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Multilateral trading facilities

The Slovak government introduced a new trading system to simplify and support the trading of financial instruments. In March 2007 it adoped an amendment to Act number 429/2002 Coll on stock exchange (the Act). This amendment introduced a multilateral trading facility. Its purpose was to implement EU Directive no 2004/39/EC on markets in financial instruments (Mifid). The Mifid, together with other measures, will make the EU a unified financial market. It will strengthen the position of the European financial market worldwide.

The Mifid provides that entities trading with financial instruments must be organised as either a regulated market or a multilateral trading facility (MTF), with different standards applying to each. The Act also regulates trading with financial instruments on the regulated market of the stock exchange and on the MTF. The MTF is a new market that will be considerably more liberal than the standard market. The financial instruments traded on the MTF are not subject to the strict rules that apply in the regulated market. The MTF is intended for issuers who from some reason (such as insufficient experience) do not comply with the admission rules of the regulated market. A new term, "regulated market," was introduced; this was previously called an "organised public market." Its definition emphasises the fact that it is systematic and regular. This is a distinctive difference between those two types of market, the regulated market and the MTF. The definition of this term is in accordance with the Mifid.

Either a stock exchange or a trader with securities may organise the MTF. If a stock exchange organises an MTF, the rights and obligations of the stock exchange trade's inspection department also apply to MTF trades. Since the MTF may also be organised by a trader with securities, at least one of its employees must be responsible for rights and obligations corresponding with those of the stock exchange trade's inspection department concerning MTF trades.

Only such financial instruments may be traded on the MTF that are included in the MTF list. A member of the stock exchange, an issuer, or a participant of the MTF can ask that a particular financial instrument feature on the list. Such a request is not always necessary however. In addition, every individual who is registered by the administrator of the MTF and fulfils the conditions which the MTF rules lay out, is able to trade on the MTF.

The Act incorporated the MTF rules. These are comparable to the stock exchange rules concerning the regulated market, including the procedure of their approval by the National Bank of Slovakia. The MTF rules regulate the conditions of trading on the MTF in great detail: they outline the procedure of organising the supply and demand of the financial instruments on the MTF; the conditions governing inclusion of financial instruments into the MTF; and the conditions and rules for trading with the financial instruments.

As in the case with the regulated market, remote access to the MTF is also possible. This enables access not only of direct participants but also of remote participants from different EU member states, through the use of a technical device in the territory of that state, which the administrator of the MTF will provide. The mechanism of notification remains the same as in the case of the regulated market.

The introduction of the MTF is one of several actions that aims to improve the entrepreneurial environment and ease the access of small innovative firms and medium companies to the capital, through new share and bond issues. It completes the transformation of the financial market and its institutions.

It is expected that the MTF will create the same positive experience as has arisen from the operation of the non-regulated market in the Slovak Republic (RM – System Slovakia, which existed until 2002).

Barbara Kubinová-Bokesová

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