On December 18, 2020, the European Securities and Markets Authority (ESMA) published a consultation paper to assist the European Commission (Commission) in reviewing and producing a report on the impact of requirements relating to algorithmic trading, including high-frequency trading. After consulting ESMA, the Commission is required to present the report to the European Parliament and Council of the European Union under the Markets in Financial Instruments Directive (MiFID II) (the Consultation Paper).

The key areas covered in the Consultation Paper by ESMA include:

  • presenting an overall approach and quantitative analysis towards algorithmic trading and high frequency trading, specifically the authorization regime connected to these types of market participants;
  • discussing organizational requirements for investment firms that engage in algorithmic trading, including high-frequency traders and trading venues that authorize algorithmic trading on their systems; and
  • addressing other provisions that aim at better framing the activity of algorithmic and high-frequency traders (for example tick sizes and market making).

ESMA also discusses new issues that have recently emerged on EU markets, which are closely linked to algorithmic trading (for example deployment of mechanisms called speedbumps and the sequence of trade confirmation to individual participants by trading venues versus the public disclosure of such transactions).

The deadline for comments on the Consultation Paper is March 21. ESMA intends to use comments in preparation of its final report to the Commission by July.

The Consultation Paper is available here.