With the advances made in automated
trading in recent years, regulators are having to work pretty
hard to catch up with the markets.
Esma currently has two documents out for
consultation on the Market Abuse Regulation (MAR) and has
announced a public hearing on October 8th. In parallel, last
week saw the publication of the CME’s Rule 575 on
The implications of automated trading are
under scrutiny on both sides of the Atlantic. The CME states in
its new rule that traders can only enter orders with the
purpose of executing them.
Even though this sounds fairly harmless,
it becomes extremely potent considering that many schemes such
as ramping, spoofing or quote stuffing rely on cancelling
orders before they are executed.
While MAR also has the notion of intention
to execute, it goes a step further and explicitly acknowledges
that algorithmic/HFT strategies can be abusive in
Obviously it is always difficult to
determine the intentions of traders and whether submitted
orders were meant to be executed, but new technologies makes it
easier in some ways too.
In the old trading floor days strategies
were only in the head of the trader, but nowadays trading
strategies are well documented in the source code and in the
audit trails, explicitly naming all trading signals and the
That gives the regulator a much better
chance to decipher a trader’s true intentions,
even in a complex world like ours.