1This chapter applies to :

1. (1)

   a UK MiFID investment firm; and

2. (2)

   a third country investment firm, with an establishment in the United Kingdom.

This chapter applies to a firm in relation to the following activities:

1. (1)

   algorithmic trading (MAR 7A.3);

2. (2)

   providing the service of DEA to a trading venue (MAR 7A.4); and

3. (3)

   providing the service of acting as a general clearing member for another person (MAR 7A.5).

[Note: this chapter transposes article 17 of MiFID, in respect of the types of firms referred to above. Parts 4 of the MiFI Regulations sets out equivalent requirements in respect of persons exempt under article 2(1)(a), (e), (i) and (j) of MiFID, which are required to comply with article 17(1) to (6) of MiFID due to article 1(5) of MiFID.]

1This section applies to a firm which engages in algorithmic trading.

1A firm must have in place effective systems and 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;

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; and

4. (4)

   cannot be used for any purpose that is contrary to:

   1. (a)

      the Market Abuse Regulation; or

   2. (b)

      the rules of a trading venue to which it is connected.

   [Note: article 17(1) of MiFID and MiFID RTS 6 specifying the organisational requirements of investment firms engaged in algorithmic trading]

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 that it meets the requirements of (1) and of MAR 7A.3.2R.

[Note: article 17(1) of MiFID and MiFID RTS 6 specifying the organisational requirements of investment firms engaged in algorithmic trading]

Where a firm engages in algorithmic trading to pursue a market making strategy, it must:

1. (1)

   carry out market making continuously during a specified proportion of the trading venue’s trading hours so that it provides liquidity on a regular and predictable basis to that trading venue, except in exceptional circumstances;

2. (2)

   enter into a binding written agreement with the trading venue which must specify the requirements for the purpose of (1); and

3. (3)

   have in place effective systems and controls to ensure that it meets the obligations under the agreement in (2).

[Note: article 17(3) of MiFID, MiFID RTS 8 specifying the circumstances in which a person would be obliged to enter into the market making agreement referred to in MAR 7A.3.4R(2) and the content of such an agreement, including the specified proportion of the trading venue’s trading hours, and the situations constituting exceptional circumstances, referred to in MAR 7A.3.4R(1)]

For the purpose of MAR 7A.3.4R, the firm must take into account:

1. (1)

   the liquidity, scale and nature of the specific market; and

2. (2)

   the characteristics of the instrument traded.

[Note: article 17(3) of MiFID]

A firm which is a member or participant of a trading venue must immediately notify the following if it is engaging in algorithmic trading:

1. (1)

   the FCA; and

2. (2)

   any competent authority of a trading venue in another EEA State where the firm engages in algorithmic trading.

[Note: article 17(2) of MiFID]

A firm must provide the following, at the FCA’s request, within 14 days from receipt of the request:

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 MAR 7A.3.2R (systems and controls) and MAR 7A.3.3R (business continuity and system tests) are met;

4. (4)

   details of the testing of the firm’s systems;

5. (5)

   the records in MAR 7A.3.8R(2) (accurate and time-sequenced records of all its placed orders); and

6. (6)

   any further information about the firm’s algorithmic trading and systems used for that trading.

[Note: article 17(2) of MiFID]

A firm must:

1. (1)

   arrange for records to be kept to enable it to meet MAR 7A.3.7R; and

2. (2)

   (where it engages in a high-frequency algorithmic trading technique2) store, in the approved form, accurate and time-sequenced records of all its placed orders, including:

   1. (a)

      cancelled orders;

   2. (b)

      executed orders; and

   3. (c)

      quotations on trading venues.

[Note: article 17(2) of MiFID and MiFID RTS 6 specifying the format and content of the approved form referred to in MAR 7A.3.8R(2), and the length of time for which records must be kept by the firm]

1This section applies to a firm which provides the services of DEA to a trading venue.

A firm must have in place systems and controls which:

1. (1)

   ensure it conducts an assessment and review of the suitability of clients using the service;

2. (2)

   prevent clients using the service from exceeding appropriate pre-set trading and credit thresholds;

3. (3)

   prevent trading by clients which:

   1. (a)

      may create risks to the firm;

   2. (b)

      or may create, or contribute to, a disorderly market; or

   3. (c)

      could be contrary to the Market Abuse Regulation or the rules of the trading venue.

[Note: article 17(5) of MiFID]

1. (1)

   A firm must monitor the transactions made by clients using the service to identify:

   1. (a)

      infringements of the rules of the trading venue; or

   2. (b)

      disorderly trading conditions; or

   3. (c)

      conduct which may involve market abuse and which is to be reported to the FCA.

2. (2)

   A firm must have a binding written agreement with each client which:

   1. (a)

      details the essential rights and obligations of both parties arising from the provision of the service; and

   2. (b)

      states that the firm is responsible for ensuring the client complies with the requirements of MiFID and the rules of the trading venue.

[Note: article 17(5) of MiFID] Notifications

A firm must immediately notify the following if it is providing DEA services:

1. (1)

   the FCA; and

2. (2)

   the competent authority of any trading venue in the EEA to which the firm provides DEA services.

[Note: article 17(5) of MiFID and MiFID RTS 6 specifying the organisational requirements of investment firms providing direct electronic access]

A firm must provide the following, at the FCA’s request, within 14 days from receipt of the request:

1. (1)

   a description of the systems mentioned in MAR 7A.4.2R(1);

2. (2)

   evidence that those systems have been applied; and

3. (3)

   information stored in accordance with MAR 7A.4.6R.

[Note: article 17(5) of MiFID]

A firm must arrange for records to be kept:

1. (1)

   on the matters referred to in MAR 7A.4.2R in relation to its systems and controls; and

2. (2)

   in order to enable it to meet any requirement imposed on it under MAR 7A.4.5R.

[Note: article 17(5) of MiFID]

1This section applies to a firm which provides the service of acting as a general clearing member.

A firm must:

1. (1)

   have clear criteria as to the suitability requirements of persons to whom clearing services will be provided;

2. (2)

   apply those criteria;

3. (3)

   impose requirements on the persons to whom clearing services are being provided to reduce risks to the firm and to the market; and

4. (4)

   have a binding written agreement with any person to whom it is providing clearing services, detailing the essential rights and obligations of both parties arising from the provision of the services.

[Note: article 17(6) of MiFID and MiFID RTS 6 specifying the organisational requirements of investment firms acting as general clearing members]