PART 4Algorithmic trading etc by members of trading venues covered by certain exemptions from the markets in financial instruments directive

Algorithmic trading30

1

A member of, or participant in, a regulated market or multilateral trading facility (“M”) that engages in algorithmic trading must comply with the requirements of this regulation if —

a

M's home Member State is the United Kingdom;

b

the markets in financial instruments directive does not apply to M as a result of Article 2.1(a), (e), (i), or (j) of the directive; and

c

M does not have a Part 4A permission for the purposes of the directive.

2

M must have in place effective systems and F1risk controls, suitable to the business it operates, to ensure that M's trading systems—

a

are resilient and have sufficient capacity;

b

are subject to appropriate trading thresholds and limits; and

c

prevent the sending of erroneous orders or the systems otherwise functioning in a way that may create or contribute to a disorderly market.

3

M must have in place effective systems and risk controls to ensure that M's trading systems cannot be used for any purpose that is contrary to—

a

the market abuse regulation; or

b

the rules of a trading venue to which it is connected.

4

M must have in place effective business continuity arrangements to deal with any failure of its trading systems.

5

M must ensure M's systems are fully tested and properly monitored to ensure that they meet the requirements set out in paragraph (2) to (4).

6

If M engages in algorithmic trading in the United Kingdom M must notify the FCA.

7

If M engages in algorithmic trading in an EEA State other than the United Kingdom M must notify—

a

the FCA; and

b

the competent authority of a trading venue on which M engages in algorithmic trading as a member or participant.

8

M must arrange for records to be kept in relation to the matters referred to in this regulation and ensure that those records are sufficient to enable the FCA to monitor M's compliance with the requirements imposed on M by this regulation.

9

If M engages in a high-frequency algorithmic trading technique (as defined by Article 4.1.40 (definitions) of the markets in financial instruments directive) M must store accurate and time sequenced records of all its placed orders, cancelled orders, executed orders, and quotations on trading venues, in an approved form.

10

If M engages in algorithmic trading to pursue a market making strategy M must, taking into account the liquidity, scale, and nature of the specific market and the characteristics of any financial instrument traded—

a

carry out market making continuously during a specified proportion of the market or facility's trading hours, except under exceptional circumstances, with the result that liquidity is provided on a regular and predictable basis to that market or facility;

b

if the specified circumstances arise, enter into a binding written agreement with the market or facility which—

i

specifies the obligations of M under the agreement;

ii

imposes obligations on M that are in accordance with sub-paragraph (a); and

iii

includes the specified content; and

c

have in place effective systems and controls to ensure that M meets the obligations under the agreement mentioned in sub-paragraph (b).

11

In paragraph (10) M pursues a market making strategy if—

a

M is a member of, or participant in, one or more regulated markets or multilateral trading facilities;

b

M's strategy, when dealing on M's own account, involves posting firm, simultaneous two-way quotes of comparable size and at competitive prices relating to one or more financial instruments on a single regulated market or multilateral trading facility, or across different regulated markets or multilateral trading facilities; and

c

as a result the result liquidity is provided on a regular and frequent basis to the overall market.

12

In this regulation—

  • “approved form” means a form specified as an approved form by regulatory technical standards referred to in sub-paragraph (d) of Article 17.7 of the markets in financial instruments directive and adopted under the last sub-paragraph of that Article;

  • “exceptional circumstances” means circumstances specified in regulatory technical standards referred to in sub-paragraph (c) of Article 17.7 of the markets in financial instruments directive and adopted by the Commission under the last sub-paragraph of that Article;

  • “the specified circumstances” means the circumstances specified in regulatory technical standards referred to in sub-paragraph (b) of Article 17.7 of the markets in financial instruments directive and adopted by the Commission under the last sub-paragraph of Article 17.7 of the directive; and

  • “the specified content” means the content specified by regulatory technical standards referred to in sub-paragraph (b) of Article 17.7 of the markets in financial instruments directive and adopted by the Commission under the last sub-paragraph of Article 17.7 of the directive.