A multilateral system is a system or facility in which multiple third-party buying and selling interests in financial instruments are able to interact1. The operator of an MTF establishes and implements non-discretionary rules for the execution of orders2. Member States do not allow it to execute client orders against proprietary capital. Nor do they allow it to engage in matched principal trading3. This is a transaction in which the operator interposes itself between buyer and seller, is never exposed to market risk, executes both sides simultaneously, and makes no profit or loss beyond a previously disclosed commission or fee.

MTFs and OTFs both require the operator to set trading rules, but they differ in whether the operator has discretion in execution. On an OTF, the operator executes orders on a discretionary basis4. The article "Electronic Trading Platforms such as SEFs" explains this in more detail.

Notes

  1. Directive 2014/65/EU Article 4(1)(19) (multilateral system) and (22) (MTF). Based on the adopted text (2014) on legislation.gov.uk; later amendments are not covered on this page. ↩

  2. Directive 2014/65/EU Article 19(1). ↩

  3. Directive 2014/65/EU Article 19(5). Matched principal trading is defined in Article 4(1)(38). ↩

  4. Directive 2014/65/EU Article 20(6). ↩