Consultation on the Guidelines on systems and controls in a highly automated trading environment for trading platforms, investment firms and competent authorities

ESMA publishes a consultation paper (ESMA/2011/224) today setting out its proposals for detailed guide-lines for trading platforms, investment firms and competent authorities to address challenges of a highly automated trading environment, of which high frequency trading (HFT) is an important part. The guide-lines seek to clarify the obligations of trading platforms and investment firms under the existing EU legis-lative framework. ESMA believes that the proposed guidelines contribute to the efficiency, orderly func-tioning and resilience of trading in a highly automated environment.

Secondary trading in financial instruments carries a number of risks, such as operational, credit and market risks as well as risks of abusive behaviour, that can threaten the regulatory objectives of investor protection, fair and orderly trading, efficient price formation, financial stability and prevention of behav-iour undermining market integrity. These risks are inherent to trading and also exist when trading is done on a person-to-person basis, or over the telephone. However, in a highly automated trading environment, the organisational arrangements required by trading platforms and investment firms should be tailored to the scale, sophistication and speed of the trading activity that is now taking place and should keep up with the challenges posed to regulatory objectives.

In light of the comments received from respondents by the deadline of 3 October 2011, ESMA expects to publish final guidelines at the end of 2011.