ESMA Q&A on proprietary trading under MiCA

ESMA has published a new MiCA Q&A on proprietary trading under MiCA. In this Q&A, the European Commission has clarified whether firms dealing in crypto-assets on their own account require a CASP license.

The answer depends on whether the activity involves providing a service to a client.

What has been clarified?

A firm qualifies as a CASP if it provides one or more crypto-asset services to clients on a professional basis. Proprietary trading generally does not involve such a client relationship: the firm trades in its own name and for its own account.

A firm that trades with its own capital on a crypto-asset trading platform therefore does not require a CASP licence merely because it engages in proprietary trading. The same applies to a firm acting as a market maker on a trading platform: according to the Q&A, that activity does not in itself involve a client relationship and does not require CASP authorisation or notification.

The position changes where the firm trades directly with clients using its own capital. Concluding purchase or sale contracts with clients falls within the MiCA services of:

• exchanging crypto-assets for funds; or
• exchanging crypto-assets for other crypto-assets.

A firm providing either service must obtain the relevant CASP authorisation. Calling the activity “proprietary trading” does not change that conclusion: the existence of a direct contractual relationship with the client is decisive.

An exception applies where the exchange is carried out by the issuer or offeror of the relevant crypto-asset. Recital 87 MiCA clarifies that such activity should not be treated as a crypto-asset service.

What does this mean in practice?

Firms trading with proprietary capital should establish who their counterparty is:

• If the firm places proprietary orders or acts as a market maker on a third-party trading platform, the activity generally does not require a CASP licence.
• If the firm buys crypto-assets from, or sells crypto-assets to, its own clients, it provides a regulated exchange service and requires the corresponding CASP authorisation.
• If the firm operates a crypto-asset trading platform, Article 76(5) MiCA prohibits it from dealing on its own account on that same platform.

Firms should therefore review their trading flows, contractual relationships and client interfaces. In particular, they should determine whether trades are concluded anonymously through a third-party platform or directly between the firm and a client. Firms that currently treat direct client transactions as unregulated proprietary trading may need to obtain a CASP authorisation or discontinue that activity.

Conclusion

Proprietary trading is not a regulated crypto-asset service merely because a firm trades with its own capital. The regulatory boundary is crossed where the firm uses that capital to conclude exchange transactions directly with clients. Market making on a third-party platform generally remains outside the CASP licensing requirement, while a CASP operating a trading platform may not trade on its own account on that same platform.