9.2. Post-Trade Disclosure
A Trading Facility Operator must disclose the price, volume and time of the transactions effected in respect of Qualified Investments to users as close to real-time as is technically possible on reasonable commercial terms and on a non-discretionary basis. An Operator must use adequate mechanisms to enable post-trade information to be made available to users in an easy to access and uninterrupted manner at least during business hours.
10. LIQUIDITY PROVIDER
(1) A Trading Facility Operator must not introduce a liquidity incentive scheme unless:
(a) participation in such a scheme is limited to Members or any other Persons if:
(і) the Operator has undertaken due diligence to ensure that the Person is of good repute and has adequate competencies and, if applicable, organisational arrangements; and
(ii) the Person has agreed in writing to comply with the Operator’s operating rules so far as those rules are applicable to that Person’s activities; and
(iii) the Operator has obtained the prior approval of the AFSA.
(2) For the purposes of this Chapter, a «liquidity incentive scheme» means an arrangement designed to provide liquidity to the market in relation to Qualified Investments traded on the MTF or OTF.
(3) If a Trading Facility Operator proposes to introduce or amend a liquidity incentive scheme, it must lodge with the AFSA, at least ten business days before the date by which it expects to obtain the AFSA approval, a statement setting out:
(a) the details of the relevant scheme, including benefits to the MTF or OTF and Members arising from that scheme; and
(b) the date when the scheme is intended to become operative.
(4) The AFSA must within ten business days after receiving the proposal referred to in MOTF 10(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 MTF or OTF or to markets in general. If the AFSA does not approve the proposed liquidity incentive scheme, it must notify the Trading Facility Operator of its objections to the introduction of the proposed liquidity incentive scheme, and its reasons for that decision.
(5) To enable interested parties to participate, a Trading Facility Operator must, within a reasonable period before the launch of a liquidity incentive scheme, announce the launch of the scheme, the date when the scheme starts and the contracts to which the scheme relates.
11. RULES APPLICABLE TO MTF OPERATORS
(1) MTF Operators may not execute Member orders against proprietary capital, or engage in matched principal trading.
(2) Each MTF Operator must establish rules prohibiting the execution of Member orders against proprietary capital, and rules prohibiting the operator from engaging in matched principal trading.
12. RULES APPLICABLE TO OTF OPERATORS
(1) An OTF Operator may engage in matched principal trading in Qualified Investments only if the Member has consented to the process.
(2) An OTF Operator must not use matched principal trading to execute Member orders in an OTF in Qualified Investments pertaining to a class of derivatives that has been declared, by the AFSA, subject to the clearing obligation.
(3) OTF Operators may engage in dealing on own account other than matched principal trading only with regard to sovereign debt instruments for which there is not a liquid market.
(4) OTF Operators may engage another Authorised Firm to carry out market making on that OTF on an independent basis, provided that such other Authorised Firm does not have close links with the OTF Operator.
(5) Execution of orders on an OTF must be carried out on a discretionary basis.
(6) An OTF Operator must exercise discretion only in the following circumstances:
(a) when deciding to place or retract an order on the OTF they operate; or
(b) when deciding not to match a specific Member order with other orders available in the systems at a given time, provided it is in compliance with specific instructions received from a Member and with its «best execution» obligations.
(7) For the purpose of MOTF 12(6), the «best execution» obligation means when an OTF Operator agrees, or decides in the exercise of its discretion, to execute any transaction with or for a client in a Qualified Investment, it must provide best execution, namely to take reasonable care to determine the best execution available for that Qualified Investment under the prevailing market conditions and deals at a price and other conditions which are no less advantageous to that client.
(8) With a system that crosses Member orders, the OTF Operator may decide if, when and how much of two or more orders it wants to match within the system. With regard to a system that arranges transactions in non-equities, the OTF Operator may facilitate negotiation between Members so as to bring together two or more potentially compatible trading interests in a transaction.
(9) OTF Operators must, on request, provide the AFSA with a detailed explanation why the system does not correspond to and cannot operate as a MTF, a detailed description as to how discretion is exercised, in particular when an order to the OTF may be retracted and when and how two or more Member orders are matched within the OTF. In addition, the OTF Operator must provide the AFSA with information explaining its use of matched principal trading.
13. TRADE PROCESSING AND FINALISATION OF TRANSACTIONS
(1) A Trading Facility Operator must establish days and hours it is open for business under normal market conditions.
(2) A Trading Facility Operator must establish rules for a participant to submit instructions to a MTF or OTF.
14. TRANSACTION RECORDING
(1) A Trading Facility Operator must ensure that satisfactory arrangements are made for recording transactions effected on and through its facilities.
(2) In determining whether a Trading Facility Operator has satisfactory arrangements for recording the transactions effected on and through its facilities, the AFSA may have regard to:
(a) whether the Operator has arrangements for creating, maintaining and safeguarding an audit trail of transactions for at least 6 years; and
(b) the type of information recorded and the extent to which the record includes details for each transaction of:
(і) the name of the Qualified Investment (and, if relevant, the underlying asset) and the price, quantity and date of the transaction;
(ii) the identities and, if appropriate, the roles of the counterparties to the transaction;
(iii) if the Operator’s rules make provision for transactions to be effected, cleared or to be cleared in more than one type of facility, or under more than one part of its rules, the type of facility in which, or the part of its rules under which, the transaction was effected, cleared or to be cleared; and
(iv) the date and manner of settlement of the transaction.
15. SAFEKEEPING OF CLIENT ASSETS
(1) A Trading Facility Operator must not hold any financial instruments or other assets belonging to users of its MTF or OTF with respect to its operation of the MTF or OTF.
(2) Notwithstanding MOTF 15(1), a Trading Facility Operator may hold financial instruments or other assets belonging to its customers with respect to the Regulated Activities other than the operation of the MTF or OTF for which it is granted an authorisation.
16. OPERATIONAL SYSTEMS AND CONTROLS
(1) A Trading Facility Operator must establish a robust operational risk management framework with appropriate systems and controls to identify, monitor and manage operational risks that key Members, other Recognised Non-AIFC Market Institutions, service providers (including outsources) and utility providers might pose to itself.
(2) A Trading Facility Operator must have a business continuity plan, which is subjected to periodic review and scenario testing, that addresses events posing a significant risk of disrupting operations, including events that could cause a widespread or major disruption. The plan must:
(a) outline objectives, policies, procedures and responsibilities to deal with internal and external business disruptions and measures to ensure timely resumption of service levels;
(b) include policies and procedures for event and crisis management;
(c) incorporate the use of a secondary site;
(d) contain appropriate emergency rules for force majeure events;
(e) be designed to ensure that critical information technology systems can resume operations within two hours following disruptive events; and
(f) outline business continuity procedures in respect of its Members and other users of its facilities following disruptive or force majeure events.
(3) A Trading Facility Operator must have an incident management procedure to record, report, analyse and resolve all operational incidents.
(4) A Trading Facility Operator must have clearly defined operational reliability objectives and policies to achieve those objectives, as well as a scalable operational capacity adequate to handle increasing stress volumes, service‐level objectives and historical data.
(5) A Trading Facility Operator must have a comprehensive physical and information security policy, standards, practices and controls to identify, assess and manage security threats and vulnerabilities and to protect data from loss and leakage, unauthorised access and other processing risks.
(6) Upon request from the AFSA, an Operator must provide the documents listed in MOTF 16(2) to (5) in a timely manner.
17. DEFAULT MANAGEMENT
17.1. Default Rules
A Trading Facility Operator must have legally enforceable Default Rules which, in the event of a Member of the Operator being or appearing to be unable to meet its obligations in respect of one or more contracts, enable it:
(1) to suspend or terminate such Member’s membership; and
(2) to share information with its clearing house.
17.2. Public notice of suspended or terminated Membership
A Trading Facility Operator must issue a public notice on its website in respect of a Member whose membership is suspended or terminated.
17.3. Cooperation with office-holder
A Trading Facility Operator must be able and willing to cooperate, by the sharing of information and otherwise, with the AFSA, a relevant office-holder and any other authority or body having responsibility for a matter arising out of, or connected with, the default of a Member of the Operator or the default of a clearing house or another Operator.
18. FINANCIAL CRIME AND MARKET ABUSE
(1) A Trading Facility Operator must:
(a) operate an effective market surveillance program and appropriate measures to identify, monitor, deter and prevent conduct which may amount to market misconduct, Financial Crime and money laundering on and through the Operator’s facilities; and
(b) immediately report to the AFSA any suspected market misconduct, Financial Crime or money laundering, along with full details of that information in writing.
(2) A Trading Facility Operator must have appropriate procedures and protections for enabling Employees to disclose any information to the AFSA or to other appropriate bodies involved in the prevention of market misconduct, money laundering or other Financial Crime or any other breaches of relevant legislation.
(3) In determining whether a Trading Facility Operator’s measures are appropriate to reduce the extent to which its facilities can be used for a purpose connected with Market Abuse or Financial Crime, to facilitate their detection and to monitor their incidence, the AFSA may have regard to:
(a) whether the rules of the Operator enable it to disclose any information to the AFSA or other appropriate bodies involved in the detection, prevention or pursuit of Market Abuse or Financial Crime inside or outside AIFC; and
(b) whether the arrangements, resources, systems, and procedures of the Operator enable it to:
(і) monitor the use made of its facilities so as to obtain information regarding possible patterns of normal, abnormal or improper use of those facilities;
(ii) detect possible instances of Market Abuse or Financial Crime, for example, by detecting suspicious patterns in the use of its facilities;
(iii) communicate information about Market Abuse or Financial Crime promptly and accurately to appropriate bodies; and
(iv) cooperate with all relevant bodies in the prevention, investigation and pursuit of Market Abuse or Financial Crime.
19. RESOLUTION PLANNING
If a Trading Facility Operator anticipates that it or the MTF or OTF may be the subject of an insolvency order, it must act in a manner that reduces the impact on other market participants and may seek advice from external advisers.
20. SETTLEMENT AND CLEARING SERVICES
20.1. Settlement and clearing facilitation services
(1) A Trading Facility Operator, when engaging a clearing service, must ensure that satisfactory arrangements are made for securing the timely discharge (whether by performance, compromise or otherwise), clearing and settlement of the rights and liabilities of the parties to transactions effected on the MTF or OTF (being rights and liabilities in relation to those transactions).
(2) The engagement of a Recognised Non-AIFC Clearing House is deemed sufficient to satisfy MOTF 20.1(1)(1).
(3) If a Trading Facility Operator engages a party that is not a Recognised Non-AIFC Clearing House, the Operator must confirm to the AFSA, in writing, that satisfactory arrangements have been made under MOTF 20.1(1)(1).
(4) In determining whether there are satisfactory arrangements for securing the timely discharge of the rights and liabilities of the parties to transactions as required by MOTF 20.1(1)(1), the AFSA may have regard to the clearing house’s:
(a) rules and practices relating to clearing and settlement including its arrangements with another Person for the provision of clearing and settlement services;
(b) arrangements for matching trades and ensuring that the parties are in agreement about trade details;
(c) if relevant, arrangements for making deliveries and payments, in all relevant jurisdictions;
(d) procedures to detect and deal with the failure of a Member to settle in accordance with its rules;
(e) arrangements for taking action to settle a trade if a Member does not settle in accordance with its rules;
(f) arrangements for monitoring its Members’ settlement performance; and
(g) if appropriate, default rules and default procedures.
(5) The rules of the Trading Facility Operator must permit a Member to use whatever settlement facility the Member chooses for a transaction. This paragraph only applies if:
(a) such links and arrangements exist between the chosen settlement facility and any other settlement facility as are necessary to ensure the efficient and economic settlement of the transaction; and
(b) the Operator is satisfied that the smooth and orderly functioning of the AIFC financial markets will be maintained.
SCHEDULE 1: CONTRACT DELIVERY SPECIFICATIONS
1. Application
This Schedule applies to a Trading Facility Operator which trades, or clears or settles, on its facilities commodity derivative contracts which require physical delivery of the underlying commodity.
2. Deliverability of the underlying commodity
A Trading Facility Operator must, for the purposes of meeting the requirement in MOTF 5.2(4)(c) ensure that the terms and conditions of the commodity derivative contracts which are to be traded, or cleared or settled, on its facilities, are designed to include the matters specified in this Schedule.
3. Quality or deliverable grade
A commodity derivative contract must include specifications of commodity characteristics for par delivery, including those relating to grade, class, and weight. The quality or grade specified must conform to the prevailing practices in the underlying physical market relating to the relevant commodity.
Guidance
Par delivery envisages delivery of commodities which are of a comparable quality or grade as specified in the contract. Contracts that call for delivery of a specific quality of commodity may provide commercial participants with a clearer, more efficient hedging and price-basing contracts than a contract that permits delivery of a broad range of commodity grades or classes.
However, as contracts that permit delivery of only a specific grade of commodity may be susceptible to manipulation if that grade of the commodity is in short supply or controlled by a limited number of sellers, a Trading Facility Operator should require appropriate measures to mitigate such risks.
4. Size of delivery unit
A commodity derivative contract must contain provisions relating to size or composition of delivery units which conform to the prevailing market practice in the underlying physical market to ensure that it does not constitute a barrier to delivery or otherwise impede the performance of the contract.
Guidance
A Trading Facility Operator should, if the provisions relating to size and delivery units of the commodity derivatives contract deviate from the underlying physical market, examine the reasons for such deviation and ensure that the risks arising from such deviation can be effectively addressed by the contract parties.
5. Delivery instruments
A commodity derivative contract must specify the acceptable form or type of delivery instruments, and whether such instruments are negotiable or assignable and, if so, on what conditions.
Guidance
Acceptable delivery instruments include warehouse receipts, bills of lading, shipping certificates, demand certificates, or collateralized depository receipts.
6. The delivery process and facilities
A commodity derivative contract must specify:
(a) the delivery process, including timing, location, manner and form of delivery, and
(b) the delivery or storage facilities available, which conform to the prevailing practices in the underlying physical market to permit effective monitoring and to reduce the likelihood of disruption.
Guidance
A Trading Facility Operator should consider issues associated with the delivery process, including those relating to acceptable delivery locations. Such issues include:
(a) the level of deliverable supplies normally available, including the seasonal distribution of such supplies;
(b) the nature of the physical market at the delivery point (e.g., auction market, buying station or export terminal);
(c) the number of major buyers and sellers; and
(d) normal commercial practices in establishing cash commodity values.
The delivery months specified in the commodity derivative contract should take into account cyclical production and demand and accord with when sufficient deliverable supplies are expected to exist in the underlying physical market. Seasonality of a commodity should also be taken into account in relation to transport and storage, as it may affect the availability of warehouse space and transportation facilities.
Consistent with the grade differentials noted above, commodity derivative contracts that permit delivery in more than one location should set delivery premiums or discounts consistent with those observed in the underlying physical market. The adequacy of transportation links to and from the delivery point should also be taken into account when setting delivery premiums.
The delivery facilities available can include oil or gas storage facilities, warehouses or elevators for agricultural commodities and bank or vault depositories for precious metals.
A Trading Facility Operator should consider issues relating to the selection of delivery facilities under the contract which include:
(a) the number and total capacity of facilities meeting contract requirements;
(b) the proportion of such capacity expected to be available for short traders who may wish to make delivery against commodity derivative contracts and seasonal changes in such proportions;
(c) the extent to which ownership and control of such facilities is dispersed or concentrated; and
(d) its ability to access necessary information from such facility.
7. Inspection and certification procedures
A commodity derivative contract must specify applicable inspection or certification procedures for verifying that the delivered commodity meets the quality or grade specified in the contract, which conform to the prevailing practices in the underlying physical market.
Guidance
If the commodity is perishable, the commodity derivative contract should specify if there are any limits on the duration of the inspection certificate and the existence of any discounts applicable to deliveries of a given age.
8. Payment for transportation or storage
A commodity derivative contract must specify:
(a) the respective responsibilities of the parties to the contract regarding costs associated with transporting the commodity to and from the designated delivery point and any applicable storage costs; and
(b) how and when title to the commodity transfers, including from any short to long position holder.
9. Legal enforceability
A commodity derivative contract must, where any one or more of the activities of trading, clearing or settlement under the contract take place in different jurisdictions, contain adequate arrangements to mitigate risks arising from any disparity between governing laws applicable in the relevant jurisdictions.
Guidance
A Trading Facility Operator should, when assessing whether the contractual terms adequately provide for addressing jurisdictional risks, take into account:
(a) whether the contract clearly identifies the different legal requirements applicable in the relevant jurisdictions and any differences, including those relating to the manner in which standard clauses are interpreted;
(b) the impact such differences may have in dealing with matters such as delivery disputes, and determination of rights in insolvency proceedings; and
(c) whether the contract contains effective measures to address risk of unenforceability of the contractual terms, particularly those relating to cargos and storage where jurisdictional differences could have a significant impact on the deliverability.
10. Default provisions and force majeure
A commodity derivative contract must specify:
(a) the rights and obligations of the parties to the contract in the event of default by the parties, or in the event of frustration of the contract due to force majeure or other specified event; and
(b) whether any Clearing House guaranties the settlement of the transaction in an event specified in (a), and if so, the manner in which such settlement will occur.
Guidance
A Trading Facility Operator, when considering whether a commodities derivative contract adequately provides for contract certainty in the event of default or force majeure, should take into account:
(a) whether any collateral provided by the contracting parties would be sufficient to address the replacement risk in the performance of the contract; and
(b) whether there are any monetary consequences attaching to defaulting parties that would act as a disincentive against default.
The contract terms should clearly specify which jurisdictional laws are applicable to the governing law, including where there are any significant variations in the rights and liabilities attaching to the contracting parties for the events that occur in the relevant jurisdiction.