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:

1. (a)when deciding to place or retract an order on the OTF they operate; or
2. (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.