Bless me, Father, for I have changed my algo
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This article was originally published at the Fidessa Regulation Matters blog, by Christian Voigt
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Managing algorithmic trading will become more difficult in the future. Regulators have already suggested in recent drafts of MiFID II and the German HFT Act that algos need to be registered/earmarked and their functionality reported to the competent authority if requested.
The European Parliament (EP) takes the requirement a step further in its draft in Article 10a in MAR. Here, market abuse is defined as any case where an algo or material change to an algo is not reported to the competent authority and that this algo has subsequently had a detrimental impact on the market. Interestingly, the other two instances of market abuse – insider dealing and market manipulation – need to be committed intentionally. The EP’s approach with respect to algos is far less forgiving, with no mention of intent when talking about the failure to report a change in an algo.
Regardless of appropriateness, it would certainly provide a strong incentive for any broker to flood its regulator with large numbers of algo change notices just to get an imprimatur. Whether this makes markets safer is open to question.
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