In this Regulation, ‘IP completion day’ has the meaning given in the European Union (Withdrawal) Act 2020.

(1) This Regulation applies to:

1. (a)

   a MiFID investment firm; and

2. (b)

   a person to whom regulation 30 or 32(2) of the MiFI Regulations applies.

(1) Where a term is defined in Directive 2014/65/EU that term shall apply for the purposes of this Regulation except where (2) or (3) applies.

(2) Where a term is defined in article 2 of Regulation 600/2014/EU, as amended by the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018, that definition shall apply for the purposes of this Regulation.

(3) ‘Algorithmic trading’ and ‘direct electronic access’ or ‘DEA’ are defined in regulation 2(1) of the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017.

(4) References to UK law corresponding to EU legislation include any primary or secondary legislation or regulators’ requirements which were relied upon by the United Kingdom immediately before IP completion day to give effect to that EU legislation.

(5) References to ‘investment firm’ are to the persons referred to in Article -2(1) above unless the context indicates otherwise.

(6) ‘MiFID investment firm’ and the ‘MiFI Regulations’ are defined in accordance with the Glossary to the Handbook of rules and guidance published by the FCA immediately after IP completion day.

As part of its overall governance and decision making framework, an investment firm shall establish and monitor its trading systems and trading algorithms through a clear and formalised governance arrangement, having regard to the nature, scale and complexity of its business and setting out:

1. (a)

   clear lines of accountability, including procedures to approve the development, deployment and subsequent updates of trading algorithms and to solve problems identified when monitoring trading algorithms;

2. (b)

   effective procedures for the communication of information within the investment firm, such that instructions can be sought and implemented in an efficient and timely manner;

3. (c)

   a separation of tasks and responsibilities of trading desks on the one hand and supporting functions, including risk control and compliance functions, on the other, to ensure that unauthorised trading activity cannot be concealed.

1. (1)

   An investment firm shall ensure that its compliance staff has at least a general understanding of how the algorithmic trading systems and trading algorithms of the investment firm operate. The compliance staff shall be in continuous contact with persons within the firm who have detailed technical knowledge of the firm's algorithmic trading systems and algorithms.

2. (2)

   An investment firm shall also ensure that compliance staff have, at all times, contact with the person or persons within the investment firm who have access to the functionality referred to in Article 12 ("kill functionality") or direct access to that kill functionality and to those who are responsible for each trading system or algorithm.

3. (3)

   Where the compliance function or elements thereof are outsourced to a third party, an investment firm shall provide the third party with the same access to information as it would to its own compliance staff. An investment firm shall ensure that through such external compliance function:

   1. (a)

      privacy of data is guaranteed;

   2. (b)

      the compliance function can be audited by internal and external auditors or by the competent authority.

1. (1)

   An investment firm shall employ a sufficient number of staff with the necessary skills to manage its algorithmic trading systems and trading algorithms and with sufficient technical knowledge of:

   1. (a)

      the relevant trading systems and algorithms;

   2. (b)

      the monitoring and testing of such systems and algorithms;

   3. (c)

      the trading strategies that the investment firm deploys through its algorithmic trading systems and trading algorithms;

   4. (d)

      the investment firm's legal obligations

2. (2)

   An investment firm shall specify the necessary skills referred to in paragraph 1. The staff referred to in paragraph 1 shall have those necessary skills at the time of recruitment or shall acquire them through training after recruitment. The investment firm shall ensure that those staff's skills remain up-to-date through continuous training and shall evaluate their skills on a regular basis.

3. (3)

   The staff training referred to in paragraph 2 shall be tailored to the experience and responsibilities of the staff, having regard to the nature, scale and complexity of the investment firms' activities. In particular, staff involved in order submission shall receive training on order submission systems and market abuse.

4. (4)

   An investment firm shall ensure that the staff responsible for the risk and compliance functions of algorithmic trading have:

   1. (a)

      sufficient knowledge of algorithmic trading and strategies;

   2. (b)

      sufficient skills to follow up on information provided by automatic alerts;

   3. (c)

      sufficient authority to challenge staff responsible for algorithmic trading where such trading gives rise to disorderly trading conditions or suspicions of market abuse.

1. (1)

   An investment firm shall remain fully responsible for its obligations under this Regulation where it outsources or procures software or hardware used in algorithmic trading activities.

2. (2)

   An investment firm shall have sufficient knowledge and the necessary documentation to ensure effective compliance with paragraph 1 in relation to any procured or outsourced hardware or software used in algorithmic trading.