The Cyprus Securities and Exchange Commission ("CySEC") has issued a circular (C283 dated 24 October 2018) to Cyprus Investment Firms ("CIFs") that it regulates regarding their obligation to provide information to CySEC if they fall within the definition of "systemic internaliser" ("SI") set out in article 2(1) of the Investment Services and Activities and Regulated Markets Law of 2017.
The definition of an SI contained in the Investment Services Law is a word-for-word reproduction of the definition set out in Directive 2014/65/EU on markets in financial instruments, namely an investment firm which, on an organised, frequent systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system. According to the Investment Services Law and the directive, the frequent and systematic basis is to be measured by the number of OTC trades in the financial instrument carried out by the investment firm on own account when executing client orders and the substantial basis is to be measured either by the size of the OTC trading carried out by the investment firm in relation to the total trading of the investment firm in a specific financial instrument or by the size of the OTC trading carried out by the investment firm in relation to the total trading in the EU in a specific financial instrument. An investment firm meets the definition only if it exceeds both thresholds or if it chooses to opt-in under the SI regime.
Under articles 15(1) and 18(4) of Regulation 600/2014 on Markets in Financial Instruments, CIFs which meet the definition of SI must notify CySEC using the form on CySEC's website, in the following circumstances:
- when they start acting as SIs in a class of financial instruments;
- when they cease to act as SIs in a class of financial instruments previously notified;
- when they cease to act as SIs in all the classes of financial instruments previously notified;
- when they opt-in to the SI regime; or
- if previously opted-in, when they cease to be a SI.
In turn, CySEC will notify the European Securities and Markets Authority ("ESMA").
CIFs are required to assess whether they are SIs in a specific instrument by comparing the trading they undertake on their own account to the total volume and number of transactions executed in the EU published by ESMA on its website. If a firm exceeds the thresholds, it will be deemed to be a SI in respect of the instrument concerned, and must notify CySEC accordingly.
Since the aggregate EU-wide data published by ESMA to date covers only equity and equity-like instruments and bonds, the current requirement to notify CySEC applies only to CIFs which are SIs in those asset classes. For all other asset classes, the mandatory assessment and requirement to notify will only apply after the first publication of the data for those asset classes on 1 February 2019. However, investment firms which choose to opt-in to the SI regime may complete the notification form now.
ESMA will publish the aggregated EU-wide trading information each quarter, within a month after the quarter-end, and CIFs should carry out their self-assessment and notify CySEC if appropriate within two weeks after the aggregated EU-wide trading information becomes available on the ESMA website. The assessment should be made on the basis of the data for the latest quarter and the preceding quarter.
Although the notification submitted to CySEC includes only the classes of financial instruments in respect of which the investment firm is a SI, firms are required to establish and maintain a list of all financial instruments for which they are SIs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.