UK:
The Risk Of Market Abuse In Algorithmic Trading
31 August 2021
WilmerHale
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In its May 2021 edition of Market Watch, the FCA described actions it
took to address the impact which a firm's trading algorithm was
having in the market. Its concerns had been raised after the
Regulator's own internal surveillance algorithm had flagged the
activity. Following the FCA's intervention, adjustments were
made to the trading algorithm and its control framework, in order
to avoid "undue influence on the market".
Commentary
Very little detail about either the nature or significance
of the potential 'undue influence' is provided. However,
the note provides a reminder of the challenges of increasingly
complex algorithmic trading and AI systems. Irrespective of how a
trading system has been set up, firms will be expected to monitor
its output, to assess whether its activity may have the
characteristics of potentially abusive market conduct.
Firms are reminded of the recommendations of good practice
in the FCA's 2018 report, 'Algorithmic Trading Compliance in Wholesale
Markets', and the PRA's Supervisory statement
on algorithmic trading.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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