Algorithmic trading

Algorithmic trading uses computer algorithms to automatically determine parameters of orders such as whether to initiate the order, the timing, price or how to manage the order after submission, with limited or no human intervention. The concept does not include any system used only for order routing to trading venues, processing orders where no determination of any trading parameters is involved, confirming orders or post-trade processing of transactions.

A firm engaging in algorithmic trading will be required to have in place effective systems and risk controls to ensure its trading systems are resilient and have enough capacity, are subject to appropriate thresholds and limits which prevent sending erroneous orders, do not function in a way that contributes to a disorderly market and cannot be used for any purpose that is contrary to the rules of a trading venue to which it is connected. Firms must have effective business continuity arrangements to deal with any system failure and ensure their systems are tested and monitored. The organisational requirements for different types of firm will be further specified in regulatory technical standards.

Trading venues will also be required to have systems to ensure that algorithmic trading cannot create or contribute to disorderly trading on the market and to manage any such conditions that do arise. These will include systems to limit the ratio of unexecuted orders to transactions, slow down order flow and regulate minimum tick sizes. Trading venues will be required to provide facilities for their members to test algorithms. Trading venues will also be required to be able to identify orders generated by algorithmic trading, different algorithms used and the persons initiating the orders.

ESMA’s proposals for regulatory technical standards and delegated acts, as set out in the DP and CP respectively are mainly based on existing regulatory guidance such as its 2012 Guidelines on Systems and Controls in an Automated Trading Environment. When considering the organisational requirements of trading venues and investment firms to be set down in the regulatory technical standards, ESMA proposes that the proportionality principle must be preserved and the nature, scale and complexity of the business must be taken into account. Investment firms should undertake a detailed self-assessment to determine the level of operational requirements that should apply to them. For some algorithmic traders and trading venues many of the technical proposals will be seen as business as usual.

Hi, I recently received an email from interactive brokers asking who had access to my account, whether I was running an automated trading program and who was monitoring it when I am unable to?

Before I respond, I was hoping to get some clarification as to whether I am required to have someone monitor my trading system 24/7? I currently just let it run while I am asleep although I do have alerts set up but I doubt they would wake me

Has anyone else received a similar email and if so how did you respond and what was the result?