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ESMA publishes MIFID II review on algorithmic trading

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ESMA has recently published the MiFID II/MiFIR review report on algorithmic trading. 

 

The Final Report concludes that no fundamental issues have emerged with respect to the MiFID II algorithmic trading regime which has overall delivered on its objectives. ESMA nevertheless makes in the report some recommendations which aim at both simplifying the regime and making it more efficient.

 

The report therefore includes some proposals to the European Commission on targeted Level 1 amendments.
The report also identifies issues which will be followed up by ESMA via amendments to ESMA technical standards or additional guidance on a number of topics.

 

Topics include:

 

  • the concepts of “algorithmic trading” and “Direct Electronic Access”;
  • the authorisation regime for EU and non-EU algorithmic trading firms (including HFT firms) deploying their strategies on EU trading venues;
  • the organisational requirements for investment firms, including the notification and testing requirements of algorithmic traders to competent authorities; and, the self-assessment exercises to be performed by investment firms;
  • organisational requirements for trading venues, including the self-assessment exercises to be performed by trading venues, circuit breakers, the fee structures, order to trade ratios; and market outages; and
  • a review of MiFID II provisions which are indirectly relating to algorithmic trading activities (e.g. tick size and market making).

 

The report also addresses recent market developments by including topics such as speedbumps and the sequencing between public vs. private transaction confirmation feed by trading venues.

 

Next steps:

 

This report will be submitted to the European Commission and is expected to be taken into consideration for further legislative proposals on the MiFID II regime (level 1).
Regarding Level 2 provisions, the amendments of existing technical standards discussed in the report will be subject to specific consultations to be published shortly.