware of mediately

the transfer of

ownership

REC 3.25 Significant breaches Significant breaches Significant breaches Imof rules and disor- of rules and disor- of rules and disor- mediately

derly trading derly trading derly trading

conditions conditions conditions

REC 3.26 Proposal to make Details of proposal Proposal to make Without

regulatory provision regulatory delay

provision

ROIEs

The Act s295 Report to FCA Statement as to Not applicable Once a

whether events year

have occurred

which would affect

the FCA's assessment of whether

the recognition requirements are met

Notification rules for ROIEs (see REC 6.7)

REC 6.7.3 R Events which might Particulars of event Not applicable Include in

affect the FCA's as- report

sessment of under

whether the recog- s295

nition requirements

are met

REC 6.7.4 R Inclusion of certain See REC 6.7.4 R Not applicable Include in

matters in report report

under

s295

REC 6.7.5 R First report See REC 6.7.5 R Not applicable Include in

report

under

s295

REC 6.7.7 R Changes of address Details of new Decision to change 14 days in

addresses address advance

of

change

of

address

REC Sch 2/4 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015
REC Schedule 2

Notification requirements

Reference to Matter to be Contents of noti- Trigger event Time

legislation or notified fication allowed

Handbook

REC 6.7.8 R and Revocation or modi- Details of revoca- Awareness of re- ImREC 6.7.9 R fication of home tion or modi- vocation or modi- mediately

territory licence etc fication fication

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC Sch 2/5
REC Schedule 2

Notification requirements

REC Sch 2/6 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015
REC Schedule 5

Rights of action for damages

Recognised Investment Exchanges and

Recognised Clearing Houses

Schedule 5

Rights of action for damages

Sch 5.1 G

There are no rights of action under section 150 of the Act in respect of any contravention

by a recognised body of any rule made under the Act.

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC Sch 5/1
REC Schedule 5

Rights of action for damages

REC Sch 5/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015
REC Schedule 6

Rules that can be waived

Recognised Investment Exchanges and

Recognised Clearing Houses

Schedule 6

Rules that can be waived

Sch 6.1 G

The notification rules in REC 3 and REC 6 can be waived by the FCA under section 294 of the

Act (Modification or waiver of rules). (The statutory notification requirements, also

summarised in Schedule 2 to REC, cannot be waived by the FCA.)

■ Release 0 ● Oct 2015 www.handbook.fca.org.uk REC Sch 6/1
REC Schedule 6

Rules that can be waived

REC Sch 6/2 www.handbook.fca.org.uk ■ Release 0 ● Oct 2015