MAR 5.2 Guidance about what constitutes an ATS

MAR 5.2.2 G to MAR 5.2.8 G set out guidance on the meaning of the expressions ATS and bilateral system (as defined in the Glossary). This guidance is adapted from the guidance contained in the CESR ATS standards on the meaning of "qualifying system" (which is the term equivalent to ATS used in those standards).

For the purposes of the definitions of an ATS and a bilateral system, a system is intended to include not only the electronic parts (if any) of a system but also any rules, protocols, procedures and agreements that make up the system. It is also intended to cover the various parts of a system whether provided directly by the ATS operator or by another person under an arrangement with the ATS operator.

A system may be an ATS although it does not directly involve price formation. For example, a price taking system such as certain crossing systems may be an ATS.

The expression buying and selling interests is intended to include not only orders, but also quotes and indications of interest.

Buying and selling interests will be regarded as being brought together in the system if they are brought together under the system's rules or by means of the system's protocols or internal operating procedures. The concept of bringing together is intended to cover any process under which interests interact; this may be by automatic matching, by way of selection of interests by users themselves or otherwise. It is not necessary that the interests be displayed to users. The fact that, after interests are matched, the users must ratify a proposed transaction does not mean that the interests are not brought together in the system. However, systems such as order routing systems where interests are transmitted but do not interact are not intended to be covered by the definition of an ATS.

The reference to non-discretionary rules in the definition of an ATS is intended to exclude systems where the operator exercises discretion as to how the interests interact. However, the reference is not intended to exclude a system just because the operator has discretion as to whether or not to enter an interest into the system. It is also not intended to exclude a system just because users have discretion about whether or not to take up or accept any expression of interest.

A bulletin board or similar system where users contact each other outside the system (that is, not under the system's rules and not by means of the system's protocols or internal operating procedures) to negotiate the material terms of transactions will not be covered by the definition of an ATS.

The definition of an ATS excludes bilateral systems. The definition of bilateral system is intended to capture a system that is like an ATS except that a single person enters into one side of every transaction effected using the system. It is not however intended to cover central counterparty systems, where in substance participants deal among themselves but where their deals are assumed by the central counterparty as buyer and seller. A central counterparty will have a flat book unless there is a default or mistake, while typically the counterparty in a bilateral system will take principal positions in investments on a continuous basis. The definition of bilateral system is slightly flexible in that occasional crossings of client orders will not of itself make the system an ATS. It also includes a system where, rather than a single person, one of a number of persons in the same group enters into one side of every transaction effected using the system.