May 2, 2014

BaFin Imposes Strict Requirements on Credit Institutions Engaging in Algorithmic Trading

Summary: In today’s markets for trading in financial instruments, computers often make decisions on their own. In so doing, they do more than simply assist human traders. Trading algorithms implement trading strategies with no additional human input. In order to limit the risks that can arise in such circumstances and prevent market manipulation, in 2012 ESMA published guidelines. The BaFin has now made more precise the organizational requirements that arose when § 25a of the German Banking Act and § 33, paras. 1 and 1a of the German Securities Trading Act were amended by the High Frequency Trading Act in 2013. BaFin Circular 6/2013 (BA) sets out principles-based requirements that credit institutions must observe if they engage in algorithmic trading or provide direct or supported market access.

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