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Markets and Securities Services | Issue 46
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DEA providers
For firms providing DEA to trading venues for
their clients (whether on a sponsored or direct-
market basis), Chapter III of the RTS imposes
a range of detailed requirements. These are
designed to ensure that clients’ trading complies
with venue rules and that the DEA provider
itself satisfies the basic obligation under MiFIR,
which makes the DEA provider responsible for
its clients’ activities. Access receivers should
expect to see beefed-up representations,
warranties and undertakings in DEA services
contracts.
The RTS require DEA providers to monitor
clients’ order flows and to filter orders through
pre- and post-trade controls. While the DEA
provider may apply order controls provided
by a third party or a trading venue, the DEA
provider itself must have the exclusive ability to
modify the parameters of those controls. At the
most fundamental level, these controls should
reflect the DEA provider’s own credit and risk
assessment of its client. The rules explicitly
require that the controls applied to DEA clients
using sponsored access arrangements are as
stringent as those applied to DEA clients with
direct market access.
Definitions
Algorithmic trading
means trading in financial instruments where a computer algorithm automatically
determines individual parameters of orders such as whether to initiate the order, the timing, price
or quantity of the order or how to manage the order after its submission, with limited or no human
intervention, and does not include any system that is only used for the purpose of routing orders to
one or more trading venues or for the processing of orders involving no determination of any trading
parameters or for the confirmation of orders or the post-trade processing of executed transactions.
High-frequency algorithmic trading technique
means an algorithmic trading technique
characterised by:
• Infrastructure intended to minimise network and other types of latencies, including at least
one of the following facilities for algorithmic order entry: co-location, proximity hosting or
high-speed direct electronic access.
• System-determination of order initiation, generation, routing or execution without human
intervention for individual trades or orders.
• And high-message intraday rates which constitute orders, quotes or cancellations.
Direct electronic access
means an arrangement where a member or participant or client of a trading
venue permits a person to use its trading code so the person can electronically transmit orders relating
to a financial instrument directly to the trading venue and includes arrangements which involve the
use by a person of the infrastructure of the member or participant or client, or any connecting system
provided by the member or participant or client, to transmit the orders (direct market access) and
arrangements where such an infrastructure is not used by a person (sponsored access).