to ensure the Rules effectively govern member firms’ on Exchange business in a post–MiFID environment;
to align the Exchange’s Rules more closely with the structure of the various trading platforms; and
to simplify the Rules wherever possible and make them more user friendly.

Member firms will be fully consulted throughout the proposed Rulebook re-write.

1. Existing Rulebook

The Rules were last fully updated in 2002 but that was primarily a re-structuring exercise to segregate the order driven and quote driven trading rules. The Rulebook still remains a relatively complex document, largely because of the interplay between the numerous markets operated by the Exchange and the various trading platforms on which the securities are traded.

It is worth noting that existing London market practice and the Rules of the London Stock Exchange are already broadly in line with MiFID’s key principles.

2. Structure and Content

In order to simply and improve the accessibility of the Exchange’s Rules, we propose to implement a three tier structure as follows.

The new Rulebook will be shortened and simplified with content substantially sourced from the current Rules. The aim is to make this Rulebook a higher level, more general document that should remain stable in content for the foreseeable future. The Rulebook should, for example require minimal change when the Exchange introduces new markets, products or services.

A breach of the Rules would still be subject to the disciplinary processes currently in place.

The existing Guide to Trading Services, which provides the overview of the functionality of the trading system, appears to be well received by the market and we therefore intend to keep it in largely its current form. We will look to move rules which could be classified as “descriptive” out of the Rulebook itself and into this Guide. The Guide should only change when there is a functional change to the Exchange’s trading system.

The Guide to Trading Services will support the Rulebook but it will not contain any “rules” that can be breached.

Finally we propose to introduce a new Trading System and Rules Parameters document to support the Rulebook. This will consist of a series of tables which will define the limits of activity and behaviour for a given segment / sector on the trading system. It will be a downloadable electronic document, held on the Exchange’s website This document will be updated to ensure that the parameters fully describe the operation of tradable instruments in the various sectors and segments of the Exchange’s markets.

For example this new ‘Parameters’ document will contain details of maximum spreads, mandatory quote periods, trade reporting deadlines etc.

Compliance with these parameters may in certain circumstances be enforced electronically by the trading system. Operating outside the parameters may also constitute a breach of the Rules.

3. Objectives

Our intention is to facilitate member firms’ compliance with MiFID and make it as straightforward as possible for member firms to conduct their business under the rules of the Exchange’s markets. At the same time we will take the opportunity to align the structure of the Rules more closely with the technical infrastructure of the trading system with the intention of making the Rules easier to interpret and navigate.

We have considered the possible benefits of introducing ‘principle based’ Rules along the lines of FSA’s Principles for Business but believe that our firms would prefer to have the certainty of clear, precise Rules to govern their on Exchange activity.

4. Workstreams

The project is divided into a number of work streams, the key ones of which are shown below. Each workstream addresses a key aspect of the Rules and when put together will enable us to develop a revised Rulebook to meet the above objectives.

We intend to hold extensive consultation with the market and would welcome your feedback at various stages of the project. If you have any comments or questions these can be sent to jnewbury@londonstockexchange.com

Aside from the rules changes that are necessary because of MiFID implementation, we believe this year also represents an opportunity for us to simplify and streamline our current Rules to provide a robust framework for the effective and proportionate regulation of trading on the Exchange’s markets.