MiFID II and High Frequency Trading

In recent years, the amount of trading done by ‘high-frequency traders’ (HFT) has increased significantly, resulting in revised regulations of this type of algorithmic trading (AT).

As part of the MiFID II review, the Commission has proposed several measures to address potential concerns about the impact of algorithmic trading and high frequency trading.  MiFID II legislation will affect trading venues and algorithmic traders as it will add a series of new regulations becoming active over the next few years.

Trading venues must provide facilities for their members to test algorithms, identify orders generated by algorithms and ensure that algorithmic trading cannot create or contribute to disorderly trading.  In fact, the venues are required to manage such harmful conditions by slowing down order flow, limiting the ratio of unexecuted orders to transactions and regulating minimum tick sizes.

Algorithmic traders are required to have in place appropriate thresholds and limits which prevent sending erroneous orders and must have effective systems and risk controls to ensure its trading systems are resilient and have enough capacity.

High frequency traders are required to become ‘authorised’ to continue high frequency algorithmic trading.  They will be required to store time sequenced records of their algorithmic trading systems and trading algorithms for a period of at least five years.  These records must include details of the person in charge of the algorithm, information of each decision or execution and key compliance and risk controls.  The records must be made available to the member state competent authority on request.

For a free consultation on how ALA OneLogic can help collect the required MiFID II related transaction data and records, please contact us at: contact@advancedlogicanalytics.com