May 27, 2019

May 24, 2019

Subscribe to Latest Legal News and Analysis

FCA Publishes Report on Algorithmic Trading

On February 12, the UK Financial Conduct Authority (FCA) published a report on algorithmic trading compliance in wholesale markets. The report highlights key requirements in the revised Markets in Financial Instruments Directive (MiFID II) relating to algorithmic trading activity, and contains examples of good and bad practices observed during the FCA’s reviews of FCA regulated firms.

The report identifies five core areas of focus:

  • Defining algorithmic trading. Firms must establish an appropriate process to identify algorithmic trading, manage material changes and maintain a comprehensive inventory of algorithmic trading across the business.
  • Development and testing. Firms must maintain robust, consistent and well-understood development and testing processes that identify potential issues across trading algorithms before full deployment.
  • Risk controls. Firms must develop suitable and robust pre-trade and post-trade controls to monitor, identify and reduce potential trading risks across algorithmic trading activity.
  • Governance and oversight. Firms must maintain an appropriate governance and oversight framework that demonstrates effective challenge from senior management, risk management and compliance.
  • Market conduct. Firms must consider the potential impact of their algorithmic trading on market integrity, monitor for potential conduct issues and reduce market abuse risks.

The FCA states that it will continue to assess whether regulated firms have taken sufficient steps to reduce risks arising from algorithmic trading.

While the report comes after the effective date of MiFID II, the reviews undertaken by the FCA, which underlie the report, occurred before MiFID II implementation.

The fact that the report has been published now could indicate that, after the informal grace period offered to firms (see the Corporate & Financial Weekly Digest edition of September 22, 2017), the FCA will be stepping up its monitoring and enforcement in relation to MiFID II compliance.

The report is available here.

©2019 Katten Muchin Rosenman LLP


About this Author

Carolyn H. Jackson, International Attorney, Katten Muchin law firm

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws...

+44 0 20 7776 7625
Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring and documentation relating to OTC derivatives and structured products.

Prior to joining Katten, Nathaniel was a member of the US Regulatory and the Derivatives and Structured Finance practices at Allen & Overy LLP.

+44 0 20 7776 7629
Neil Robson, private equity fund managers counselor, Katten Law Firm, London

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...