Britain’s financial regulator is considering a sweeping revamp of capital requirements for specialist trading firms like Citadel Securities, Jane Street and XTX, saying there is a “real opportunity” to make rules more proportionate and boost the UK’s competitiveness.
Electronic market-makers have flourished in the past decade, using vast computing power and algorithmic models to offer faster and better pricing to capture more of the big increase in trading activity across equity, bond and currency markets, and to take market share from banks hobbled by post-financial crisis rules.
The current regime for calculating market risk capital was inherited from the European Union and designed for large, systemically important banks, an official at the Financial Conduct Authority (FCA) told Reuters. Updating or replacing that regime could free up capital for the trading firms, the regulator said.
“We want to ensure that the requirements are proportionate to the risk of harm,” Mark Francis, interim director of wholesale sell-side, said. “It’s not a race to the bottom on capital requirements.”
Britain’s ruling Labour Party wants regulators to cut red tape to aid economic growth, and the government has sought to use some of its post-Brexit freedoms.
OPTIONS ON THE TABLE
Most of the biggest market-making names, which alongside Ken Griffin’s Citadel include Virtu Financial and Susquehanna, are U.S.-based, but London-based XTX, founded by billionaire mathematician Alex Gerko, has emerged as a major player in foreign exchange markets.
XTX employs just 250 staff but reports $250 billion in trading volumes daily, according to its website, and made profits of more than 1.2 billion pounds ($1.6 billion) in 2024.
The FCA on Tuesday published a paper seeking views on how to reform the existing mandatory requirements for calculating market risk capital for investment firms.
Options on the table range from tweaking the existing EU-aligned rules to a fundamental overhaul of the regime that could see the UK aligned with the U.S. “net risk rules” approach, or using an internal model to calculate minimum requirements.
“We do think that a more proportionate approach does have the potential to remove unnecessary barriers for existing firms, potentially for new ones too,” Francis said.
($1 = 0.7484 pounds)
(Reporting by Phoebe Seers and Tommy Reggiori Wilkes）
