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COBS 8 – Operating a Multilateral Trading Facility (MTF) or Organised Trading Facility (OTF)
1. Chapter Summary
COBS 8 establishes the additional obligations that firms operating MTFs or OTFs (types of trading venues) must follow. This chapter ensures transparency, market integrity, and protection for all participants in non-exchange trading environments. These rules supplement general Conduct of Business requirements to suit the specific operational nature of regulated trading platforms.
2. Applicability
COBS 8 applies specifically to firms authorised to operate an MTF or OTF in the UK. These obligations do not extend to firms providing execution services alone—they apply only to operators managing the mechanics and governance of such trading venues. Both retail and professional clients may be impacted, depending on the venue’s structure and trading model.
3. Key Rules and Their Meaning
- COBS 8.2.1R – MTF/OTF Operators Must Have Written Rules “An operator must publish in writing the objective, terms and conditions of access, and arrangements for facilitating trading.” This rule ensures transparency by requiring venues to clearly define who can trade, how orders are processed, and disciplinary procedures.
- COBS 8.2.2R – Governance and Risk Controls Requires operators to implement adequate governance, risk‑control, and monitoring frameworks to maintain orderly trading and prevent misconduct such as market abuse.
- COBS 8.4.1R – Liquidity Provider Arrangements “Where liquidity providers are used, operators must ensure there is a binding agreement and monitor that providers meet their obligations.” This ensures designated market makers maintain agreed-on bid/offer commitments.
- COBS 8.5.1R – MTF Transparency Requirements Requires operators to ensure pre‑trade and post‑trade transparency, including publication of prices, volumes, and trade data in line with MiFID rules.
- COBS 8.6.1R – OTF Rules and Client Categorisation “An OTF operator must ensure clients are categorised correctly and have clear rules on client order handling.” This ensures proper treatment of retail vs professional clients and imposes stricter execution standards.
4. Interpretation Notes / FCA Expectations
- Operators must embed fair access and non‑discriminatory policies in their rules.
- The FCA expects venues to actively monitor market behaviour, detect anomalies, and suspend trading where disorder is detected.
- Venue governance and risk oversight must be proportionate to the scale and nature of the market.
5. Practical Considerations for Firms
- Document and publish comprehensive rules and access criteria for participants.
- Maintain a formal governance committee responsible for venue oversight.
- Implement surveillance systems to detect insider trading or layering.
- Establish liquidity provider agreements with performance metrics and escalation processes.
- Ensure transparency reporting systems align with MiFID pre/post‑trade data standards.
6. Related Handbook References
- MIFIDPRU – Prudential rules for MTF/OTF operators
- PRIN 2A – Principles such as integrity, market conduct, and governance
- GL87 – Guidance on venue access and fair treatment
- SYSC – Systems and Controls requirements for governance and risk
- COBS 11 – Record-keeping rules relevant to venues
7. Regulatory Focus / Enforcement Risk
- Market abuse failures (e.g., layering, insider trading) on MTFs/OTFs have resulted in recent enforcement actions.
- Venues with inadequate transparency controls risk regulatory fines.
- FCA scrutiny is rising on automated trading systems, surveillance mechanisms, and their efficacy.