COBS 8.6 COBS 8.6 Rules Applicable to OTF Operators
An OTF Operator may engage in matched principal trading in bonds, structured finance products, and other derivatives specified by the Regulator only where the Client has consented to the process.
An OTF Operator shall not use matched principal trading to execute Client orders in an OTF in derivatives pertaining to a class of derivatives that has been declared subject to the Clearing obligation in accordance with the Regulations.
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.
OTF Operators may engage another Authorised Person to carry out market making on that OTF on an independent basis, provided that such other Authorised Person does not have Close Links with the OTF Operator.
Execution of orders on an OTF must be carried out on a discretionary basis.
An OTF Operator shall exercise discretion only in the following circumstances:(a) when deciding to place or retract an order on the OTF they operate; and/or(b) when deciding not to match a specific Client order with other orders available in the systems at a given time, provided it is in compliance with specific instructions received from a Client and with its "best execution" obligations in accordance with these Rules.
With a system that crosses Client 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 Clients so as to bring together two or more potentially compatible trading interests in a transaction.
OTF Operators shall, on request, provide the Regulator with a detailed explanation why the system does not correspond to and cannot operate as a Recognised Investment Exchange or MTF, a detailed description as to how discretion will be exercised, in particular when an order to the OTF may be retracted and when and how two or more Client orders will be matched within the OTF. In addition, the OTF Operator shall provide the Regulator with information explaining its use of matched principal trading.