S.L. 345.24 Art. 5Specific requirements for OTFs.

(1) A Maltese investment firm and a market operator operating an OTF shall establish arrangements preventing the execution of client orders in an OTF against the proprietary capital of the investment firm or market operator operating the OTF or from any entity that is part of the same group or legal person as the investment firm or market operator.

(2) A Maltese investment firm or market operator operating an OTF shall engage in matched principal trading in bonds, structured finance products, emission allowances and certain derivatives only where the client has consented to the process.

(3) A Maltese investment firm or market operator operating an OTF shall not use matched principal trading to execute client orders in an OTF in derivatives pertaining to a class of derivatives that has been declared subject to the clearing obligation in accordance with Article 5 of Regulation No 648/2012.

(4) A Maltese investment firm or market operator operating an OTF shall establish arrangements ensuring compliance with the definition of matched principal trading prescribed in regulation 2(1).

(5) A Maltese investment firm or market operator operating an OTF may engage in dealing on own account other than matched principal trading only with regard to sovereign debt instruments for which there is not a liquid market.

(6) The operation of an OTF and of a systematic internaliser shall not take place within the same legal entity.

(7) An OTF shall not connect:

(a) with a systematic internaliser in a way which enables orders in an OTF and orders or quotes in a systematic internaliser to interact; and

(b) with another OTF in a way which enables orders in different OTFs to interact.

(8) A Maltese investment firm or a market operator operating an OTF may engage another Maltese investment firm to carry out market making on that OTF on an independent basis:

Provided that for the purposes of this regulation, a Maltese investment firm shall not be deemed to be carrying out market making on an OTF on an independent basis if it has close links with the Maltese investment firm or market operator operating the OTF.

(9) The execution of orders on an OTF shall be carried out on a discretionary basis.

(10) A Maltese investment firm or market operator operating an OTF shall exercise discretion only in either or both of the following circumstances:

(a) when deciding to place or retract an order on the OTF they operate;

(b) when deciding not to match a specific client order with other orders available in the systems at a given time, provided it is in compliance with specific instructions received from a client and with its obligations to execute orders on terms most favourable to the client as prescribed in the Conduct of Business Rulebook.

(11) For the system that crosses client orders the Maltese investment firm or market operator operating the OTF may decide if, when and how much of two or more orders it wants to match within the system. In accordance with sub-regulations (1) to (4) and (6) to (8), of this regulation and without prejudice to sub-regulation (5), with regard to a system that arranges transactions in non-equities, the Maltese investment firm or market operator operating the OTF may facilitate negotiation between clients so as to bring together two or more potentially compatible trading interest in a transaction:

Provided that this obligation shall be without prejudice to regulation 3 and the provisions of the Conduct of Business Rulebook on obligation to execute orders on terms most favourable to the client.

(12) When a Maltese investment firm or market operator requests to be authorised for the operation of an OTF or on ad hoc basis, the competent authority may require the following:

(a) a detailed explanation of the reason why the system does not correspond to and cannot operate as a regulated market, MTF, or systematic internaliser;

(b) a detailed description as to how discretion will be exercised, in particular when an order to the OTF may be retracted and when and how two or more client orders will be matched within the OTF.

(13) In addition to the information provided pursuant to sub-regulation (12), the Maltese investment firm or market operator of an OTF shall provide the competent authority with information explaining its use of matched principal trading. In this regard, the competent authority shall monitor a Maltese investment firm’s or market operator’s engagement in matched principal trading to ensure that it continues to fall within the definition of such trading and that its engagement in matched principal trading does not give rise to conflicts of interest between the Maltese investment firm or market operator and its clients.

(14) Articles 24, 25, 27 and 28 of MiFID as transposed in the Conduct of Business Rulebook on general principles and information to clients, assessment of suitability and appropriateness and reporting to clients, obligations to execute orders on terms most favourable to the client and client order handling rules shall be applicable to the transactions concluded on an OTF.