EU · MiFID II · TITLE II AUTHORISATION AND OPERATING CONDITIONS FOR INVESTMENT FIRMS · CHAPTER I Conditions and procedures for authorisation
Article 20 MiFID IISpecific requirements for OTFs
OTF operators may not execute client orders against their own or group capital, may use matched principal trading only with client consent and not for derivatives subject to the clearing obligation, and may deal on own account only in illiquid sovereign debt. An OTF and an SI may not be operated in the same legal entity or interconnected, and orders must be executed with discretion over placing or retracting orders and over matching, which operators must explain to their authority.
Level 3: ESMA Q&As, guidelines and opinions
- Q&AAnsweredInferred · 70%
AI summaryAn investment firm operating an OTF may arrange strategies that include an equity leg, but the equity (or look-alike equity) leg cannot be executed on the OTF, which may trade only non-equity instruments; the OTF reports only the legs concluded on its system.
- Q&AAnsweredInferred · 75%
AI summaryWhere an OTF also offers trading in REMIT carve-out wholesale energy contracts, it must describe that activity in its authorisation file (or to its competent authority before starting it), and the management body's responsibilities extend to that non-financial trading because it can affect the investment business.
- Q&AAnsweredInferred · 80%
AI summaryAn investment firm or market operator operating an OTF must cover best execution both at firm level (which venues, including its own OTF, it uses) and at OTF level (how the best result is achieved within the OTF), setting out where and how it exercises discretion.
- Q&AAnsweredExplicit reference · 90%
AI summaryAn OTF operator may engage another investment firm to make markets on the OTF independently under Article 20(5) MiFID II only if that firm has no close links with the operator, and the operator must still identify and manage conflicts of interest.
- Q&AAnsweredInferred · 95%
AI summaryNot every form of discretion makes a venue an OTF: Article 20(6) discretion means real judgement over placing or retracting orders (order discretion) and over whether, when and how much to match (execution discretion), actually exercised in the ordinary course of business and explainable to the authority; following client instructions or best execution, random decisions, pre-trade controls and post-trade choices do not count.
- Q&AAnsweredInferred · 95%
AI summaryUnder Article 20(4) MiFID II, orders in an OTF may not interact with SI quotes or orders from other OTFs, so both sides of a trade must be placed on the same venue, though the operator may withdraw an order and route it to another venue in line with its execution policy.
- Q&AAnsweredInferred · 85%
AI summaryAn entity must be authorised as an OTF where trading in non-equity instruments is multilateral, the arrangements have the characteristics of a system, and orders are executed on a discretionary basis through or under the system's rules; ESMA explains each condition and the two OTF system types in Article 20(6).
- Q&AAnsweredInferred · 90%
AI summaryA fully automated system can still be an OTF: discretion over placing, retracting or matching orders can be exercised through algorithms if they take account of external factors and apply best execution or client instructions, whereas human intervention without real judgement is not discretion.
- Q&AAnsweredInferred · 85%
AI summaryWhere an SI and an OTF must be run by separate legal entities, the two must prevent information sharing on each other's activities through separate management and operational teams, physical separation and segregated execution systems; some IT infrastructure may be shared, and outsourcing between them is allowed only on a similar basis.
- Q&AAnsweredInferred · 85%
AI summaryAn investment firm or market operator running an OTF must cover best execution both at firm level (which venues, including its own OTF, it uses) and at OTF level (how the best result is achieved within the OTF's mechanisms), and set out where and how it exercises discretion.
- Q&AAnsweredInferred · 90%
AI summaryAn OTF operator need not exercise discretion over placing or retracting orders order by order (it may act for a set of orders), but must be able to do so for individual orders when needed; discretion over whether to match two interests can only be exercised order by order.
- Q&AAnsweredInferred · 95%
AI summaryArticle 20(4) MiFID II is a blanket ban: the same legal entity may not operate both an OTF and a systematic internaliser, even in different asset classes or instruments.
- Q&AAnsweredInferred · 85%
AI summaryOTFs differ from MTFs in that they trade only non-equity instruments, allow the operator more matched principal and own-account activity (but not combined with an SI), require the operator to exercise discretion, and have clients rather than members, so client-facing rules such as best execution apply; physically settled REMIT energy products on an OTF are not financial instruments.
- Q&AAnsweredExplicit reference · 90%
AI summaryTo decide which sovereign bonds lack a liquid market, so that an OTF operator may deal in them on own account under Article 20(3) MiFID II, the liquidity methodology and criteria in RTS 2 should be used as the reference.
- Q&ALegacy Q&A documentESMA rulebook
AI summaryESMA's consolidated legacy Q&A document (ESMA35-43-349, final version 15 December 2023) on MiFID II investor protection topics, including best execution, suitability, call recording, inducements and research, costs and charges, client categorisation, third-country firms and product governance. It is no longer updated; Q&As from 2024 are in ESMA's Q&A tool.
- Q&ALegacy Q&A documentESMA rulebook
AI summaryESMA's consolidated legacy Q&A document (ESMA70-872942901-38, final version 13 October 2023) on market structure topics, covering data disaggregation, direct electronic access and algorithmic trading, the tick size regime, multilateral and bilateral systems (including OTFs and systematic internalisers) and access to CCPs and trading venues. It is no longer updated; later Q&As are in ESMA's Q&A tool.
Commentary
No law-firm commentary is linked to this provision yet.
393 more documents relate to MiFID II as a whole without naming an article.
UK counterpart
- MAR 5A.3.2R · Executing ordersEquivalentExplicit reference · 90%
No change on either side since exit (31 Dec 2020). MAR 5A.3.2R transposes the article, so the wording differs.
- MAR 5A.3.3G · Executing ordersEquivalentExplicit reference · 90%
No change on either side since exit (31 Dec 2020). MAR 5A.3.3G transposes the article, so the wording differs.
- MAR 5A.3.4G · Executing ordersEquivalentExplicit reference · 90%
No change on either side since exit (31 Dec 2020). MAR 5A.3.4G transposes the article, so the wording differs.
- MAR 5A.3.5R · Proprietary tradingEquivalentExplicit reference · 90%
No change on either side since exit (31 Dec 2020). MAR 5A.3.5R transposes the article, so the wording differs.
- MAR 5A.3.7R · Proprietary tradingEquivalentExplicit reference · 90%
No change on either side since exit (31 Dec 2020). MAR 5A.3.7R transposes the article, so the wording differs.
- MAR 5A.3.10R · Reporting to the FCAEquivalentExplicit reference · 90%
No change on either side since exit (31 Dec 2020). MAR 5A.3.10R transposes the article, so the wording differs.
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Version history
- From 17 Sept 2014
Each entry is a consolidated version of the act on EUR-Lex in which this provision appears. The text itself is on the official site.