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Coping with European regulatory requirements for automated trading: Best practices and new requirements resulting from regulation

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  • Stangl, Gunnar

Abstract

Risks resulting from large trade and order volumes made possible by the automation of trading processes have been steadily climbing the agenda of regulators — even before the publication of books capturing the popular imagination. At the same time, it is widely accepted that automation significantly reduces the risk of ‘classical’ mistakes like fat fingers, with regulation increasingly explicitly or implicitly demanding straight-through processing and setting limits for trade-related processing which, without a highly automated trading environment, are not achievable. Nevertheless, even where automated trading is used only in a conservative way, the volume of trades in a volatile market can impact risk management and order facilities. This paper discusses the implications for operational risk management of the requirements introduced by the Markets in Financial Instruments Directive (MiFID) II in Europe for a firm using automated trading to support market-making and risk management across a number of different markets and products.

Suggested Citation

  • Stangl, Gunnar, 2015. "Coping with European regulatory requirements for automated trading: Best practices and new requirements resulting from regulation," Journal of Securities Operations & Custody, Henry Stewart Publications, vol. 7(4), pages 337-347, September.
    • Handle: RePEc:aza:jsoc00:y:2015:v:7:i:4:p:337-347
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    More about this item

    Keywords

    algorithmic trading; high-frequency trading; automated trading; operational risk; trading systems; MiFID; flash crash;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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