Entire Section

  • COB 9.6 COB 9.6 Proper Markets

    • COB 9.6.1

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

      (a) if Derivatives are traded on its facilities, such Derivatives meet the contract design specifications in AMI Rule 6.3.2;
      (b) relevant market information is made available to Persons engaged in dealing on an equitable basis, including pre-trade and post-trade orders, in accordance with Rules 9.6.2{and 9.6.3;
      (c) there are adequate mechanisms to discontinue, suspend or remove from trading on its facilities any Investments 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 Selling 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 Investments 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 Abuse 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 COB 9.6.2

        (1) An ATS Operator must disclose the information specified in (2) relating to trading of Investments 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 Investments; and
        (c) any other information relating to Investments 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 Operator 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 Operator 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 Operator 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 DFSA will take into account factors such as:

          a. the level of order threshold compared with normal market size for the Investment;
          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 Operator 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 COB 9.6.3

        (1) An ATS Operator 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 Investments.

        (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 Operator 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 Operator 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 COB 9.6.4

        (1) An ATS Operator's Operating Rules 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 Rule, an ATS Operator 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 Investments 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 Operator 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 COB 9.6.5

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

        (2) An “Error Trade” 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 Operator; or
        (c) a combination of (a) and (b).

        (3) For the purposes of (1), an ATS Operator must include a comprehensive error trade policy in its Operating Rules, 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 Operator 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 Operator has an appropriate and adequate error trade policy, the DFSA will consider whether the rules and procedures included in its Operating Rules:

          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 Trades, including measures specifically designed to detect and identify Error Trade 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 Trade policy;
          e. include adequate surveillance conducted in the markets to detect Error Trades;
          f. promote predictability, fairness and consistency of actions taken under the Error Trade 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 COB 9.6.6

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

        (a) Short Selling in Securities; and
        (b) position concentrations.

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

        (3) Short Selling for the purposes of this Rule constitutes the sale of a Security by a Person who does not own the Security 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 Operator 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 Investments 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 Securities 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 Securities to which the sale contract relates;
          c. has exercised an option to acquire the Securities to which the sale contract relates;
          d. has rights or warrants to subscribe and receive Securities to which the sale contract relates; and
          e. is making a sale of Securities that trades on a “when issued” basis and has entered into a binding contract to purchase such Securities, subject only to the condition of issuance of the relevant Securities.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

    • Foreign ownership restrictions

      • COB 9.6.7 COB 9.6.7

        An ATS Operator must not permit its facility to be used for trading Investments 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 Investments 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 Operator 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 Operator 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 Person where:
        (A) it has undertaken due diligence to ensure that the Person is of sufficient good repute and has adequate competencies and organisational arrangements; and
        (B) the Person has agreed in writing to comply with its Operating Rules so far as those rules are applicable to that Person'sactivities; and
        (b) it has obtained the prior approval of the DFSA.

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

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

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

        (4) The DFSA 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 DFSA does not approve the proposed liquidity incentive scheme, it must notify the ATS Operator of its objections to the introduction of the proposed liquidity incentive scheme, and its reasons for that decision.

        (5) An ATS Operator 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 DFSA decides not to approve a liquidity incentive scheme, the ATS Operator 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 COB 9.6.9

        (1) An ATS Operator must:

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

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

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

        (3) The regime to prevent Market Abuse 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 Operator 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 Investments conducted elsewhere; and
          b. communicating information about Market Abuse or suspected abuse, to the DFSA or appropriate regulatory authorities.
          2. In determining whether an ATS Operator is ensuring that business conducted on its facilities is conducted in an orderly manner, the DFSA will consider:
          a. arrangements for pre and post trade transparency taking into account the nature and liquidity of the Investments traded; and
          b. the need to provide anonymity for trading participants.
          3. An ATS Operator 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 DFSA will consider the transparency of such procedures and the fairness of their application and potential application.
          4. An ATS Operator that is Operating a Facility for Investment Tokens should, where relevant, ensure measures under COB Rule 9.6.9(1) include effective measures to identify, deter and prevent Market Abuse by Persons permitted to access and update records held on any DLT or similar technology based application used in connection with the operation of its facility.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]
          [Added] DFSA RMI311/2021 (Made 30th June 2021). [VER39/10-21]

      • COB 9.6.10 COB 9.6.10

        (1) An ATS Operator 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 Abuse;
        (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 Operator must promptly notify the DFSA of any:

        (a) material breach of its regime to prevent Market Abuse 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 Firm is subject to the requirements in the DFSA's AML module. Members of an Authorised Firm which are themselves Authorised Firms are also subject, by virtue of being Authorised Firms, to the requirements in the DFSA's AML module.

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

          a. whether the ATS Operator 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 Abuse to the DFSA and other appropriate organisations; and
          d. how the ATS Operator co-operates with relevant bodies in the prevention, investigation and pursuit of Market Abuse.

          3. An ATS Operator must have regard to Part 6 of the Markets Law in relation to forms of Market Abuse. Practices that amount to market manipulation (which is Market Abuse) in an automated trading environment which an ATS 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 Orders;
          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's own strategy, called Quote Stuffing;
          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 Ignition; 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 Spoofing.
          [Added] DFSA RM123/2013 (Made 13th June 2013) [VER22/07-13]

    • Clearing and settlement arrangements

      • COB 9.6.11 COB 9.6.11

        (1) An ATS Operator 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 Persons having access to its facility through members of details relating to such arrangements.

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

        (a) the Person who provides clearing and settlement services to a member is either:
        (i) an Authorised Person appropriately licensed to carry on clearing or settlement services; or
        (ii) an entity which is authorised and supervised by a Financial Services Regulator acceptable to the DFSA 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 DFSA at least 30 days before making the arrangements and the DFSA 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 Operator is not authorised under its Licence 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 Person.

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