"Structured finance products" are the products defined in MiFIR1.

The operator of an OTF executes orders on a discretionary basis. It may use discretion in only two situations: when deciding to place or retract an order on the OTF, and, where it complies with specific client instructions, when deciding not to match a specific client order with other orders available in the system at a given time2. This is where an OTF differs from an MTF, whose operator executes orders under non-discretionary rules.

The operator must have arrangements that prevent client orders on the OTF from being executed against the proprietary capital of the operator or of any entity in the same group3. Matched principal trading is allowed only with the client's consent, and it cannot be used to execute client orders in derivatives of a class declared subject to the clearing obligation4.

Notes

  1. Directive 2014/65/EU Article 4(1). The OTF definition is in point (23), and "structured finance products" in point (48), by reference to Article 2(1)(28) of MiFIR. The provisions cited here are from the adopted text (2014) on legislation.gov.uk. ↩

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

  3. Directive 2014/65/EU Article 20(1). ↩

  4. Directive 2014/65/EU Article 20(2). The clearing obligation covers classes of derivatives declared under Article 5 of Regulation (EU) No 648/2012. ↩