The UK’s Financial Conduct Authority (FCA) yesterday issued this report on “Algorithmic Trading Compliance in Wholesale markets. It reviews the requirements of MiFID II, MAR and local legislation for those companies engaging in algorithmic trading in covered instruments.
The document reminds the market that any company which engages in “algorithmic trading” in financial instruments is covered by the relevant part of MiFID II, that is Regulatory Technical Standard 6, whether they are MiFID II investment firms or not. This would include non MiFID energy and commodity market participants, engaging in “algorithmic trading” in financial instruments. The requirements include testing, control, governance , “kill” functionality and anti abuse controls, including the requirement to implement automated trade surveillance for breaches of MAR and other relevant rule sets. The document implies that reviews to determine which activity comprises “algorithmic trading” are often inadequate in firms, and should be improved.
The report is covered by this article on FT.com, which reminds us that the governance requirements highlighted by the report intersect with the Senior Manager and Certification Regime, due to be expanded this year. it is also covered by this article on the Reuters web site. It refers to this separate consultation paper, issued yesterday by the Prudential Regulation Authority, on algorithmic trading.
While some in energy and commodities limit any algorithmic trading to physical trades, the message from this report and interest in general is one of required care, governance, diligence and compliance which arises from any activity. For example, algorithmic trading in physical instruments may still lead to a breach of REMIT, if not properly supervised. We can expect more on this topic over the coming months.