16 - Broker–dealers

Summary

Regulatory status

The commercial activities of broker–dealers (2.4.4(8)) resolve themselves, in regulatory terms, into:

1. (a) buying and selling as principal or as agent (3.2.2.1); and

2. (b) arranging deals (3.2.2.2); and

3. (c) advising (3.2.2.3).

Infrastructure rules

All of the infrastructure rules apply (5.2–5.5, 6.3.1–6.3.4, 6.3.6, 6.3.7).

Conduct rules

As well as market conduct (12.1–12.6), there are three separate regimes.

Securities and derivatives broking and dealing

Here, all of the conduct rules in 7–11 and 13 apply.

Energy and oil markets

Where energy and oil market derivatives are MiFID Business (4.2.I(2)), 16.3.1 applies (subject to a very limited disapplication). However, where they do not constitute MiFID Business but are still Regulated Activity (4.2.I(1)), FSA ‘propose to maintain the policy approach reflected in … [Pre-MiFID] COB’, such derivatives being where ‘UK regulation does not contain exemptions as broad as those in MiFID for firms undertaking commodity and exotic derivatives business and the definition of financial instruments in UK legislation covers a wider range of physically settled options on precious metals and a wider set of physically settled commodity futures than does MiFID’ as explained in 3.2.1.6 and 3.2.1.7.

Pre-MiFID: The regime related to on-exchange dealing with any type of client, OTC dealing ‘with or for persons who are not individuals’ and the establishment of collective investment schemes, originally in relation to derivatives over ‘oil’ (defined as ‘mineral oil … and petroleum gases,whether in liquid or vapour form, including products and derivatives of oil’) and later extended to ‘energy’ (which included ‘coal, electricity, natural gas (or any byproduct or formof any of them)… or a greenhouse gas emissions allowance … or a tradable renewable energy credit’).