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Rulebook | Rules and regulations
Rulebook
All London Stock Exchange member firms are bound by the Rules of the London Stock Exchange (“the rules”) and must ensure compliance with these rules. The rules were fully updated in 2007 in readiness for the introduction of the Markets in Financial Instruments Directive (“MiFID” or “the Directive”). The revised Rulebook also aligned the rules more closely with the structure of the trading system and simplified them where possible to make them more user-friendly.
The Rules are therefore closely linked to the operation of the trading system and should be read in conjunction with the Guide to the trading system and the Millenium Exchange and TRADEcho Parameters. Both documents be found in the Documents and downloads section on SETS.
Definitions
The Rules of the London Stock Exchange incorporate a set of defined terms. These are typically used to ensure rules are kept concise and to standardised commonly referenced terms and subjects. Most rules will reference at least one defined term, each identified by bold text. Hence to ensure full understanding of any particular rule will require a cross reference with the definitions section at the beginning of the Rulebook.
For example Rule 1100 states "A member firm may act as, or use the services of, a settlement agent to settle on Exchange business" and the following definitions apply:
| Member firm | a partnership, corporation, legal entity or sole practitioner admitted to Exchange membership and whose membership has not been terminated. For the purposes of the compliance procedures, member firm shall include a former member firm where appropriate |
|---|---|
| Settlement agent | a person providing settlement services |
| on Exchange | a trade executed under the Rules of the Exchange as defined by rules 2000 & 3000 |
It should be noted that the definition itself may contain defined terms which would also need to be crossed referenced within the definitions.
The definitions are contained at the start of the Rule book and are available from the downloads below.
The latest version of the Guide to the Trading System - MIT201 and Millennium Exchange Business Parameters are available at Technical library Securities trading resources | London Stock Exchange.
Core rules
The core rules apply, with some exceptions, to all member firms and include categories of membership, authorisation, general suitability and other general requirements such as notifications and trade records.
The core rules are divided into a number of sections including:
- Member firms
- Member firm services
- Compliance and enforcement
- Charges and fees
- General conduct
- Systems and trading.
The general conduct rules cover misleading acts, conduct and prohibited practices, share price manipulation, and system testing.
System and trading rules cover member firm system problems, regulatory suspensions, market situations, when issued dealing, and conditional trades.
Trading rules: Order book and off order book
Order book trading rules
The order book trading rules are aligned closely with the operation and system rules of the trading system. In general the order book trading rules are high level and reference the trading system and parameters where applicable.
They are designed to be resilient to system configuration changes at segment and sector level within the trading system.
The rules primarily cover how member firms access the trading system and the responsibilities of member firms for their order management. These include order routing and member authorised connections. They also cover contra requests and the reversal of erroneous trades.
Off order book trading rules
The off order book trading rules are less reliant on the system rules of the trading system and govern how member firms must interact when trading on Exchange away from the order book.
This section of the rules is more extensive than the order book trading rules and covers subjects such as the determination of an on Exchange trade, trade reporting, trade publication, and obligations of member firms to market makers.
Market maker rules
The market making rules are related to both off order book trading and to order book trading. A member firm can elect to register as a market maker in one or more securities but must be able to meet the obligations that are associated with the role. A basic requirement is for a market maker to make prices and deal either on the order book, off the order book or both.
The trading system's functionality determines some of the minimum requirements for a market maker, such as the minimum size of the quote. The rules make reference to the parameters where applicable.
The market maker rules cover the following topics:
- Registration
- Obligations of market makers in order driven securities
- Exceptions to obligations of market makers in order driven securities
- Obligations of market makers in quote driven securities
- Interaction with a market maker in quote driven securities
- Market making agreements - algorithmic trading
- Market making schemes - algorithmic trading.
Settlement, clearing and benefits rules
This is the largest section in the Rulebook providing rules for the settlement and clearing of on Exchange market contracts and for the handling of benefit actions such as dividend payments and corporate actions.
The settlement rules require that a member firm shall ensure that every on Exchange trade effected is duly settled. There are rules in connection with the time of settlement, mandatory settlement, place of settlement and the postponement or extension of the settlement period. In addition the rules deal with inter office delivery, certified transfers, and late settlement.
The Exchange operates a buying-in service whereby a member firm can request the Exchange buys stock in on its behalf. Rules relating to buying-in are included within this section but the operational procedures and process is available separately on the buying-in section.
Rules relating to the clearing of trades through a central counterparty are contained in this section, including clearing arrangements, continuing suitability, central counterparty contracts, and settlement netting.
Finally there are rules relating to general benefit situations and how they should be handled. These include dividends, rights issues, capitalisation issues, entitlement issues, conversions and drawings, takeovers, and stock situations.
These rules relate to the settlement of on Exchange trades covering, for example, member firm obligations, timing and method of settlement (including the Exchange’s buying-in process). In addition, this section of the rule book also contains rules relating to central counterparty clearing and settlement netting as well as the rules relating to member firm settlement obligations where there is a benefit distribution or a stock situation.
Compliance
The compliance rules (procedures) cover the disciplinary process used by the Exchange. Where the Exchange believes there has been a rule breach by a member firm it may commence disciplinary action against that firm.
The Exchange may impose a fixed penalty, issue a warning notice and/or refer disciplinary matters to either an Executive Panel or a Disciplinary Committee.
The rules detail the process applied to each of the above sanctions, including the appeals process.
Default rules
The final section of the Rulebook is the default rules (procedures). Where a member firm is not able to fulfil its on Exchange market contracts and is deemed to be in default, the Exchange will apply its default rules accordingly.
The operation of the Exchange's default procedures, in accordance with the provisions of the Companies Act 1989, is designed to produce a net sum calculation of the liabilities owed to and by the defaulter acting as principal with respect to each of its counterparties to unsettled non CCP on-Exchange trades.
Where the defaulter was acting in an agency capacity the Exchange will contact the defaulter's customer or counterparty and the non-defaulting member firm and will require them to settle the contract as dealt.
The latest version of the Guide to the Trading System - MIT201 and Millennium Exchange Business Parameters are available on the Resources page.
AIM Registered organisation list
AIM Primary Market Registered Organisation List
- Aquis Stock Exchange Limited
For further information, please see Guidance to Exchange Rule 3000.2
AIM Secondary Market Registered Organisation List
- The market for AIM securities operated by Aquis Stock Exchange Limited
- Liquidnet Europe Limited
- Turquoise, the multilateral trading facility operated by Turquoise Global Holdings Limited
- TRADEcho, an approved publication arrangement (“APA”) operated by London Stock Exchange Plc
- Cboe Europe Ltd
For further information, please see Guidance to Exchange Rule 3000.2
Parties interested in becoming an AIM Secondary Market Registered Organisation should contact Capital Markets Compliance at securitiescm@lseg.com to obtain an application pack.
Member firm information sheets
You can find more information on the member firm information sheet directory.
