MAR 3.7 Firms acting as Wholesale market brokers and those undertaking transactions through them; provisions concerning brokers and arrangers generally

MAR 3.7 provides guidance on the interpretation of the Principles, and in particular Principle 5 (Market conduct), as they apply to certain responsibilities of firms acting as wholesale market brokers and of persons undertaking transactions through them. In particular, it covers the passing of names and differences.

The use of various terms for brokers and arrangers are based on the understanding that name-passing brokers are, in simple terms, what arrangers are called in certain wholesale markets. As such, the terms are virtually interchangeable and in MAR both terms have generally been used for the avoidance of doubt. Similarly, name-passing brokers and "matched principal brokers" are both subsets of wholesale market brokers. The use of the latter term is intended to reduce confusion.

A firm acting as a name-passing broker should not prematurely divulge the names of the prospective counterparties to each other, for example before both sides display a serious intention to transact. However, as soon as the material terms of a transaction have been agreed, a firm acting as a name-passing broker should aim to achieve a mutual and immediate exchange of names. When a market counterparty name is unacceptable to another, it is quite proper for a firm acting as a name-passing broker not to divulge by whom the name was refused.

When arranging a transaction, a name-passing broker is trying to achieve a mutual and immediate exchange of names, based on firm quotation of prices. Inevitably, for non-electronic arrangers, there will be occasions when the transaction is not completed at the original price (for instance because a firm price has been hit by another counterparty). The name-passing broker is said to have missed the original price when a market counterparty accepts a firm quote at that price, but the name-passing broker is unable to arrange for the deal to be completed at that price.

A firm acting as a name-passing broker should not ordinarily accept liability for differences and should provide its services on the basis that it does not do so. (This is because accepting liability for differences amounts to taking a position legally and economically, and the name-passing broker would not be following MAR 3.4.12 G.) A firm doing business with a name-passing broker should not, in the ordinary course, ask the latter for compensation for differences. However, once a difference has arisen, a firm acting as a name-passing broker may offer to compensate its market counterparty for some or all of the difference to preserve the relationship with the market counterparty concerned or for other legitimate commercial reasons. That compensation should be in accordance with MAR 3.7.5 R.

When a price has been missed, a firm acting as principal or agent should generally complete the transaction at the next available price through the name-passing broker that has missed the original price. To do otherwise can be prejudicial to the smooth operation of the markets. If the firm does not proceed with the transaction, it should first consider whether withdrawing would be likely to affect the market concerned, and should immediately communicate its decision to the name-passing broker. The firm should not decline to enter into the transaction at the new price if it would breach a reasonable expectation on the part of the name-passing broker that it would not do this.

Any payment for broking or arranging services rendered by a firm, other than on a matched principal basis, should be in money (which for these purposes includes payment by discounting, reducing or rebating commission) unless otherwise agreed in writing between the parties.

A firm acting as a wholesale market broker or arranger should not unfairly favour one market counterparty client over another. Treatment that would otherwise have been unfair is not unfair if the market counterparty concerned has expressly consented to it. The "client" of a wholesale market broker or arranger means (in MAR 3.7.10 G and MAR 3.7.11 G) a person for whom it is providing its services as wholesale market broker or arranger.

A firm should not place an order with a firm acting as a wholesale market broker or arranger if the main purpose is to ascertain either the identity of any client of that firm, or information about transactions into which that client may be interested in entering. For example, a firm that wishes to purchase 1000 bonds should not have a firmarrange for the purchase of 100, in order to discover the identity of a person willing to sell those bonds, and then transact with that other person direct for the other 900.