Revocation of retained EU law Transitional amendments Amendments to the Markets in Financial Instruments Regulation (MiFIR) and the European Market Infrastructure Regulation (EMIR) 3. Changing the definition of a systematic internaliser
Systematic internalisers are investment firms that deal on their own account (i.e., use their own capital) when executing clients’ orders outside of a trading venue on a "organised, frequent, systematic and substantial basis". Because they use proprietary capital rather than that of clients or counterparties, they are considered a counterparty of the trade and therefore take on risk.
	The scope of the systematic internaliser regime was originally determined on a qualitative basis. Its objective was to ensure that OTC trading in the form of systematic internalisation of order flows by investment firms could contribute to price formation. Internalisation of orders occurs when a firm executes a trade for a client using inventory the firm already has as opposed to going outside of the firm to another firm or a trading venue. The systematic internaliser regime ensured that these ‘internalised’ transactions were made transparent to the market. In 2018 the definition was amended, and a number of quantitative thresholds were introduced. The thresholds are calculated at different levels for each asset class and investment firms are expected to perform calculations for each financial instrument they deal in on a quarterly basis, covering the previous 6-month period, to determine if they are a systematic internaliser. The intention behind moving to a quantitative based regime was to ensure consistency across all EU member states. It has instead resulted in a very burdensome regime and to avoid the calculations, which are costly, many firms simply opt into the regime and comply with the obligations of being a systematic internaliser.
	The Act therefore reverts to a qualitative definition of systematic internaliser and gives the FCA the power to specify how the new definition should be interpreted. This will ensure that the regime is flexible, better able to account for market evolutions, and that it achieves its aim of increasing transparency and price formation, while removing unnecessary burdens on firms.