Risk Management Magazine (Aug 2020)
Il framework della negoziazione algoritmica introdotto da MiFID II e l’importanza del processo di autovalutazione e convalida
Abstract
In the last years, technological progress and financial innovation have promoted the development of investment activities based on the use of trading algorithms, enabling cost reduction along with a more efficient management of trading activities. Since the early 2000s this process has grown reaching peaks of 70% of total orders in some markets. Technological development is pushing all the financial algorithmic players to improve data management and processing in step with increasing trading speeds. Accordingly, the algorithmic trading activity growth has affected and will affect the integrity and quality of the market (price information efficiency, volatility and liquidity), sharpening the systemic impact of any shocks. In order to mitigate these potential negative effects, the European and American Supervisory Authorities have started a serious consideration, adopting ad hoc regulations to manage the risks faced by intermediaries who use algorithms and other operators in the financial markets. In particular, the European Regulator, within the MIFID II framework, defined principles and guidelines of the self-assessment and validation process that intermediaries have to perform annually in order issue a validation report to the Competent Authority. The purpose of this article is to provide an overview of the current and prospective algorithmic trading business, with the aim of representing on one hand the evolution of the framework adopted by investment firms and on the other hand to provide guidelines for the drawing up of the validation report on the algorithmic trading systems and trading algorithms, according to EU legislation [1][2][3][4][5][6] and national legislation [7][8]. The evolution of the framework adopted by intermediaries has experienced the integration of compliance, risk-oriented and business logics in order to take the best out of the opportunity given by the legislation to reengineer and validate processes. Further details about this article are shown in the Position Paper [9] prepared within the AIFIRM – ASSIOM FOREX Working Group on algorithmic trading, which is made up of Risk Managers and Traders of the largest national intermediaries, currently working in algorithmic trading, and suitably assisted by the other involved organizational structures.
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