{"title":"Insights into UK investment firms’ efforts to comply with MiFID II RTS 6 that governs the conduct of algorithmic trading","authors":"Alexander Conrad Culley","doi":"10.1108/jfrc-12-2022-0144","DOIUrl":null,"url":null,"abstract":"\nPurpose\nThe purpose of this paper is to examine the effectiveness of UK investment firms’ implementation of the requirements in Commission Delegated Regulation 2017/589 (more commonly known as “Regulatory Technical Standard 6” or “RTS 6”) that govern the conduct of algorithmic trading activities.\n\n\nDesign/methodology/approach\nA qualitative examination of 19 semi-structured interviews with practitioners working for, or with, UK investment firms engaged in algorithmic trading activities.\n\n\nFindings\nThe paper finds that practitioners generally have a good understanding of the requirements in RTS 6. Some lack knowledge of algorithms, coding and algorithmic strategies but have used best efforts to implement RTS 6. However, regulatory fatigue, complacency, cost pressures, governance in international groups, overreliance on external knowledge and generous risk parameter calibration threaten to undermine these efforts.\n\n\nResearch limitations/implications\nThe study’s findings are limited to the participants’ insights. Some areas of the RTS 6 regime attracted little comment from participants.\n\n\nPractical implications\nThe paper proposes the introduction of mandatory algorithmic trading qualification requirements for key staff; the lessening of the requirements in RTS 6 for automated executors; and the introduction of a recognised software vendor regime to reduce duplication and improve coordination between market participants that deploy algorithmic trading systems.\n\n\nOriginality/value\nTo the best of the author’s knowledge, the study represents the first qualitative examination of firms’ implementation of the algorithmic trading regime in the second Markets in Financial Instruments Directive 2014/65/EU.\n","PeriodicalId":44814,"journal":{"name":"Journal of Financial Regulation and Compliance","volume":"1 1","pages":""},"PeriodicalIF":2.0000,"publicationDate":"2023-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Financial Regulation and Compliance","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.1108/jfrc-12-2022-0144","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Purpose
The purpose of this paper is to examine the effectiveness of UK investment firms’ implementation of the requirements in Commission Delegated Regulation 2017/589 (more commonly known as “Regulatory Technical Standard 6” or “RTS 6”) that govern the conduct of algorithmic trading activities.
Design/methodology/approach
A qualitative examination of 19 semi-structured interviews with practitioners working for, or with, UK investment firms engaged in algorithmic trading activities.
Findings
The paper finds that practitioners generally have a good understanding of the requirements in RTS 6. Some lack knowledge of algorithms, coding and algorithmic strategies but have used best efforts to implement RTS 6. However, regulatory fatigue, complacency, cost pressures, governance in international groups, overreliance on external knowledge and generous risk parameter calibration threaten to undermine these efforts.
Research limitations/implications
The study’s findings are limited to the participants’ insights. Some areas of the RTS 6 regime attracted little comment from participants.
Practical implications
The paper proposes the introduction of mandatory algorithmic trading qualification requirements for key staff; the lessening of the requirements in RTS 6 for automated executors; and the introduction of a recognised software vendor regime to reduce duplication and improve coordination between market participants that deploy algorithmic trading systems.
Originality/value
To the best of the author’s knowledge, the study represents the first qualitative examination of firms’ implementation of the algorithmic trading regime in the second Markets in Financial Instruments Directive 2014/65/EU.
期刊介绍:
Since its inception in 1992, the Journal of Financial Regulation and Compliance has provided an authoritative and scholarly platform for international research in financial regulation and compliance. The journal is at the intersection between academic research and the practice of financial regulation, with distinguished past authors including senior regulators, central bankers and even a Prime Minister. Financial crises, predatory practices, internationalization and integration, the increased use of technology and financial innovation are just some of the changes and issues that contemporary financial regulators are grappling with. These challenges and changes hold profound implications for regulation and compliance, ranging from macro-prudential to consumer protection policies. The journal seeks to illuminate these issues, is pluralistic in approach and invites scholarly papers using any appropriate methodology. Accordingly, the journal welcomes submissions from finance, law, economics and interdisciplinary perspectives. A broad spectrum of research styles, sources of information and topics (e.g. banking laws and regulations, stock market and cross border regulation, risk assessment and management, training and competence, competition law, case law, compliance and regulatory updates and guidelines) are appropriate. All submissions are double-blind refereed and judged on academic rigour, originality, quality of exposition and relevance to policy and practice. Once accepted, individual articles are typeset, proofed and published online as the Version of Record within an average of 32 days, so that articles can be downloaded and cited earlier.