MiFID 2: Are you a High Frequency Trader?

The broad Algorithmic Trading definition, incorporated within MiFID 2, was intentionally used to capture a wide array of clients and firms which wouldn’t have been placed within this category before. This new rule defines Algorithmic trading as follows:

Article 4(1)(39) of MiFID II, pursuant to which algorithmic trading is "trading in financial instruments where a computer algorithm automatically determines individual parameters of orders such as whether to initiate the order, the timing, price or quantity of the order or how to manage the order after its submission, with limited or no human intervention, and does not include any system that is only used for the purpose of routing orders to one or more trading venues or for the processing of orders involving no determination of any trading parameters or for the confirmation of orders or the post-trade processing of executed transactions." (1)

Continuing, Article 4(1)(40) of MiFID 2 has enacted High Frequency Trader as a subset of the Algorithmic Trading definition and will be subjected to the same controls and requirements with the ADDITIONAL requirements for an infrastructure designed to minimize network and other latencies including high-speed DEA, proximity hosting or collocation for algorithmic order entry that on average has:

(a) at least 2 messages per second with respect to any single financial instrument traded on a trading venue;

(b) at least 4 messages per second with respect to all financial instruments traded on a trading venue. (2)

Should your particular trading style, or methodology, fall under any of the above-mentioned HFT definitions then you will need to take action. If your firm is deemed as involved in “Algo” / HFT trading, by definition of MiFID 2, then you are required to become authorized as an investment firm and to comply with compulsory market-making rules...

Read more at: https://blog.advancedmarketsfx.com/mifid-2-are-you-high-frequency-trader

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