The definition of market manipulation in the existing Market Abuse Directive is sufficiently broad to apply to high-frequency and automated trading. However, in order to ensure a consistent approach across Member States, the Commission proposes to specify certain algorithmic and high-frequency trading strategies, including "layering", "spoofing" and "quote stuffing", as being expressly prohibited as forms of market manipulation. 15
The Commission has also recently proposed to introduce a number of measures in MiFID so as tighten the regulation of automated trading. The proposals relevant to market abuse include:
- Risk controls for firms engaging in algorithmic or high-frequency trading, including controls to ensure that the trading systems cannot be used for any purpose contrary to the Regulation or the rules of the trading venue.
- A requirement for firms to provide to the regulator (which may request further information), at least annually, a description of its algorithmic trading strategies, details of trading parameters, key compliance and risk controls and details of testing of the system.
- Measures directed at operators of trading venues that are accessed by investment firms engaging in algorithmic trading will be introduced, such as preventing those using the service from exceeding appropriate pre set trading and credit thresholds.
Finally, guidelines from the European Securities and Markets Authority are expected at the end of the year to clarify the obligations of trading platforms and investment firms in relation to systems and controls in automated trading environments, following its July consultation.