FCA Outlines U.K. and MiFID II Requirements for the Development, Testing and Operation of Algorithmic Trading Systems

The U.K. Financial Conduct Authority (FCA) has laid out relevant regulatory requirements and best practices for algorithmic trading in a recent report that highlights five key areas: the definition of algorithmic trading; the development and testing process; risk controls; governance and oversight; and market conduct. The report draws on reviews that the FCA conducted in anticipation of the implementation of the recast Markets in Financial Instruments Directive. “This report is relevant for all firms developing and using algorithmic trading strategies in wholesale markets. Firms should consider and act on its content in the context of good practice for their business,” said Megan Butler, FCA Director of Supervision – Investment, Wholesale and Specialist, in the FCA press release announcing the report. This article summarizes the report’s key takeaways. See our two-part series on managing automated trading strategies: “Examining and Documenting Strategies” (Jan. 7, 2016); and “Monitoring and Reviewing Strategies” (Jan. 14, 2016).

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