MiFID II introduces specific requirements with respect to algorithmic trading, both for investment firms and trading venues. Trading venues must, amongst other things, have in place effective systems, procedures and arrangements to ensure algorithmic trading systems cannot create or contribute to disorderly trading conditions on their market. This includes a limitation of the messages that can be entered by a member/participant through a maximum ratio of unexecuted orders compared to the transactions executed by that member/participant.
Article 48(12)(b) of MiFID II provides that the Commission will adopt, following submission of draft regulatory technical standards (RTS) by the European Securities and Markets Authority (ESMA), a delegated Regulation specifying the ratio of unexecuted orders to transactions, taking into account factors such as the value of unexecuted orders in relation to the value of executed transactions. Following ESMA’s consultation MiFID II level 2 measures on 19 December 2014 the final draft RTS were submitted to the Commission on 28 September 2015.
The European Commission has now published a draft Commission Delegated Regulation supplementing MiFID II with regard to RTS for the ratio of unexecuted orders to transactions in order to prevent disorderly trading conditions.
The Delegated Regulation is subject to scrutiny by the Council of the EU and the European Parliament. If neither institution objects, the Delegated Regulation will enter into force 20 days after its publication in the Official Journal of the EU.
