European Legal Framework for Algorithmic and High Frequency Trading (Mifid 2 and MAR)

AbstractAlgorithmic and high frequency trading use computer algorithms to execute strategies and the confluence of trends in computer hardware, programming, mathematical modelling, and financial innovation have pushed the limits of trading speed to unprecedented levels. Algorithms are fast and automatically spread disruptions through the financial system. Over the last decade, the ensuing systemic risk called for new regulations. This article attempts an early assessment of the new European legal framework (Mifid 2 and Market Abuse Regime) intended to tackle the technological risks of the modern trading paradigm.

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Global Algorithmic Capital Markets

10.1093/oso/9780198829461.001.0001 ◽

2018 ◽

Cited By ~ 2

Keyword(s):

Public Policy ◽

Capital Markets ◽

Systemic Risk ◽

High Frequency ◽

Investor Protection ◽

High Frequency Trading ◽

Market Making ◽

Market Governance ◽

Policy Objectives ◽

The Impact

This book illustrates and assesses the dramatic recent transformations in capital markets worldwide and the impact of those transformations. ‘Market making’ by humans in centralized markets has been replaced by supercomputers and algorithmic high frequency trading operating in often highly fragmented markets. How do recent market changes impact on core public policy objectives such as investor protection, reduction of systemic risk, fairness, efficiency, and transparency in markets? The operation and health of capital markets affect all of us and have profound implications for equality and justice in society. This unique set of chapters by leading scholars, industry insiders, and regulators sheds light on these and related questions and discusses ways to strengthen market governance for the benefit of society at large.

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Computer Algorithms, Market Manipulation and the Institutionalization of High Frequency Trading

Theory Culture & Society ◽

10.1177/0263276414566642 ◽

2015 ◽

Vol 33 (1) ◽

pp. 29-52 ◽

Cited By ~ 34

Author(s):

Jakob Arnoldi

Keyword(s):

High Frequency ◽

High Frequency Trading ◽

Market Manipulation ◽

Computer Algorithms

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Part III Trading, 17 Algorithmic Trading and High-Frequency Trading (HFT)

10.1093/law/9780198767671.003.0017 ◽

2017 ◽

Cited By ~ 5

Author(s):

Conac Pierre-Henri

Keyword(s):

High Frequency ◽

High Frequency Trading ◽

Algorithmic Trading ◽

Technical Approach ◽

Great Cost ◽

Scarce Resources ◽

Flash Crash ◽

Market Abuse ◽

Front Running ◽

Do So

This chapter analyses the MiFID II rules on algorithmic trading (AT), including high-frequency trading (HFT). The author argues that AT raises serious issues of volatility and systemic risk, and HFT issues of systematic front-running of investors. However, opinions are divided on the benefits and risks of these techniques, especially HFT. MiFID II takes a technical approach mostly focused on prevention of a repeat of the 2010 ‘Flash Crash’ with provisions on market abuse. The ESMA 2012 Guidelines remain the most effective regulation to frame the development of HFT, able to tackle market developments with relative speed. However, with implementation of the directive still far away, prosecution of market abuse among HFT traders by legislators and supervisors could lead to a de facto ban of HFT in some Member States. However, the author argues that supervisors would need to allocate scarce resources to it, at great cost, and only the most motivated supervisors will do so.

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High Frequency Trading and Circuit Breakers in the EU

Global Algorithmic Capital Markets ◽

10.1093/oso/9780198829461.003.0012 ◽

2018 ◽

pp. 308-331

Author(s):

Steffen Kern ◽

Giuseppe Loiacono

Keyword(s):

High Frequency ◽

Financial Stability ◽

Investor Protection ◽

Legal Framework ◽

Regulatory Framework ◽

High Frequency Trading ◽

Circuit Breakers ◽

Market Order ◽

Securities Trading ◽

The Eu

This chapter reviews the fundamental workings of the EU regulatory framework and its implications for high frequency trading (HFT) and the latest findings on the market realities in the EU. Over the last decade, securities trading landscapes have undergone significant change, with the emergence of HFT being one of the most important developments in this context. At the same time, the EU has made landmark legislative advances with the aim of increasing investor protection, market order, and financial stability, and of containing risks in those areas. As the new MiFID2 legal framework takes effect, a wealth of new data and evidence will become available in coming years that will improve understanding of HFT patterns, the effectiveness of circuit breakers, and their optimal calibration.

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