EU Clamps Down On Systematic Internalisers Operating Broker-Crossing Networks Under MiFID II

On December 13, 2017, an amending Delegated Regulation was published in the Official Journal of the European Union which closes a loophole in the Markets in Financial Instruments Directive provisions relating to systematic internalisers. In February this year, the European Securities and Markets Authority highlighted the possibility that investment firms operating broker-crossing networks might try to circumvent the MiFID II requirements by setting up networks of connected SIs which would allow SIs to cross third party buying and selling interests via matched principal trading or other types of back-to-back transactions.

An SI is defined under MiFID II as an "investment firm which, on an organized, frequent systematic and substantial basis, deals on own account when executing client orders outside a trading venue without operating a multilateral system." The Delegated Regulation on the organizational requirements and operating conditions for investment firms provides