A multilateral trading facility (MTF) is a

European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...

regulatory term for a self-regulated financial trading venue. These are alternatives to the traditional

stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for ...

s where a market is made in securities, typically using electronic systems. The concept was introduced within the

Markets in Financial Instruments Directive Markets in Financial Instruments Directive 20142014/65/EU commonly known as MiFID 2), is a directive of the European Union (EU). Together with Regulation No 600/2014 it provides a legal framework for securities markets, investment intermediari ...

(MiFID), a European Directive designed to harmonise retail investors protection and allow investment firms to provide services throughout the EU. Article 4 (15) of MiFID describes MTF as a “multilateral system, operated by an investment firm or a market operator, which brings together multiple third-party buying and selling interests in financial instruments – in the system and in accordance with non-discretionary rules – in a way that results in a contract”. The term 'non-discretionary rules' means that the investment firm operating an MTF has no discretion as to how interests may interact. Interests are brought together by forming a contract and the execution takes place under the system's rules or by means of the system's protocols or internal operating procedures. The MTF can be operated by a market operator or an investment firm whereas the operation of a regulated market is not considered an investment service and is carried out exclusively by market operators that are authorised to do so. The

United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...

equivalent is an

alternative trading system Alternative trading system (ATS) is a US and Canadian regulatory term for a non-exchange trading venue that matches buyers and sellers to find counterparties for transactions. Alternative trading systems are typically regulated as broker-dealers r ...

History

Before the introduction of MiFID trading in stocks and shares was typically centred on large national

s, such as

London Stock Exchange The London Stock Exchange (LSE) is a stock exchange based in London, England. the total market value of all companies trading on the LSE stood at US$3.42 trillion. Its current premises are situated in Paternoster Square close to St Paul's Cath ...

(LSE), Deutsche Börse and Euronext. The rules for operating exchanges varied from country to country, with some exchanges granted exclusivity over certain services for that country's market. Consequently, European

share trading In finance, a trade is an exchange of a security such as stocks, bonds, commodities, currencies, derivatives or any valuable financial instrument for "cash". Such a financial transaction is usually done by participants of an exchange such as a ...

tended to be conducted on one specific venue, like the Euronext Paris market for French securities or the LSE for

United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Northwestern Europe, off the coast of European mainland, the continental mainland. It comprises England, Scotlan ...

securities. MiFID II classified three types of trading venue: * A regulated market (RM) run by a market operator * A multilateral trading facility (MTF) * An organised trading facility (OTF) Permission to run any of the three types of service was required from an appropriate regulator, with the existing exchanges registering as regulated markets.

Comparison with "regulated markets"

MTFs are a kind of "exchange lite" because they provide similar or competing trading services and have similar structures, like rulebooks and market surveillance departments. Market operators are also arbiters for securities. Companies wishing to list upon a regulated market undergo a ''listing process'' and pay fees; this allows the operator to ensure that only appropriate securities are available for trading. This may involve requirements about the number of shares that are available, standards around how the accounts of the company are maintained or strict rules about how news is released to the market. Whether or not a security has been "admitted to trading on a regulated market" is a key concept within MiFID, and is fundamental in how the rules apply to trading in the security. MTFs do not have a standard listing process and cannot change the regulatory status of a security.

Operating rules

MiFID lays out a number of obligations for an MTF to operate: * It must be ''pre-trade transparent'', the price of existing orders must be made available on market data feeds. ** An MTF may be exempted from pre-trade transparency via use of an appropriate waiver, such as a ''large in size'' waiver or ''price referencing'' waiver - in this case the MTF will be a

dark pool In finance, a dark pool (also black pool) is a private forum ( alternative trading system or ATS) for trading securities, derivatives, and other financial instruments.Chi-X Europe, the largest MTF by volume, is also the largest trading venue in Europe according to some statistics. MTFs have been launched in other asset classes as well, one of the examples is LMAX Exchange an FCA regulated MTF for trading spot FX and precious metals. This is part of a process known as ''fragmentation'', where liquidity for one security is no-longer concentrated on one exchange but across multiple venues. This in turn forced traders to make use of more sophisticated trading strategies such as ''smart order routing''.

Impact on fees

The new MTFs were notable for: * High trading speeds, using technology to make their platforms attractive to high frequency traders; * Low cost bases, running their organisations with minimal headcount; * Maker/taker pricing, paying members to trade on the platform as long as the trading adds liquidity rather than takes it; * Trading incentives, often called jump-balls, in which stakes are given to trading members in return for volume traded. These all made the new venues highly attractive and to take market share. In turn, existing venues were forced to discount heavily, significantly impacting revenues.

Limited individual success

Although they have forced significant adjustments within the equity trading markets, the MTFs themselves have had limited success. Chi-X Europe claims to be profitable, however Nasdaq OMX Europe was shut down in 2010 and Turquoise was bought by the LSE. Many consider the MTF business model unsustainable, although Alisdair Haynes, the Chi-X Europe CEO, said "We are not going to raise prices, though most people expect we have to".

Investment bank MTFs

Most investment banks run an internal crossing system. These systems cross clients' orders against one another, or fill the orders directly off the bank's book. Nomura has converted its internal crossing system, NX, into an MTF. Nomura said its decision was for "commercial purposes". UBS has established UBS MTF, this works in conjunction with its crossing system, UBS PIN.

Goldman Sachs The Goldman Sachs Group, Inc. ( ) is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many internationa ...

has also announced that it will launch an MTF. The exact regulatory status of broker crossing systems is a matter of debate and controversy. It is expected to be an area of future regulatory intervention.

References

{{Authority control Stock market