MAR 7A.3 Requirements for algorithmic trading

Application

MAR 7A.3.1RRP

1This section applies to a firm which engages in algorithmic trading.

Systems and controls

MAR 7A.3.2RRP

1A firm must have in place effective systems and controls, suitable to the business it operates, to ensure that its trading systems:

  1. (1)

    are resilient and have sufficient capacity;

  2. (2)

    are subject to appropriate trading thresholds and limits;

  3. (3)

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

  4. (4)

    cannot be used for any purpose that is contrary to:

    1. (a)

      the Market Abuse Regulation; or

    2. (b)

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

    [Note: article 17(1) of MiFID and MiFID RTS 6 specifying the organisational requirements of investment firms engaged in algorithmic trading]

MAR 7A.3.3RRP

A firm must:

  1. (1)

    have in place effective business continuity arrangements to deal with any failure of its trading systems; and

  2. (2)

    ensure that its systems are fully tested and properly monitored to ensure that it meets the requirements of (1) and of MAR 7A.3.2R.

[Note: article 17(1) of MiFID and MiFID RTS 6 specifying the organisational requirements of investment firms engaged in algorithmic trading]

Market making

MAR 7A.3.4RRP

Where a firm engages in algorithmic trading to pursue a market making strategy, it must:

  1. (1)

    carry out market making continuously during a specified proportion of the trading venue’s trading hours so that it provides liquidity on a regular and predictable basis to that trading venue, except in exceptional circumstances;

  2. (2)

    enter into a binding written agreement with the trading venue which must specify the requirements for the purpose of (1); and

  3. (3)

    have in place effective systems and controls to ensure that it meets the obligations under the agreement in (2).

[Note: article 17(3) of MiFID, MiFID RTS 8 specifying the circumstances in which a person would be obliged to enter into the market making agreement referred to in MAR 7A.3.4R(2) and the content of such an agreement, including the specified proportion of the trading venue’s trading hours, and the situations constituting exceptional circumstances, referred to in MAR 7A.3.4R(1)]

MAR 7A.3.5RRP

For the purpose of MAR 7A.3.4R, the firm must take into account:

  1. (1)

    the liquidity, scale and nature of the specific market; and

  2. (2)

    the characteristics of the instrument traded.

[Note: article 17(3) of MiFID]

Notifications

MAR 7A.3.6RRP

A firm which is a member or participant of a trading venue must immediately notify the following if it is engaging in algorithmic trading:

  1. (1)

    the FCA; and

  2. (2)

    any competent authority of a trading venue in another EEA State where the firm engages in algorithmic trading.

[Note: article 17(2) of MiFID]

MAR 7A.3.7RRP

A firm must provide the following, at the FCA’s request, within 14 days from receipt of the request:

  1. (1)

    a description of the nature of its algorithmic trading strategies;

  2. (2)

    details of the trading parameters or limits to which the firm’s system is subject;

  3. (3)

    evidence that MAR 7A.3.2R (systems and controls) and MAR 7A.3.3R (business continuity and system tests) are met;

  4. (4)

    details of the testing of the firm’s systems;

  5. (5)

    the records in MAR 7A.3.8R(2) (accurate and time-sequenced records of all its placed orders); and

  6. (6)

    any further information about the firm’s algorithmic trading and systems used for that trading.

[Note: article 17(2) of MiFID]

Record keeping

MAR 7A.3.8RRP

A firm must:

  1. (1)

    arrange for records to be kept to enable it to meet MAR 7A.3.7R; and

  2. (2)

    (where it engages in a high-frequency algorithmic trading technique2) store, in the approved form, accurate and time-sequenced records of all its placed orders, including:

    1. (a)

      cancelled orders;

    2. (b)

      executed orders; and

    3. (c)

      quotations on trading venues.

[Note: article 17(2) of MiFID and MiFID RTS 6 specifying the format and content of the approved form referred to in MAR 7A.3.8R(2), and the length of time for which records must be kept by the firm]