Algo trading may come under FCA conduct rules

Algorithmic trading may come under tougher scrutiny from the UK’s financial regulator as it looks to expand the scope of its conduct rules to wholesale market activities.

The Financial Conduct Authority (FCA) is proposing covering managers responsible for algo trading under a new accountability regime for the City. FCA algo trading regulations

“It is important that the individuals responsible for the deployment of trading algorithms are fit and proper,” the FCA said.

It wants to “ensure that the algorithms are adequately tested” to make sure they do not “contribute to disorderly markets or breach market abuse or trading venue rules”.

Algorithmic and high-frequency trading (HFT) has increased sharply in recent years, but concerns have been raised abouts its risk to markets following events like the 2010 Flash Crash.

Last June, the head of the US Securities and Exchange Commission, Mary Jo White, called for an investigation into how HFT could disrupt equity markets. High-frequencytrading accounts for half of all trading volumes in the US and between 24 and 43 per cent of activity on European equity markets.

The FCA said it is consulting on amendments to the rules “in regard to the certification of individuals involved in wholesale activity, such as traders”.

“The change is designed to expand the certification regime to ensure that individuals working in wholesale markets in relevant firms who could pose significant harm to the firm or its customers are subject to the new accountability rules,” it added.

In June, the FCA and the Bank of England published recommendations calling for the extension of the new accountability rules for bankers to include staff working on markets, after banks were fined for Libor rigging.

The Association for Financial Markets in Europe told Bloomberg there is a lot of work still be done on the rules.

“We would urge the regulators to continue to work together, and with banks, to establish final fair and effective rules in good time, so as to enable all staff to undergo the appropriate training and be clear as to their responsibilities,” it said in an emailed statement.