Algo trading ready for MiFID II compliance

The evolution and growth of trading, in particular algorithmic trading, and the media and political pressure have led to the development of a new legislation, MiFID II, that is accompanied by new regulations (MiFIR and MAR), in addition to detailed technical rules to implement it (ESMA RTS).

The aim of this regulatory changes is to avoid the abusive practices carried out by some market participants in the past and to reduce the risk of market anomalies caused by algorithmic trading and, particularly, HFT.

Those regulatory changes focus on five key aspects with the objective described above:

• Greater transparency requirements and technology capacity for markets (exchanges, MTFs, OTFs).

• New rules for those who act as clearers.

• New requirements for direct electronic access (DEA) and direct market access (DMA) providers.

• More obligations for algorithmic trading firms.

• New requirements for investment firms engaged in high frequency algorithmic trading.

It should be noted that the new regulations do not seek to limit or forbid algorithmic trading or HFT. In fact, MiFID II itself states the importance of preserving and promoting these practices, as they improve liquidity, reduce spreads and lower short-term volatility, among others. In short, they lead to a better order execution for clients, especially for retail clients.

Qbitia has prepared a document with the aim of helping investment firms to comply with MiFID II requirements regarding algorithmic trading. This document has two main objectives:

• Being a guide on duties and requirements for investment firms and other participants involved.

• Describing the way those MiFID II duties and requirements are met by using the algorithmic trading platform Qcaid.