3.1.1. Fair and orderly trading

An Authorised Investment Exchange must ensure that it has transparent rules and procedures to provide for fair and orderly trading and to establish objective criteria for the efficient execution of orders.

3.1.1-1. Price and position limits in respect of Commodity Derivatives

An Authorised Investment Exchange must ensure that the risks to fair and orderly trading, arising from sharp price movements, are mitigated for Commodity Derivatives.

3.1.1-2. Price Limits

An Authorised Investment Exchange may impose price limits in relation to a Commodity Derivative to mitigate the risks to fair and orderly trading arising from sharp movements in the price of the Commodity Derivative.

3.1.1-3. Position Limits

An Authorised Investment Exchange must, in respect of a Commodity Derivative, implement position limits for the purposes of mitigating the risk of Market Abuse.

Guidance

An Authorised Investment Exchange should:

1. consider the impact on its Commodity Derivative market from changes in the underlying market and set its position limits accordingly;
2. ensure that its position limits are not exceeded by any Member, its affiliates or other participant trading in the Derivative, including through the acquisition of additional positions;
3. require that its Members and other participants report their positions on a regular basis and on the occurrence of certain relevant events;
4. include provisions in its Business Rules which impose appropriate obligations on Members and other participants, to ensure their compliance with its position limit obligations;
5. immediately notify the AFSA when a position limit threshold is exceeded, detailing:

1. the reason why such a large position is being held;
2. how the holding of the position furthers the participant’s or Member’s trading strategy; and
3. whether the position is being used for hedging and the relevant contracts being hedged against;

6. on request by the AFSA, immediately make available the information collected by the Authorised Investment Exchange for the purposes of monitoring and enforcing the position limit obligations of its Members and other participants; and
7. have in place appropriate internal governance arrangements to ensure its position limits are effective in mitigating relevant risks, including the risks relating to Market Abuse.

3.1.2. Execution of orders

An Authorised Investment Exchange must have non-discretionary rules for the execution of orders.

3.1.3. Publicly available data on quality of executions

An Authorised Investment Exchange must make available to the public, without any charges, data relating to the quality of execution of transactions on the Authorised Investment Exchange on at least an annual basis. Reports must include details about price, costs, speed and likelihood of execution for individual Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments.

3.1.4. Market making arrangements

An Authorised Investment Exchange must:

• (a) have written agreements with all Members pursuing a Market Making Strategy by using its facilities (Market Making Agreements); and
• (b) have schemes, appropriate to the nature and scale of a trading venue, to ensure that a sufficient number of Members enter into Market Making Agreements which require them to post firm quotes at competitive prices with the result of providing liquidity to the market on a regular and predictable basis; and
• (c) monitor and enforce compliance with the Market Making Agreements;
• (d) inform the AFSA of the content of its Market Making Agreements; and
• (e) provide the AFSA with any information it requests which it reasonably requires to satisfy itself that the Market Making Agreements comply with sub-paragraph 3.1.4.

3.1.5. Trading controls

An Authorised Investment Exchange must be able to:

• (a) reject orders that exceed its pre-determined volume and price thresholds, or that are clearly erroneous;
• (b) temporarily halt or constrain trading on its facilities if necessary or desirable to maintain an orderly market; and
• (c) cancel, vary, or correct any order resulting from an erroneous order entry and/or the malfunctioning of the system of a Member or of the Authorised Investment Exchange.

3.1.6. Tick size regimes

The Authorised Investment Exchange must adopt a tick size regime in respect of each type of Security, Unit in a Listed Fund, Commodity Derivatives, or Environmental Instruments traded on each trading venue operated by it. The tick size regime must:

• (a) be calibrated to reflect the liquidity profile of such Investments in different markets and the average bid-ask spread taking into account the desirability of enabling reasonably stable prices without unduly constraining further narrowing of spreads; and
• (b) be able to adapt the tick size for each such Investment appropriately.

3.1.7. Short selling and position management

(a) An Authorised Investment Exchange must have in place effective systems, controls and procedures to monitor and manage:

1. (i) Short selling in shares, debentures and any other similar Investments; and
2. (ii) Risks arising from position concentrations.

(b) For the purposes of (a), an Authorised Investment Exchange must have adequate powers over its Members to mitigate the probability and impact of risk to the orderly functioning of its facilities arising from unsettled positions in Securities or Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments.

(c) Short selling for the purposes of this Rule constitutes the sale of a share, debenture or other similar Investments by a Person who does not own the share, debenture or other similar Investment at the point of entering into the contract to sell.

3.1.8. Liquidity incentive schemes

An Authorised Investment Exchange must not introduce a liquidity incentive scheme or any other scheme for encouraging bids on a trading venue or to increase the volume of business transacted unless it has obtained the AFSA’s prior written approval for the scheme.

3.1.9. Settlement and Clearing facilitation services

An Authorised Investment Exchange must ensure that satisfactory arrangements are made for securing the timely discharge (whether by performance, compromise or otherwise), Clearing and settlement of the rights and liabilities of the parties to transactions effected on the Authorised Investment Exchange (being rights and liabilities in relation to those transactions).

3.2.1. Admission to Trading Rules

An Authorised Investment Exchange must make clear and transparent rules concerning the admission of Securities, Units in a Listed Fund, Commodity Derivatives, or Environmnetal Instruments to trading on its facilities.

3.2.2. Content of Admission to Trading Rules

The rules of the Authorised Investment Exchange must ensure that:

• (a) Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments  admitted to trading on an Authorised Investment Exchange’s facilities are capable of being traded in a fair, orderly and efficient manner;
• (b) Securities, Units in a Listed Fund, or Environmental Instruments admitted to trading on an Authorised Investment Exchange’s facilities are freely negotiable; and
• (c) In case of Commodity Derivatives:
  • (i) contracts for Commodity Derivatives admitted to trading on an Authorised Investment Exchange’s facilities are designed so as to allow for their orderly pricing as well as for the existence of effective settlement conditions.
  • (ii) the rules and procedures must promote transparency by ensuring that there is sufficient information made available to the markets relating to the terms and conditions of the Derivative contracts traded on its facilities (including, where relevant, information relating to delivery and pricing of Derivative contracts)

Guidance: Fair, orderly and efficient trading

When assessing whether a Security, Unit in a Listed Fund, Commodity Derivative or Environmental Instrument is capable of being traded in a fair, orderly and efficient manner, the Authorised Investment Exchange shall take into account, depending on the nature of the Security, Unit in a Listed Fund, Commodity Derivative or Environmental Instrument being admitted, whether the following criteria are satisfied:

• (a) the terms of the Security,  Unit in a Listed Fund, Commodity Derivative or Environmental Instrument are clear and unambiguous and allow for a correlation between the price of the Security,  Unit in a Listed Fund, Commodity Derivative or Environmental Instrument and the price or other value measure of the underlying;
• (b) the price or other value measure of the underlying is reliable and publicly available or ascertainable; and
• (c) there is sufficient information publicly available of a kind needed to value the Security,  Unit in a Listed Fund, Commodity Derivative or Environmental Instrument.

3.2.2-1. Commodity Derivative contract design specifications

(1) An Authorised Investment Exchange must ensure, where appropriate, that the Commodity Derivative contracts have terms and conditions which:

(a) promote price discovery of the underlying commodity;

(b) ensure, to the extent possible, that there is a correlation to the operation of the physical market in the underlying commodity; 

(c) include contract delivery specifications which address matters specified in Schedule 1; and 

(d) provide for legally enforceable settlement and delivery procedures.

(2) For the purposes of meeting the requirement in 3.2.2(c)(i), an Authorised Investment Exchange must include in its Business Rules contract design specifications relating to Derivative contracts traded on its facilities which, at a minimum, include:

(a) minimum price fluctuations (price ticks);

(b) maximum price fluctuations (daily price limits), if any;

(c) last trading day;

(d) settlement or delivery procedures as applicable;

(e) trading months;

(f) position limits, if any;

(g) reportable levels; and

(h) trading hours.

3.2.2-2. On-going review of Commodity Derivative contracts

An Authorised Investment Exchange must:

(a) establish and implement clear procedures relating to the development and review of contract design for Commodity Derivative contracts traded on its facilities;

(b) have adequate process through which the views of potential users of Commodity Derivative contracts can be taken into account when developing and reviewing contract design for Commodity Derivative contracts;

(c) have adequate powers which enable it to eliminate contractual terms which produce, or are likely to produce, manipulative or disorderly conditions in the markets generally, or in relation to the particular class or type of Commodity Derivative contracts; and

(d) have adequate mechanisms to monitor and evaluate whether the settlement procedures reflect the underlying physical market and promote reliable pricing relationship between the two markets.

Guidance

(1) When assessing whether an Authorised Investment Exchange’s rules and procedures are adequate, the AFSA considers, among other things:

(a) the criteria adopted by the Authorised Investment Exchange for Commodity Derivative contracts to be traded on its facilities;

(b) what powers the Authorised Investment Exchange has in order to eliminate manipulative or disorderly conduct, including powers to vary, remove or rescind conditions of any Commodity Derivative contracts already traded where these are found to cause manipulative or disorderly conditions; and

(c) what mechanisms are established by the Authorised Investment Exchange to monitor and review market activities relating to Commodity Derivative contracts traded on its facilities.

(2) When designing and reviewing the design of Commodity Derivative contracts, an Authorised Investment Exchange should consider the following physical market characteristics, including differences within a commodity market with regard to the commodity in question:

(a) size and structure of the physical market;

(b) commodity characteristics (such as grade, quality, weight, class, growth, origin, source etc.);

(c) historical patterns of production, consumption and supply, including seasonality, growth, market concentration in the production chain, domestic or international export focus and logistics;

(d) extent of distribution or dispersal of production and consumption of the underlying physical commodity among producers, merchants and consumers;

(e) the liquidity of the underlying physical market;

(f) the spot market pricing system including transparency, availability, reliability and frequency of cash pricing;

(g) price volatility; and

(h) the existence of price controls, embargoes, export restrictions or other regulation or controls affecting the price or supply of the underlying physical commodity.

Guidance: Effective settlement conditions

When assessing whether a contract for a Commodity Dderivative contains effective settlement conditions, the Authorised Investment Exchange shouldall take into account, depending on the nature of the derivative being admitted, whether the following criteria are satisfied:

(a) the arrangements for determining the settlement price of the derivative ensure that this price properly reflects the price or other value measure of the relevant underlying Investment; and

(b) where the settlement of the derivative requires or provides for the possibility of the delivery of an underlying Investment or asset rather than cash settlement, there are adequate settlement and delivery procedures for that underlying Investment as well as adequate arrangements to obtain relevant information about that underlying Investment. 

(c) appropriate supervisory arrangements are in place to monitor trading and settlement in such Commodity Derivative; and

(d) settlement and delivery, whether physical delivery or by cash settlement, can be effected in accordance with the contract terms and conditions of those Derivatives.

3.2.2-3. Use of Price Information Provider

(1) An Authorised Investment Exchange may admit to trading or trade on its facilities Investments the value of which is determined by reference to an underlying benchmark or index provided by a Price Information Provider where it has undertaken appropriate due diligence to ensure that the Price Information Provider, on an on-going basis, meets the requirements set out in (2).

(2) For the purposes of (1), the Price Information Provider must:

(a) have fair and non-discriminatory procedures for establishing prices of Investments which are made public;

(b) demonstrate adequate and appropriate transparency over the methodology, calculation and inputs to allow users to understand how the benchmark or index is derived and its potential limitations;

(c) where appropriate, give priority to concluded transactions in making assessments and adopt measures to minimise selective reporting;

(d) be of good standing and repute as an independent and objective price reporting agency or index provider;

(e) have a sound corporate governance framework;

(f) have adequate arrangements to avoid its staff having any conflicts of interest where such conflicts are, or are likely to have, a material adverse impact on price establishment process; and

(g) adequate complaint resolution mechanisms to resolve any complaints about the Price Information Provider’s assessment process and methodology.

3.2.3. Undertaking to comply with AIFC rules

An Authorised Investment Exchange may not admit Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments to trading unless the Person who seeks to have such Investments admitted to trading:

1. (a) gives an enforceable undertaking to the AFSA to submit unconditionally to the jurisdiction of the AFSA in relation to any matters which arise out of or which relate to its use of the facilities of the Authorised Market Institution, including but not limited to requirements in MAR relating to Reporting Entities;
2. (b) agrees in writing to submit unconditionally to the jurisdiction of the AIFC Courts in relation to any disputes, or other proceedings in the AIFC, which arise out of or relate to its use of the facilities of the Authorised Market Institution;
3. (c) agrees in writing to subject itself to the AIFC laws in relation to its use of the facilities of the Authorised Market Institution; and
4. (d) appoints and maintains at all times, an agent for service of process in the AIFC and requires such agent to accept its appointment for service of process.

Guidance

1. See Guidance to AMI 2.6.4

3.2.4. Review of compliance

The Authorised Investment Exchange must maintain arrangements regularly to review whether the Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments admitted to trading on its facilities comply with the Admission to Trading Rules.

3.2.5. Verification of compliance by issuers with Market Rules

The Authorised Investment Exchange must maintain effective arrangements to verify that issuers of Securities or Units in a Listed Fund admitted to trading on a regulated market operated by it comply with the Market Rules.

3.2.6. Arrangements for access to information

The Authorised Investment Exchange must maintain arrangements to assist users of a market operated by it to obtain access to information made public under the Market Rules.

3.3.1. Power to suspend

The rules of an Authorised Investment Exchange must provide that the Authorised Investment Exchange has the power to suspend or remove from trading on its facilities any Securities, Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments which no longer comply with its rules.

3.3.2. Limitation on power to suspend or remove Securities or Units in a Listed Fund from trading

An Authorised Investment Exchange may not suspend or remove from trading on its facilities any Security,  Unit in a Listed Fund, Commodity Derivative, or Environmental Instrument which no longer complies with its rules, where such step would be likely to cause significant damage to the interests of investors or the orderly functioning of the financial markets.

3.3.3. Suspension or removal from trading of associated derivatives

Where the Authorised Investment Exchange suspends or removes any Investment from trading on its facilities, it must also suspend or remove from trading on its facilities any Derivative that relates to or is referenced to that Investment where that is required to support the objectives of the suspension or removal of trading of that Investment

3.3.4. Publication of decision to suspend or remove from trading

Where the Authorised Investment Exchange suspends or removes any Security, Unit in a Listed Fund, Commodity Derivative, or Environmental Instrument from trading on its facilities, including any Derivative in accordance with AMI 3.3.3, it must immediately notify the AFSA and make that decision public.

3.3.5. Publication of decision to lift suspension or re-admit to trading

Where the Authorised Investment Exchange lifts a suspension or re-admits any Security, Unit in a Listed Fund, Commodity Derivative, or Environmental Instrument to trading on its facilities, including any Derivative suspended or removed from trading in accordance with AMI 3.3.3, following a decision made under AMI 3.3.1, it must notify the AFSA and make that decision public.

3.4.1. Pre-trade transparency obligation

An Authorised Investment Exchange must make available to the public on a continuous basis during normal trading hours the current bid and offer prices of Securities, Units in a Listed Fund, Commodity Derivative, or Environmental Instrument traded on its systems and the depth of trading interests at those prices.

Guidance

The disclosure required by 3.4.1 would depend on the type of trading system employed, including continuous auction order-book, quote-driven, periodic auction and hybrid trading systems. An Authorised Investment Exchange should discuss its proposals for compliance with this requirement with the AFSA. The AFSA may waive or modify the requirement in respect of certain types of order, transaction, trading system or types of Investment (including large orders and illiquid instruments) pursuant to Section 8 of the Framework Regulations.

3.4.2. Post-trade transparency obligation

An Authorised Investment Exchange must make available to the public in as close to real-time as technically possible the price, volume and time of the transactions executed in respect of Securities or Units in a Listed Fund, Commodity Derivatives, or Environmental Instruments traded on its facilities.

Guidance

The AFSA may waive or modify the requirement in AMI 3.4.2 in respect of certain types of trade or types of Investment pursuant to Section 8 of the Framework Regulations. In particular, subject to AMI 1.1.2 (outsourcing) and to obtaining the approval of the AFSA, an Authorised Investment Exchange may delegate its provision of post-trade information to a regulatory news service or similar third party entity.

3.5.1. Default Rules

An Authorised Investment Exchange must have legally enforceable Default Rules which, in the event of a Member or other participant on the facility of the Authorised Investment Exchange being or appearing to be unable to meet his obligations in respect of one or more Market Contracts:

(a) enable it to suspend or terminate such Membership (or other participation) and cooperate by sharing information with its Authorised Clearing House or Recognised Non-AIFC Clearing House, and

(b) enable action to be taken in respect of unsettled Market Contracts to which that Member or other participant is a party.

Guidance

The AIFC Insolvency Rules contain provisions which protect action taken by an Authorised Investment Exchange under its Default Rules from the normal operation of insolvency law which might otherwise leave this action open to challenge by a relevant office-holder.

3.5.2. Public notice of suspended or terminated Membership

The Authorised Investment Exchange must immediately issue a public notice on its website in respect of any Member or other participantwhose Membership (or other participation) is suspended or terminated in accordance with AMI 3.5.1.

3.5.3. Cooperation with office-holder

The Authorised Investment Exchange must cooperate, by the sharing of information and otherwise, with the AFSA, any relevant office-holder and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a Member or other participant of the Authorised Investment Exchange or the default of an Authorised Clearing House or another Authorised Investment Exchange.

3.6.1. General requirements relating to Listing Rules

(1) An Authorised Investment Exchange wishing to admit Securities or Units in a Listed Fund to its own Official List must:

• (a) have Listing Rules which comply with the requirements of AMI 3.6.2; and
• (b) ensure that its Listing Rules are approved by the AFSA.

(2) Any amendment to an Authorised Investment Exchange’s Listing Rules must, prior to the amendment becoming effective, have been:

• (a) made available for a reasonable period of time to the market for consultation; and
• (b) approved by the AFSA.

(3) In urgent cases, the AFSA may, on written application by the Authorised Investment Exchange, dispense with the requirement in (2)(a).

3.6.2. Contents of Listing Rules

The Listing Rules of an Authorised Investment Exchange must include requirements relating to:

• (a) procedures for admission of Securities or Units in a Listed Fund to its Official List, including:
• (i) requirements to be met before such Investments may be granted admission to an Official List; and
• (ii) agreements in connection with admitting such Investments to an Official List;
• (b) procedures for suspension and delisting of Securities or Units in a Listed Fund from an Official List;
• (c) the imposition on any Person of obligations to observe specific standards of conduct or to perform, or refrain from performing, specified acts, reasonably imposed in connection with the admission of Securities or Units in a Listed Fund to an Official List or continued admission of such Investments to an Official List;
• (d) penalties or sanctions which may be imposed by the Authorised Investment Exchange for a breach of the Listing Rules;
• (e) procedures or conditions which may be imposed, or circumstances which are required to exist, in relation to matters which are provided for in the Listing Rules;
• (f) actual or potential conflicts of interest that have arisen or might arise when a Person seeks to have Securities or Units in a Listed Fund admitted to an Official List; and
• (g) such other matters as are necessary or desirable for the proper operation of the listing rule process and the market.

3.6.3. Publication of Listing Rules

(1) An Authorised Investment Exchange must publish, and make freely available, its Listing Rules.

(2) Where an Authorised Investment Exchange has made any amendments to its Listing Rules, it must have adequate procedures for notifying users of such amendments.

3.6.4. Compliance with Listing Rules

(1) An Authorised Investment Exchange which is permitted to maintain an Official List must ensure the function is properly and independently operated.

(2) An Authorised Investment Exchange must have procedures in place to ensure that:

• (a) its Listing Rules are monitored and enforced; and
• (b) complaints regarding Persons subject to the Listing Rules are investigated.

(3) An Authorised Investment Exchange must ensure that:

• (a) where appropriate, disciplinary action can be carried out and financial and other types of penalties can be imposed on Persons subject to the Listing Rules; and
• (b) adequate appeal procedures are in place

3.6.5. Application for admission of Securities or Units in a Listed Fund to an Official List

(1) Applications for the admission of Securities or Units in a Listed Fund to an Official List must be made by the issuer of such Investments, or by a third party on behalf of and with the consent of the issuer of such Investments.

(2) An Authorised Investment Exchange must, before granting admission of any Securities or Units in a Listed Fund to an Official List maintained by it:

1. (a) be satisfied that the applicable requirements, including those in its Listing Rules, have been or will be fully complied with in respect of those Investments; and
2. (b) comply with the requirements relating to notification to the AFSA in (4) and (5).

(3) An Authorised Investment Exchange must notify an applicant in writing of its decision in relation to the application for admission of Securities or Units in a Listed Fund to its Official List.

(4) Subject to (5), an Authorised Investment Exchange must provide the AFSA with the following information in connection with an admission of Securities (other than (i) Exempt Securities or (ii) Equity Securities in connection with Pre-IPO Listings) or Units in a Listed Fund to its Official List:Subject to (5), at least 5 business days prior to an admission of Securities (other than (i) Exempt Securities or (ii) Equity Securities in connection with Pre-IPO Listings) or Units in a Listed Fund to its Official List, an Authorised Investment Exchange must provide the AFSA with notice of the decision and include the following information in the notification:

(a) a copy of the listing application and supporting documents (if applicable) - at least 10 business days before the admission; 

(b) a copy of the assessment of the listing application carried out by the Exchange together with a notice of its decision in relation to the listing application - at least 5 business days before the admission; and

(c) any information requested by the AFSA.

(4-1) Subject to (5), an Authorised Investment Exchange must provide the AFSA with the following information in connection with an admission of Exempt Securities to its Official List or Equity Securities to its Official List under the sub-heading “Pre-IPO Listings”: 

(a) a copy of the listing application and supporting documents (if applicable) - at least 5 business days before the admission; 

(b) a copy of the assessment of the listing application carried out by the Exchange together with a notice of its decision in relation to the listing application - at least 2 business days before the admission; and

(c) any information requested by the AFSA.

(5) An Authorised Investment Exchange must immediately notify the AFSA of any decision to suspend, restore from suspension or de-list any Securities or Units in a Listed Fund from its Official List and the reasons for the decision.

3.6.6. Undertaking to comply with AIFC rules

An Authorised Investment Exchange may not admit Securities or Units in a Listed Fund to an Official List unless the issuer of such Investments:

1. (a) gives an enforceable undertaking to the AFSA to submit unconditionally to the jurisdiction of the AFSA in relation to any matters which arise out of or which relate to its use of the facilities of the Authorised Market Institution, including but not limited to requirements in MAR relating to Reporting Entities;
2. (b) agrees in writing to submit unconditionally to the jurisdiction of the AIFC Courts in relation to any disputes, or other proceedings in the AIFC, which arise out of or relate to its use of the facilities of the Authorised Market Institution;
3. (c) agrees in writing to subject itself to the AIFC laws in relation to its use of the facilities of the Authorised Market Institution; and
4. (d) appoints and maintains at all times, an agent for service of process in the AIFC and requires such agent to accept its appointment for service of process.

Guidance

1.  See Guidance to AMI 2.6.4