Monitoring Algorithmic/High Frequency Trading in Line with MiFID II Rules

FlexAlgoWheel aligns broker and algorithmic selection with trading objective within regulatory limits.

Under RTS 6 of MiFID II which will come into effect on 3 January 2018, any action which has the potential to create a disorderly market will fail to comply with regulation.

“FlexTRADER has various in-built controls to ensure any automation is kept within regulatory limits,” explained Andy Mahoney, Head of Sales at FlexTrade.

Responsibilities of firms

Firms must ensure that systems used for algorithmic trading are effective, tested and monitored. Algorithmic trades must be flagged as well as the identity of the trader who generated the deal. Companies engaging in high-frequency trading must record all placed and executed orders as well as record cancellations and quotes and these records must be made available upon request.

FlexAlgoWheel

The obligations outlined in RTS 6 most commonly fall on the system interacting with the venue directly, so order flow passing through a broker’s Smart Order Router does not create additional obligations.

“The FlexAlgoWheel aligns broker and algorithm selection with trading objective and does not trigger additional obligations since orders are still passing through a Smart Order Router,” continued Mahoney.

This is similarly applicable for low-touch order automation, a subset of FlexAlgoWheel functionality.

High Frequency Trading

High Frequency Trading refers to a high message intraday rate or, on average, at least 4 messages per second across a venue and 2 messages per instrument.

“FlexTRADER EMS has existing in-built control throttles to ensure High Frequency Trading thresholds are not breached,” said Mahoney.