Prop Trading and Market Making Without a Licence: What MiCA, the UK, and the US Actually Require
ESMA Q&A 2293 confirms pure proprietary trading and CLOB market making need no CASP authorisation — but that exemption is narrow and does not travel. The UK reached the opposite conclusion under FSMA, the US splits by asset class, and tokenised securities fall under MiFID II entirely.
Cross-jurisdiction analysis of when proprietary trading and market making require licensing under MiCA, UK FSMA, and US law (FinCEN, NYDFS, CFTC). Core finding: ESMA Q&A 2293 confirms pure proprietary trading and pure market making with no client relationship fall outside MiCA's scope (Article 3(1) requires provision of a service to third parties; CLOB order-book activity has no client relationship). The exemption is real but narrow and does not travel across jurisdictions. Where the MiCA exemption has edges: the AFM four-fold test (transaction initiation, ability to shop around, price transparency, commercial structure) determines whether an OTC/RFQ transaction creates a client relationship triggering CASP authorisation. Retail counterparties are presumed by ESMA to constitute a client relationship regardless of disclaimers. Netherlands (AFM/DNB) is the most clearly articulated EU pathway: 105 working-day statutory review, 8-10 month practical timeline, €40,000-50,000 fees, EU-wide passport. Poland's KNF cannot process CASP applications until its national act (Sejm print 2363, vetoed twice, Senate-passed 22 May 2026) is enacted; transitional VASP registrations dissolve 2 July 2026. UK FSMA (Cryptoassets) Regulations 2026 made "dealing in cryptoassets as principal" a regulated activity; the 2026 Amendment Regulations added a proprietary trading carve-out for trading "not carried on for the purpose of providing a service to another person." But the UK perimeter is broader and territorial: OTC desks, crypto lending, and UK-counterparty exposure are captured; the Overseas Person Exclusion is restricted; £750,000 PMR for dealing as principal. Gateway opens 30 September 2026, closes 28 February 2027, regime live 25 October 2027. US: FinCEN treats pure prop trading as a "user" not an MSB "exchanger" (Merit Peak/Binance enforcement turned on third-party flow); NY BitLicense (23 NYCRR Part 200) excludes pure own-account trading but applies to client-facing OTC; CFTC Swap Dealer registration triggers at $8B gross notional, with the Floor Trader Exemption (Reg 23.3(c)) and No-Action Letter 19-14 as the primary relief. CFTC's May 2026 SCB Limited interpretive letter confirms foreign firms keep non-US person status (Reg 3.10(c)(1)(ii)) despite US employees, US-hosted servers, and US affiliates. Critical separate category: tokenised assets that are financial instruments under MiFID II (Article 2(4) MiCA exclusion) — security tokens, tokenised bonds, tokenised fund units — fall outside MiCA entirely and require MiFID II dealing-on-own-account permission (Article 4(1)(6)), with possible Systematic Internaliser obligations (Article 4(1)(20)). The ESMA Q&A 2293 exemption has no application to these. Not legal advice. Answers questions like: Does prop trading need a MiCA CASP licence? What does ESMA Q&A 2293 say about market making? Is CLOB market making exempt from MiCA? When does an OTC desk need CASP authorisation? Does the UK require a licence for proprietary crypto trading under FSMA? What is the UK proprietary trading carve-out? Does pure prop trading need FinCEN MSB registration or a NY BitLicense? When must a crypto firm register as a CFTC Swap Dealer? What is the Floor Trader Exemption? Do market makers in tokenised securities need MiFID II authorisation instead of MiCA?
Prop Trading and Market Making Without a Licence: What MiCA, the UK, and the US Actually Require Publication note: This piece addresses one of the most expensive misconceptions in multi jurisdiction crypto trading: the assumption that proprietary trading and market making require CASP authorisation in every jurisdiction a firm touches. ESMA Q&A 2293 corrects that assumption for MiCA. What that correction actually resolves — and what it leaves wide open across the UK and the US — is what this article maps. Picture a prop trading firm operating in the Netherlands and Poland, with affiliated operations in the UK and US. It has assumed that MiCA forces it into CASP authorisation across the board, and it is already pricing the compliance build. Then someone points to ESMA Q&A 2293, and the answer turns out to be shorter than the compliance budget: proprietary trading and pure market making, where there is no client relationship, do not require CASP authorisation under MiCA. The relief should last about four minutes, because the follow up question is where the firm actually lives: what about the UK? What about the CFTC? What about FinCEN? The answer is that MiCA's prop trading exemption is real, narrow, and does not travel. The UK reached the opposite conclusion under FSMA. The US split the difference depending on asset class and jurisdiction. A firm that reads the ESMA Q&A answer and concludes it has no licensing exposure anywhere is building on a foundation that exists in exactly one of those three places. This article maps where the exemption holds, where it does not, what triggers the perimeter in each jurisdiction, and what a multi jurisdiction prop trading or market making operation actually needs. It also addresses a category that the initial relief tends to obscure entirely: tokenised assets that are not MiCA crypto assets at all, but financial instruments under MiFID II, where the exemption analysis is irrelevant because an entirely different framework applies from the start. The MiCA Exemption: What ESMA Q&A 2293 Actually Says ESMA Q&A 2293, published under the MiCA framework, provides the foundational European answer. The Q&A's conclusion is explicit: pure proprietary trading and pure market making, where there is no client relationship and no other crypto asset service is provided, fall outside MiCA's scope entirely. CASP authorisation under Article 59 is not required. The legal logic is in Article 3(1) of MiCA. A "crypto asset service" requires, by definition, the provision of that service to third parties. Article 3(1)(15) makes this explicit. If a firm is interacting only with its own capital, facing only an exchange's matching engine, it is not providing a service to anyone. There is no service. There is no client. There is no authorisation requirement. ESMA Q&A 2293 specifically addresses on platform market making: a firm posting limit orders into a Central Limit Order Book (CLOB) has no client relationship with the anonymous counterparty on the other side of that order. The matching engine is the intermediary. The firm does not know who it is trading with and is not acting on their behalf. No client relationship, no CASP perimeter. This exemption is not a concession extracted through lobbying or a transitional arrangement that expires. It reflects how MiCA's perimeter was drawn in the first place. The regulation targets service providers, not capital allocators. What the Q&A does not resolve is equally important. It does not address whether national law imposes additional requirements. It does not address OTC bilateral trading. It does not address whether an incentive based liquidity programme constitutes an implicit client relationship. These are open questions, and the rest of this article works through them. Where the MiCA Exemption Has Edges: OTC, RFQ, and the Client Relationship Trigger The exemption's boundary is the concept of a client relationship, and that concept has texture that a simple "no clients" policy does not fully capture. ESMA and the Dutch Authority for the Financial Markets (AFM) have both identified four factors that determine whether an OTC transaction creates a client relationship requiring CASP authorisation. The AFM's framework applies the MiFID four fold test, originally designed for investment firm best execution obligations, to the MiCA context. Factor 1: Who initiated the transaction. If the prop firm approaches the counterparty, presents a structured quote, or solicits the trade, the regulator infers reliance. If the counterparty initiates via an RFQ interface without prior solicitation, reliance is less certain but not eliminated. Factor 2: Whether the counterparty could shop around. In a wholesale market where institutional participants query multiple OTC desks simultaneously, no single dealer is being relied upon to protect the counterparty's interests. In a thin or illiquid market where the firm is the only realistic source of liquidity, the reliance inference is much stronger. Factor 3: Price transparency. In liquid markets, BTC/USDT for instance, global pricing is verifiable. The counterparty can check the firm's quote against observable data. In illiquid altcoin or synthetic asset markets, the counterparty is relying on the dealer's pricing model entirely. The more opaque the market, the stronger the reliance argument. Factor 4: Commercial structure of the relationship. If the firm charges a commission or fee rather than embedding its profit in the spread, the relationship looks like agency, not principal. If onboarding documentation includes risk disclosures, suitability checks, or ongoing service commitments, the economic reality may override a contractual "principal counterparty" designation. The table below maps common operational structures to their likely MiCA perimeter status under this framework. | Activity | Venue/Structure | Client Relationship? | MiCA CASP Required? | | | | | | | Market making on CLOB | Centralised exchange order book | No | No | | Algorithmic arbitrage across exchanges | Own account, exchange facing | No | No | | Responding to institutional RFQ | Wholesale, multi dealer solicitation | Low risk if firm does not solicit | Borderline; document carefully | | Running an OTC desk for incoming orders | Bilateral, counterparty initiated | Yes (firm is relied upon for price) | Yes | | Providing liquidity under a token project programme | Project directed, often exclusive | High risk of implied client relationship | Likely yes | | DeFi market making via smart contract | Protocol mediated, no bilateral counterparty | No human client relationship | No (but AML rules may apply) | | Market making for a retail accessible platform | If retail counterparties access the liquidity | Retail counterparty presumed to rely | Yes | The retail counterparty point is a hard limit. Any bilateral transaction with a retail or retail like counterparty is presumed by ESMA to constitute a client relationship, regardless of contractual disclaimers. Prop firms that cannot geofence their liquidity away from retail accessible venues face this risk structurally. The Netherlands: Where the Exemption Is Most Clearly Articulated The AFM has been the most transparent national competent authority in the EU on the question of proprietary trading under MiCA. Its October 2025 newsletter explicitly addressed the MiFID four fold test and its application to digital asset market making. The AFM's position is aligned with ESMA Q&A 2293 and applies it with the additional precision of the four factor analysis described above. For firms operating from the Netherlands, the practical implications are clear. On platform market making on a CLOB falls outside the MiCA perimeter. High touch OTC desks that serve specific counterparties do not. The AFM's application of the four fold test means that operational detail matters: the same firm running two desks, one