Home   Browse contents   View updates   Search  
     Quick search
Go
   

Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Rulebook Modules
Conduct of Business Module (COB) [VER32/02-19]
Sourcebook Modules
Consultation Papers
Policy Statements
DFSA Codes of Practice
Amendments to Legislation
Media Releases
Notices
Financial Markets Tribunal
Archive

BackText onlyPrint

You need the Flash plugin.

Download Macromedia Flash Player



  • COB 9 Additional Rules: Operating an Alternative Trading System

    • COB 9.1 Application and interpretation

      • COB 9.1.1

        This chapter applies to an Authorised FirmG which OperatesG an Alternative Trading SystemG (ATS Operator).

        [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

        • COB 9.1.1 Guidance

          The Financial ServiceG of OperatingG an Alternative Trading SystemG can be either operating a Multilateral Trading FacilityG (MTF) or operating an Organised Trading FacilityG (OTF). See GEN Rule 2.22.1.

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • COB 9.1.2

        In this chapter:

        (a) a reference to a “member” is a reference to a ClientG of the ATS OperatorG who has been granted access to its facilities in accordance with the requirements in this chapter;
        (b) a reference to a “facility” is a reference to a Multilateral Trading FacilityG (MTF) and an Organised Trading FacilityG (OTF), except where specific reference is made only to an MTFG or OTFG ;
        (c) a reference to an “ATS OperatorG ” is a reference to a PersonG operating an MTFG and a PersonG operating an OTFG , except where specific reference is made only to a PersonG operating an MTFG or a PersonG operating an OTFG ; and
        (d) where a RuleG in this chapter conflicts with any other provision in the DFSA RulebookG , the RuleG in this chapter prevails over those other provisions.
        [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

    • COB 9.2 Main requirements relating to trading on the facility

      • COB 9.2.1

        (1) An ATS OperatorG must, at the time a LicenceG is granted and at all times thereafter, have:

        (a) transparent and non-discriminatory rules and procedures to ensure fair and orderly trading of Investments on its facility (“Operating RulesG ”);
        (b) objective criteria governing access to its facility (“Access CriteriaG ”);
        (c) objective and transparent criteria for determining the InvestmentsG that can be traded on its facility (“Investment CriteriaG ”);
        (d) adequate technology resources (“Technology ResourcesG ”); and
        (e) rules and procedures to ensure only InvestmentsG in which there is a Proper MarketG are traded on its facilities (“Proper MarketsG ”).

        (2) A breach of the Operating RulesG of an ATS OperatorG is a prescribed matter for the purposes of Article 67(1)(b) of the Regulatory Law 2004.

        [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

        • COB 9.2.1 Guidance

          Pursuant to Article 67(1) of the Regulatory Law 2004, an Authorised FirmG is required to disclose to the DFSAG anything which reasonably tends to show breaches or likely breaches of requirements as prescribed in RulesG . Rule 9.2.1(2) prescribes a breach of Operating Rules as a the matter which is reportable to the DFSAG by an ATS OperatorG .

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Operating Rules

        • COB 9.2.2

          (1) The Operating RulesG of an ATS OperatorG must be:

          (a) based on objective criteria;
          (b) non-discriminatory;
          (c) clear and fair;
          (d) legally binding and enforceable against each member and where relevant, any other PersonG who has been allowed access to the facility through the member; and
          (e) in the case of a PersonG operating an MTFG , non-discretionary and made publicly available.

          (2) The Operating RulesG of an ATS OperatorG must place obligations upon PersonsG who are admitted to trading on its facility (“members”):

          (i) when undertaking transactions on its facilities; and
          (iii) relating to professional standards applicable to staff and other PersonsG allowed access to the facility through such a member.

          (3) Without limiting the generality of (1) and (2), the Operating RulesG of an ATS OperatorG must contain:

          (a) criteria for admission of members to its facility, in accordance with Rule 9.3.1;
          (b) criteria relating to InvestmentsG traded on its facility, in accordance with Rule 9.4.1;
          (c) the rules and procedures governing trading on the facility;
          (d) default rules;
          (e) the rules and procedures for the clearing and settlement of transactions executed on the facility; and
          (f) any other matters necessary for the proper functioning of its facility.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Material changes to Current Arrangements

        • COB 9.2.3

          (1) An ATS OperatorG may only make material changes to its existing arrangements to meet the requirements in this chapter in accordance with the requirements in this RuleG .

          (2) The reference to "Existing ArrangementsG " in (1) is a reference to both the arrangements which were in place at the time of the initial grant of the LicenceG and any changes made to such arrangements in accordance with the requirements in this RuleG .

          (3) For the purposes of obtaining the DFSAG approval, an ATS OperatorG must provide to the DFSAG , at least 30 days before the proposed change is intended to come into effect, a notice setting out:

          (a) the proposed change;
          (b) the reasons for the proposed change; and
          (c) what impact the proposed change would have on its members and its ability to operate the facility.

          (4) The DFSAG must, upon receipt of a notice referred to in (1), approve or disapprove the proposed change as soon as practicable and in any event within 30 days of the receipt of the notice, unless that period has been extended by notification to the applicant.

          (5) The DFSAG may, in circumstances where a material change to Current ArrangementsG is shown on reasonable grounds to be urgently needed, accept an application for approval of such a change on shorter notice than 30 days.

          (6) The procedures in Schedule 3 to the Regulatory Law apply to a decision of the DFSAG to reject a proposed change under this Rule.

          (7) Where the DFSAG decides to reject a proposed change, the ATS OperatorG may refer the matter to the FMTG for review.

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
          [Amended] DFSA RM175/2016 (Made 10th February 2016). [VER26/04-16]

          • COB 9.2.3 Guidance

            1. The period of 30 days runs from the time the DFSAG has received all the relevant information to assess the application.

            2. An ATS OperatorG should consider submitting its application for the DFSAG approval well in advance of the date on which a proposed amendment is intended to come into effect, especially in the case of significant material changes to its existing arrangements, to allow the DFSAG sufficient time to consider the application. If additional time is reasonably required to properly assess the impact of a proposed change due to its nature, scale and complexity, the DFSAG may make an appropriate extension of time beyond 30 days. Such an extension would be made in consultation with the applicant.

            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
            [Amended] DFSA RM175/2016 (Made 10th February 2016). [VER26/04-16]

    • COB 9.3 Member access criteria

      • COB 9.3.1

        (1) An ATS OperatorG may, subject to (2) and (3), only accept as a member a PersonG if that PersonG :

        (a) is an Authorised FirmG ;
        (b) is a Recognised MemberG ;
        (c) meets the criteria in GEN Rule 2.3.2(2); or
        (d) is classified as a Professional ClientG pursuant to COB Rule 2.3.4(1)(g), (h) and (i).

        (2) An ATS OperatorG must not admit a PersonG referred to in (1)(c) or (d), unless such PersonG :

        (a) agrees in writing to submit unconditionally to the jurisdiction of the DFSAG in relation to any matters which arise out of or which relate to its use of the facility;
        (b) agrees in writing to submit unconditionally to the jurisdiction of the DIFC CourtsG in relation to any proceedings in the DIFCG , which arise out of or relate to its use of the facility;
        (c) agrees in writing to subject itself to the DIFCG laws and the jurisdiction of the DIFC CourtsG in relation to its use of the facility; and
        (d) appoints and maintains at all times an agent for service of process in the DIFCG and requires such agent to accept its appointment for service of process.

        (3) Prior to admitting a PersonG referred to in (1) (c) or (d) as a member, an ATS OperatorG must undertake due diligence to ensure that such a PersonG :

        (a) is of sufficiently good repute;
        (b) has a sufficient level of competence and experience; and
        (c) has adequate organisational arrangements, including financial and technological resources, which are no less than those required of an Authorised FirmG appropriate to the nature of its operations.
        [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
        [Amended] DFSA RM149/2015 (Made 11th February 2015) [VER24/04-15]

      • Direct electronic access

        • COB 9.3.2

          An ATS OperatorG must have adequate rules and procedures to ensure that its members do not allow any other PersonG to have Direct Electronic AccessG to the facility unless such other PersonG meets the requirements in Rule 9.3.1(1).

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

        • COB 9.3.3

          An ATS OperatorG must, where it permits its members to provide to another Person Direct Electronic AccessG to its facilities, have adequate systems and controls including:

          (a) appropriate standards regarding risk controls and thresholds on trading through Direct Electronic AccessG ;
          (b) mechanisms to identify and distinguish orders placed by those PersonsG who are allowed to place orders through Direct Electronic AccessG ; and
          (c) if necessary, the ability to stop orders of, or trading by, the PersonsG allowed Direct Electronic AccessG .
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Monitoring of compliance

        • COB 9.3.4

          An ATS OperatorG must establish and maintain adequate and effective systems and controls, including policies and procedures, to ensure that its members and other PersonsG to whom access to its facility is provided through members comply with its Operational RulesG and where any gaps or deficiencies are identified, they are promptly addressed.

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

    • COB 9.4 Investment criteria

      • COB 9.4.1

        An ATS OperatorG must ensure in respect of every InvestmentG traded on its facility that:

        (a) only Investments which meet the requirements in (i) or (ii) are permitted to be traded on its facility:
        (i) in the case of SecuritiesG , only SecuritiesG which are admitted to trading on an Authorised Market InstitutionG or other Regulated ExchangeG ; or
        (ii) in the case of DerivativesG , only instruments that meet the contract specification criteria set out in AMI Rule 6.3.2;
        (b) there is sufficient information relating to the InvestmentsG traded on the facility available to members and other PersonsG having access to the facility through such members to enable such PersonsG to make informed decisions relating to such InvestmentsG ; and
        (c) if it is an InvestmentG that references to an underlying benchmark or index provided by a Price Information ProviderG , the requirements in Rule 9.4.2 are met.
        [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Use of price information providers

        • COB 9.4.2

          (1) An ATS OperatorG may only trade InvestmentsG that reference to an underlying benchmark or index provided by a Price Information ProviderG where it has undertaken appropriate due diligence to ensure that the Price Information ProviderG , on an on-going basis, meets the requirements set out in (3).

          (2) A Price Information ProviderG is a price reporting agency or an index provider which constructs, compiles, assesses or reports, on a regular and systematic basis, prices of InvestmentsG , rates, indices, commodities or figures, which are made available to users.

          (3) For the purposes of (1), the Price Information ProviderG must:

          (a) have fair and non-discriminatory procedures for establishing prices of Investments which are made public.
          (b) demonstrate adequate and appropriate transparency over the methodology, calculation and inputs to allow users to understand how the benchmark or index is derived and its potential limitations;
          (c) where appropriate, give priority to concluded transactions in making assessments and adopt measures to minimise selective reporting;
          (d) be of good standing and repute as an independent and objective price reporting agency or index provider;
          (e) have a sound corporate governance framework;
          (f) have adequate arrangements to avoid its staff having any conflicts of interest where such conflicts have, or are likely to have, a material adverse impact on price establishment process; and
          (g) adequate complaint resolution mechanisms to resolve any complaints about the Price Information Provider'sG assessment process and methodology.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.4.2 Guidance

            An ATS OperatorG , when assessing the suitability of a Price Information ProviderG (the provider), should take into account factors such as:

            a. the provider's standing and reliability in the relevant physical or derivatives markets as a credible price reporting agency;
            b. the quality of corporate governance adopted, covering areas such as independent members of the board, independence of its internal audit and risk management function;
            c. whether the methodologies and processes (including any material changes to such methodologies and processes) adopted by the provider for the purposes of pricing are made publicly available;
            d. whether there are adequate procedures adopted to ensure that conflicts between the provider's commercial interests and those of users of its services, including those of its EmployeesG involved in pricing process, are adequately addressed, including through codes of ethics;
            e. whether there is a clear conveyance to its users of the economic realities of the underlying interest the Price Information ProviderG seeks to measure; and,
            f. the degree to which the Price Information ProviderG has given consideration to the characteristics of the underlying interests measured, such as:
            •   the size and liquidity: Whether the size of the market informs the selection of an appropriate compilation mechanism and governance processes. For example, a benchmark or index that measures a smaller market may be impacted by single trades and therefore be more prone to potential manipulation, whereas a benchmark for a larger market may not be well represented by a small sample of participants;
            •   the relative market size. Where the size of a market referencing a benchmark is significantly larger than the volume of the underlying market, the potential incentive for benchmark manipulation to increase; and
            •   Transparency: Where there are varying levels of transparency regarding trading volumes and positions of market participants, particularly in non-regulated markets and instruments, whether the benchmark represents the full breadth of the market, the role of specialist participants who might be in a position to give an overview of the market, and the feasibility, costs and benefits of providing additional transparency in the underlying markets.
            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

    • COB 9.5 Technology resources

      • COB 9.5.1

        (1) An ATS OperatorG must:

        (a) have sufficient technology resources to operate, maintain and supervise the facility it operates;
        (b) be able to satisfy the DFSAG that its technology resources are established and maintained in such a way as to ensure that they are secure and maintain the confidentiality of the data they contain; and
        (c) ensure that its members and other participants on its facility have sufficient technology resources which are compatible with its own.

        (2) For the purposes of meeting the requirement in (1)(c), an ATS OperatorG must have adequate procedures and arrangements for the evaluation, selection and on-going monitoring of information technology systems. Such procedures and arrangements must, at a minimum, provide for:

        (a) problem management and system change;
        (b) adequate procedures for testing information technology systems before live operations, which are in conformity with the requirements that would apply to an Authorised Market InstitutionG under App 1 of AMIG ;
        (c) monitoring and reporting on system performance, availability and integrity; and
        (d) adequate measures to ensure:
        (i) the information technology systems are resilient and not prone to failure;
        (ii) business continuity in the event that an information technology system fails;
        (iii) protection of the information technology systems from damage, tampering, misuse or unauthorised access; and
        (iv) the integrity of data forming part of, or being processed through, information technology systems.
        [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

        • COB 9.5.1 Guidance

          1. In assessing the adequacy of anATS Operator'sG systems and controls used to operate and carry on its functions, the DFSAG will consider:

          a. the organisation, management and resources of the information technology department of the firm;
          b. the arrangements for controlling and documenting the design, development, implementation and use of technology systems; and
          c. the performance, capacity and reliability of information technology systems.

          2. The DFSAG will also, during its assessment of technology systems, have regard to the:

          a. procedure for the evaluation and selection of information technology systems;
          b. procedures for problem management and system change;
          c. arrangements for testing information technology systems before live operations;
          d. arrangements to monitor and report system performance, availability and integrity;
          e. arrangements made to ensure information technology systems are resilient and not prone to failure;
          f. arrangements made to ensure business continuity in the event that an information technology system fails;
          g. arrangements made to protect information technology systems from damage, tampering, misuse or unauthorised access;
          h. arrangements made to ensure the integrity of data forming part of, or being processed through, information technology systems; and
          i. third party outsourcing arrangements.

          3. In particular, when assessing whether an ATS OperatorG has adequate information technology resourcing, the DFSAG will consider:

          a. whether its systems have sufficient electronic capacity to accommodate reasonably foreseeable volumes of messaging and orders, and
          b. whether such systems are adequately scalable in emergency conditions that might threaten the orderly and proper operations of its facility.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Regular review of systems and controls

        • COB 9.5.2

          (1) An ATS OperatorG must undertake regular review and updates of its systems and controls as appropriate to the nature, scale and complexity of its operations.

          (2) For the purposes of (1), an ATS OperatorG must adopt well defined and clearly documented development and testing methodologies which are in line with internationally accepted testing standards.

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.5.2 Guidance

            Through the use of such testing methodologies, the ATS OperatorG should be able to ensure, amongst other things, that:

            a. its systems and controls are compatible with its operations and functions;
            b. compliance and risk management controls embedded in its system operate as intended (for example by generating error reports automatically); and
            c. it can continue to work effectively in stressed market conditions.
            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

    • COB 9.6 Proper Markets

      • COB 9.6.1

        (1) Without limiting the generality of the other requirements in this chapter, an ATS OperatorG must, for the purposes of meeting the requirement in Rule 9.2.1(e) relating to Proper MarketsG , ensure that:

        (a) if DerivativesG are traded on its facilities, such DerivativesG meet the contract design specifications in AMI Rule 6.3.2;
        (b) relevant market information is made available to PersonsG engaged in dealing on an equitable basis, including pre-trade and post-trade orders, in accordance with Rules 9.6.2{and ;
        (c) there are adequate mechanisms to discontinue, suspend or remove from trading on its facilities any InvestmentsG in circumstances where the requirements in this chapter are not met;
        (d) there are controls to prevent volatility in the markets that is not caused by market forces, in accordance with Rule 9.6.4;
        (e) error trades are managed, in accordance with Rule 9.6.5;
        (f) Short SellingG and position concentration are monitored and managed, in accordance with Rule 9.6.5;
        (g) there are fair and non-discretionary algorithm operating in respect of matching of orders on its facilities;
        (h) there are adequate controls to monitor and manage any foreign ownership restrictions applying to InvestmentsG traded on its facilities, in accordance with Rule 9.6.7;
        (i) liquidity incentive schemes are offered only in accordance with Rule 9.6.8; and
        (j) there are adequate rules and procedures to address Market AbuseG and financial crime, in accordance with Rules 9.6.9 and 9.6.10.
        [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Pre-trade transparency

        • COB 9.6.2

          (1) An ATS OperatorG must disclose the information specified in (2) relating to trading of InvestmentsG on its facility in the manner prescribed in (3).

          (2) The information required to be disclosed pursuant to (1) includes:

          (a) the current bid and offer prices and volume;
          (b) the depth of trading interest shown at the prices and volumes advertised through its systems for the InvestmentsG ; and
          (c) any other information relating to InvestmentsG which would promote transparency relating to trading.

          (3) The information referred to in (2) must be made available to members and the public as appropriate on a continuous basis during normal trading.

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.6.2 Guidance

            1. When making disclosure, an ATS OperatorG should adopt a technical mechanism by which the public can differentiate between transactions that have been transacted in the central order book and transactions that have been reported to the facility as off-order book transactions. Any transactions that have been cancelled pursuant to its rules should also be identifiable.

            2. An ATS OperatorG should use appropriate mechanisms to enable pre-trade information to be made available to the public in an easy to access and uninterrupted manner at least during business hours. An ATS OperatorG may charge a reasonable fee for the information which it makes available to the public.

            3. An ATS Operator may seek a waiver or modification from the disclosure requirement in Rule 9.6.1(1) in relation to certain transactions where the order size is predetermined, exceeds a pre-set and published threshold level and the details of the exemption are made available to its members and the public.

            4. In assessing whether an exemption from pre-trade disclosure should be allowed, the DFSAG will take into account factors such as:

            a. the level of order threshold compared with normal market size for the InvestmentG ;
            b. the impact such an exemption would have on price discovery, fragmentation, fairness and overall market quality;
            c. whether there is sufficient transparency relating to trades executed without pre-trade disclosure (as a result of dark orders), whether or not they are entered in transparent markets;
            d. whether the ATS OperatorG supports transparent orders by giving priority to transparent orders over dark orders, for example, by executing such orders at the same price as transparent orders; and
            e. whether there is adequate disclosure of details relating to dark orders available to members and other participants on the facility to enable them to understand the manner in which their orders will be handled and executed on the facility.

            5. Dark pools are orders executed on execution platforms without pre-trade transparency.

            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Post-trade transparency requirements

        • COB 9.6.3

          (1) An ATS OperatorG must disclose the information specified in (2) in the manner prescribed in (3).

          (2) The information required to be disclosed pursuant to (1) is the price, volume and time of the transactions executed in respect of InvestmentsG .

          (3) The information referred to in (2) must be made available to the public as close to real-time as is technically possible on reasonable commercial terms and on a non-discretionary basis.

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.6.3 Guidance

            An ATS OperatorG should use adequate mechanism to enable post-trade information to be made available to the public in an easy to access and uninterrupted manner at least during business hours. An ATS OperatorG may charge a reasonable fee for the information which it makes available to the public.

            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Volatility controls

        • COB 9.6.4

          (1) An ATS Operator'sG Operating RulesG must include effective systems, controls and procedures to ensure that its trading systems:

          (a) are resilient;
          (b) have adequate capacity to deal with peak orders and message volumes; and
          (c) are able to operate in an orderly manner under conditions of market stress.

          (2) Without limiting the generality of its obligations arising under (1) or any other RuleG , an ATS OperatorG must be able under its rules, systems, controls and procedures to:

          (a) reject orders that exceed its pre-determined volume and price thresholds, or are clearly erroneous;
          (b) temporarily halt trading of Investments traded on its facility if there is a significant price movement in relation to those InvestmentsG on its market or a related market during a short period; and
          (c) where appropriate, cancel, vary or correct any transaction.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.6.4 Guidance

            An ATS OperatorG should test its trading systems to ensure that they are resilient and capable of operating orderly trading under conditions of market stress and other contingencies.

            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Error Trade policy

        • COB 9.6.5

          (1) An ATS OperatorG must be able to cancel, amend or correct any error trades.

          (2) An “Error TradeG ” is the execution of an order resulting from:

          (a) an erroneous order entry;
          (b) malfunctioning of the system of a member or of the ATS OperatorG ; or
          (c) a combination of (a) and (b).

          (3) For the purposes of (1), an ATS OperatorG must include a comprehensive error trade policy in its Operating RulesG , which sets out clearly the extent to which transactions can be cancelled by it at its sole discretion, at the request of a member or by mutual consent of members involved.

          (4) An ATS OperatorG must have adequate systems and controls to:

          (a) prevent or minimise error trades;
          (b) promptly identify and rectify error trades where they occur; and
          (c) identify whether error trades are related to disorderly market activity.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.6.5 Guidance

            When assessing whether an ATS OperatorG has an appropriate and adequate error trade policy, the DFSAG will consider whether the rules and procedures included in its Operating RulesG :

            a. are adequate to minimise the impact of error trades where prevention of such trades is not possible;
            b. are sufficiently flexible in the design to address varying scenarios;
            c. establish a predictable and timely process for dealing with Error TradesG , including measures specifically designed to detect and identify Error TradeG messages to market users;
            d. promote transparency to market users with regard to any cancellation decisions involving material transactions resulting from the invocation of the Error TradeG policy;
            e. include adequate surveillance conducted in the markets to detect Error TradesG ;
            f. promote predictability, fairness and consistency of actions taken under the Error TradeG policy; and
            g. enable sharing of information with other markets when possible concerning the cancellation of trades.
            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Short Selling

        • COB 9.6.6

          (1) An ATS OperatorG must have in place effective systems, controls and procedures to monitor and manage:

          (a) Short SellingG in SecuritiesG ; and
          (b) position concentrations.

          (2) For the purposes of (1), an ATS OperatorG must have adequate powers over its members to address risks to an orderly functioning of its facility arising from unsettled positions in InvestmentsG .

          (3) Short SellingG for the purposes of this RuleG constitutes the sale of a SecurityG by a PersonG who does not own the SecurityG at the point of entering into the contract to sell.

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.6.6 Guidance

            1. An ATS OperatorG should, when developing its controls and procedures with regard to short selling and position management, have regard to:

            a. its own settlement cycle, so that any short selling activities on its facilities do not result in any delay or prevent effective settlement within such cycle; and
            b. orderly functioning of its facilities, so that any long or short position concentration on InvestmentsG that remain unsettled does not interrupt such functioning;

            2. Examples of circumstances that would not be treated as short selling in Rule 6.7.1(3) include where the seller:

            a. has entered into an unconditional contract to purchase the relevant SecuritiesG but has not received their delivery at the time of the sale;
            b. has title to other securities which are convertible or exchangeable for the SecuritiesG to which the sale contract relates;
            c. has exercised an option to acquire the SecuritiesG to which the sale contract relates;
            d. has rights or warrants to subscribe and receive SecuritiesG to which the sale contract relates; and
            e. is making a sale of SecuritiesG that trades on a “when issued” basis and has entered into a binding contract to purchase such SecuritiesG , subject only to the condition of issuance of the relevant SecuritiesG .
            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Foreign ownership restrictions

        • COB 9.6.7

          An ATS OperatorG must not permit its facility to be used for trading InvestmentsG which are subject to foreign ownership restrictions unless it has adequate and effective arrangements to:

          (a) monitor applicable foreign ownership restrictions;
          (b) promptly identify and take appropriate action where any breaches of such restrictions occur without any undue interruption or negative impact to its trading activities; and
          (c) suspend trading in the relevant InvestmentsG where the ownership restrictions are, or are about to be, breached and reinstate trading when the breaches are remedied.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.6.7 Guidance

            The kind of arrangements an ATS OperatorG should implement to meet the requirements in Rule 9.6.7 are such as those specified in AMI Rule 6.8.1(2).

            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Liquidity providers

        • COB 9.6.8

          (1) An ATS OperatorG must not introduce a liquidity incentive scheme unless:

          (a) participation of such a scheme is limited to:
          (i) a member as defined in Rule 9.3.1(1); or
          (ii) any other PersonG where:
          (A) it has undertaken due diligence to ensure that the PersonG is of sufficient good repute and has adequate competencies and organisational arrangements; and
          (B) the PersonG has agreed in writing to comply with its Operating RulesG so far as those rules are applicable to that Person'sG activities; and
          (b) it has obtained the prior approval of the DFSAG .

          (2) For the purposes of this section, a “liquidity incentive scheme” means an arrangement designed to provide liquidity to the market in relation to InvestmentsG traded on the facility.

          (3) Where an ATS OperatorG proposes to introduce or amend a liquidity incentive scheme, it must lodge with the DFSAG , at least 10 days before the date by which it expects to obtain the DFSAG approval, a statement setting out:

          (a) the details of the relevant scheme, including benefits to the ATSG and members arising from that scheme; and
          (b) the date on which the scheme is intended to become operative.

          (4) The DFSAG must within 10 days of receiving the notification referred to in (3), approve a proposed liquidity incentive scheme unless it has reasonable grounds to believe that the introduction of the scheme would be detrimental to the facility or markets in general. Where the DFSAG does not approve the proposed liquidity incentive scheme, it must notify the ATS OperatorG of its objections to the introduction of the proposed liquidity incentive scheme, and its reasons for that decision.

          (5) An ATS OperatorG must, as soon practicable, announce the introduction of the liquidity incentive scheme, including the date on which it becomes operative and any other relevant information.

          (6) If the DFSAG decides not to approve a liquidity incentive scheme, the ATS OperatorG may refer the decision to the FMT for review.

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
          [Amended] DFSA RM175/2016 (Made 10th February 2016). [VER26/04-16]

      • Prevention of Market Abuse

        • COB 9.6.9

          (1) An ATS OperatorG must:

          (a) implement and maintain appropriate measures to identify, deter and prevent Market AbuseG on and through its facility; and
          (b) report promptly to the DFSAG any Market AbuseG .

          (2) For the purposes of (1)(a), an ATS OperatorG must:

          (a) include in its Operating RulesG a regime to prevent Market AbuseG , which is applicable to its members and their ClientsG ; and
          (b) implement and maintain adequate measures to ensure that its members comply with that regime.

          (3) The regime to prevent Market AbuseG referred to in (2)(a) must, at a minimum, include rules and procedures in relation to compliance with the applicable requirements in Part 6 of the Market Law, including adequate compliance arrangements applicable to its members and staff and the clients of members, record keeping, transaction monitoring, risk assessment and appropriate training.

          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.6.9 Guidance

            1. An ATS OperatorG should have an effective surveillance system in place for:

            a. the coordinated surveillance of all activity on or through its facilities and activity in related InvestmentsG conducted elsewhere; and
            b. communicating information about Market AbuseG or suspected abuse, to the DFSAG or appropriate regulatory authorities.

            2. In determining whether an ATS OperatorG is ensuring that business conducted on its facilities is conducted in an orderly manner, the DFSAG will consider:

            a. arrangements for pre and post trade transparency taking into account the nature and liquidity of the InvestmentsG traded; and
            b. the need to provide anonymity for trading participants.

            3. An ATS OperatorG will also have appropriate procedures allowing it to influence trading conditions, suspend trading promptly when required, and to support or encourage liquidity when necessary to maintain an orderly market. The DFSAG will consider the transparency of such procedures and the fairness of their application and potential application.

            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

        • COB 9.6.10

          (1) An ATS OperatorG must:

          (a) before accepting a prospective member, ensure that the applicant has in place adequate arrangements, including systems and controls to comply with its regime for preventing Market AbuseG ;
          (b) monitor and regularly review compliance by its members with that regime; and
          (c) take appropriate measures to ensure that its members rectify to the extent feasible any contraventions of its regime without delay.

          (2) An ATS OperatorG must promptly notify the DFSAG of any:

          (a) material breach of its regime to prevent Market AbuseG by a member, or by staff or clients of the member; and
          (b) circumstances in which a member will not or cannot rectify a breach of its regime.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.6.10 Guidance

            1. An Authorised FirmG is subject to the requirements in the DFSA'sG AMLG module. MembersG of an Authorised FirmG which are themselves Authorised FirmsG are also subject, by virtue of being Authorised FirmsG , to the requirements in the DFSA'sG AMLG module.

            2. In determining whether an ATS Operator'sG measures are adequate and appropriate to reduce the extent to which its facilities can be used for Market AbuseG , the DFSAG will consider:

            a. whether the ATS OperatorG has appropriate staff, surveillance systems, resources and procedures for this purpose;
            b. the monitoring conducted for possible patterns of normal, abnormal or improper use of those facilities;
            c. how promptly and accurately information is communicated about Market AbuseG to the DFSAG and other appropriate organisations; and
            d. how the ATS OperatorG co-operates with relevant bodies in the prevention, investigation and pursuit of Market AbuseG .

            3. An ATS OperatorG must have regard to Part 6 of the Markets Law in relation to forms of Market AbuseG . Practices that amount to market manipulation (which is Market AbuseG ) in an automated trading environment which an ATSG should be able to identify and prevent in order to promote proper markets include the following:

            a. entering small orders in order to ascertain the level of hidden orders, particularly used to assess what is resting on a dark platform, called Ping OrdersG ;
            b. entering large numbers of orders and/or cancellations/updates to orders to create uncertainty for other market participants, to slow down their process and to camouflage the ATS Operator'sG own strategy, called Quote StuffingG ;
            c. entry of orders or a series of orders intended to start or exacerbate a trend, and to encourage other participants to accelerate or extend the trend in order to create an opportunity to unwind/open a position at a favourable price, called Moment IgnitionG ; and
            d. submitting multiple orders often away from one side of the order book with the intention of executing a trade on the other side of the order book, where once that trade has taken place, the manipulative orders will be removed, called Layering and SpoofingG .
            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

      • Clearing and settlement arrangements

        • COB 9.6.11

          (1) An ATS OperatorG must:

          (a) ensure that there are satisfactory arrangements in place for securing the timely discharge of the rights and liabilities of the parties to transactions conducted on or through its facility; and
          (b) inform its members and other PersonsG having access to its facility through members of details relating to such arrangements.

          (2) For the purposes of (1)(a), an ATS OperatorG must ensure that:

          (a) the PersonG who provides clearing and settlement services to a member is either:
          (i) an Authorised PersonG appropriately licensed to carry on clearing or settlement services; or
          (ii) an entity which is authorised and supervised by a Financial Services RegulatorG acceptable to the DFSAG for the activity of clearing and settlement services and is operating under broadly equivalent standards as defined under Chapter 7 of the AMI module; and
          (b) notification of such arrangements (including any changes thereto) is provided to the DFSAG at least 30 days before making the arrangements and the DFSAG has not objected to such arrangements within that period.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

          • COB 9.6.11 Guidance

            An ATS OperatorG is not authorised under its LicenceG to provide clearing and settlement services. Therefore, it must make suitable arrangements relating to clearing and settlement of transactions that are undertaken on its facility. For this purpose, it may arrange for its members to obtain such services from an appropriately licensed PersonG .

            [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

    • COB 9.7 Specific requirements applicable to Persons operating an OTF

      • COB 9.7.1

        A PersonG operating an OTFG must not execute any orders made on the facility against its own proprietary capital.

        [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]