Prudential Regulation Authority Rulebook

1.1

Unless otherwise stated, this Part applies to a CRR firm that engages in algorithmic trading.

1.2

2.4 and 2.5 apply to a CRR firm that provides the services of direct electronic access to a trading venue.

1.3

In this Part, the following definitions shall apply:

algorithmic trading

means trading in financial instruments where a computer algorithm automatically determines individual parameters of orders such as whether to initiate the order, the timing, price or quantity of the order or how to manage the order after its submission, with limited or no human intervention, and does not include any system that is only used for the purpose of routing orders to one or more trading venues or for the processing of orders involving no determination of any trading parameters or for the confirmation of orders or the post-trade processing of executed transactions.

direct electronic access

means an arrangement where a member or participant or client of a trading venue permits a person to use its trading code so the person can electronically transmit orders relating to a financial instrument directly to the trading venue and includes arrangements which involve the use by a person of the infrastructure of the member or participant or client, or any connecting system provided by the member or participant or client, to transmit the orders (direct market access) and arrangements where such an infrastructure is not used by a person (sponsored access).

trading venue

means a regulated market, an MTF or an OTF.

1.4

[Deleted.]

2.1

A firm must have in place effective systems and risk 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; and
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.

[Note: Art. 17(1) of MiFID II]

2.2

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 they meet the requirements of (1) and 2.1.

[Note: Art. 17(1) of MiFID II]

2.3

A firm must make and retain the following records:

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 2.1 and 2.2 are met;
4. (4) details of the approach to testing of the firm’s systems;
5. (5) the information obtained in performing, the outcome of, and any actions taken as a result of, each test of the firm’s systems; and
6. (6) any further relevant information about the firm’s algorithmic trading and systems used for that trading.

[Note: Article 17(2) of MiFID II. See Articles 28 and 29 of Commission Delegated Regulation (EU) No 2017/589 of 19 July 2016 supplementing MiFID II with regard to regulatory technical standards specifying the organisational requirements of investment firms engaged in algorithmic trading, providing direct electronic access and acting as general clearing members for related provisions.]

2.4

A firm that provides direct electronic access to a trading venue must have in place:

1. (1) systems and controls that enable it to assess and review the suitability of clients using the service of direct electronic access to a trading venue;
2. (2) systems and controls that prevent clients using the service from exceeding appropriate pre-set trading and credit thresholds; and
3. (3) appropriate systems and controls that prevent trading by clients which may create risks to the firm.

[Note: Art. 17(5) of MiFID II]

2.5

A firm that provides direct electronic access to a trading venue must make and retain the following records if it provides direct electronic access services:

1. (1) a description of the systems and controls in 2.4;
2. (2) evidence that those systems and controls have been applied; and
3. (3) on other relevant matters referred to in 2.4 in relation to systems and controls.

[Note: Art. 17(5) of MiFID II]