ALGORITHMIC TRADING REGULATIONS

SUBSIDIARY LEGISLATION 345.23

ALGORITHMIC TRADING

REGULATIONS

3rd January, 2018

LEGAL NOTICE 395 of 2017, as amended by Legal Notices 250 of 2024 and

212 of 2025.

(1)

The title of these regulations is the Algorithmic

Trading Regulations.

(2)

The purpose of these regulations is to implement Article

4 (1) paragraphs 24, 39 to 41 and Article 17 (1) – (6) of MIFID as

herein defined, and they shall be interpreted and applied accordingly.

(1) In these regulations unless the context otherwise

requires

"the Acts" mean the Investment Services Act and the Financial

Markets Act;

"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,

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;

"competent authority" means the Malta Financial Services

Authority established by the Malta Financial Services Authority Act;

"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);

"DORA Regulation" means Regulation (EU) 2022/2554 of the

European Parliament and of the Council of 14 December 2022 on

digital operational resilience for the financial sector and amending

Regulations (EC) No 1060/2009, (EU) No 648/ 2012, (EU) No 600/

2014, (EU) No 909/2014 and (EU) 2016/1011, as may be amended

from time to time, and includes any binding legal instruments,

guidelines and other measures that have been or may be issued

thereunder;

ALGORITHMIC TRADING

"high-frequency algorithmic trading technique" means an

algorithmic trading technique characterised by

(a)

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;

(b)

system-determination

of

order

initiation,

generation, routing or execution without human intervention for

individual trades or orders; and

(c)

high message intraday rates which constitute

orders, quotes or cancellations;

"Maltese investment firm" means a person licensed in terms of

the Investment Services Act, whose head office is in Malta and who is

entitled to carry on an activity in a Member State or EEA State other

than Malta in exercise of a European Right;

"MAR" means Regulation (EU) No 596/2014 of the European

Parliament and of the Council of 16 April 2014 on market abuse

(market abuse regulation) and repealing Directive 2003/6/EC of the

European Parliament and of the Council and Commission Directives

2003/124/EC, 2003/125/EC and 2004/72/EC, as amended from time to

time;

"MiFID" means Directive 2014/65/EU of the European

Parliament and of the Council of 15 May 2014 on markets in financial

instruments and amending Directive 2002/92/EC and Directive 2011/

61/EU, as amended from time to time, and includes any implementing

measures that have been or may be issued thereunder;

"trading venue" means a regulated market, an MTF or an OTF.

(2)

Words and expressions used in the Acts shall, in these

regulations, have the same meaning as is assigned to them in the Acts.

A Maltese investment firm that engages in algorithmic

trading shall have in place

(a)

effective systems and risk controls suitable to the

business it operates to ensure that its trading systems are

resilient and have sufficient capacity in accordance with the

requirements stipulated in Chapter II of the DORA Regulation,

are subject to appropriate trading thresholds and limits and

prevent the sending of erroneous orders or the systems

otherwise functioning in a manner that may create or contribute

to a disorderly market;

(b)

effective systems and risk controls to ensure the

trading systems cannot be used for any purpose that is contrary

to MAR or to the laws and, or rules of a trading venue to which

it is connected; and

(c)

effective business continuity arrangements to deal

with any failure of its trading systems, including ICT business

continuity policy and plans and ICT response and recovery

plans established in accordance with Article 11 of the DORA

Regulation, and shall ensure its systems are fully tested and

properly monitored to ensure that they meet the general

requirements stipulated in this regulation and any specific

requirements stipulated in Chapters II and IV of the DORA

Regulation.

(1)

A Maltese investment firm that engages in

algorithmic trading in Malta or in another Member State or EEA State

shall notify this to the competent authority and to the European

regulatory authority of the trading venue at which the Maltese

investment firm engages in algorithmic trading as a member or

participant of the trading venue where this is not established in Malta.

(2)

Upon receipt of a notification pursuant to sub-regulation

(1), the competent authority may require the Maltese investment firm

to provide, on a regular or ad hoc basis, a description of the nature of

its algorithmic trading strategies, details of the trading parameters or

limits to which the system is subject, the key compliance and risk

controls that it has in place to ensure the conditions laid down in

regulation 3 are satisfied and details of the testing of its systems.

(3)

The competent authority may, at any time, request further

information from the Maltese investment firm about its algorithmic

trading and the systems used for that trading.

(4)

The competent authority shall, on the request of a

European regulatory authority of the trading venue at which the

Maltese investment firm as a member or participant of the trading

venue is engaged in algorithmic trading and without undue delay,

communicate the information referred to in sub-regulations (2) and (3)

that it receives from the Maltese investment firm that engages in

algorithmic trading.

(5)

The Maltese investment firm shall arrange for records to

be kept in relation to the matters referred to in this regulation and shall

ensure that those records be sufficient to enable the competent

authority to monitor compliance with the requirements of MiFID.

(6)

A Maltese investment firm that engages in a high-

frequency algorithmic trading technique shall store in an approved

form accurate and time sequenced records of all its placed orders,

including cancellations of orders, executed orders and quotations on

trading venues and shall make them available to the competent

authority upon request.

ALGORITHMIC TRADING

A Maltese investment firm that engages in algorithmic

trading to pursue a market making strategy shall, taking into account

the liquidity, scale and nature of the specific market and the

characteristics of the instrument traded

(a)

carry out this market making continuously during

a specified proportion of the trading venue’s trading hours,

except under exceptional circumstances, with the result of

providing liquidity on a regular and predictable basis to the

trading venue;

(b)

enter into a binding written agreement with the

trading venue which shall at least specify the obligations of the

Maltese investment firm in accordance with paragraph (a) of

this regulation; and

(c)

have in place effective systems and controls to

ensure that it fulfils its obligations under the written agreement

referred to in paragraph (b) at all times.

For the purposes of these regulations and of article 4E of

the Financial Markets Act, a Maltese investment firm that engages in

algorithmic trading shall be considered to be pursuing a market

making strategy when, as a member or participant of one or more

trading venues, its strategy, when dealing on own account, involves

posting firm, simultaneous two-way quotes of comparable size and at

competitive prices relating to one or more financial instruments on a

single trading venue or across different trading venues, with the result

of providing liquidity on a regular and frequent basis to the overall

market.

(1)

A Maltese investment firm that provides direct

electronic access to a trading venue shall

(a)

have in place effective systems and controls

which ensure a proper assessment and review of the suitability

of clients using the service, that clients using the service are

prevented from exceeding appropriate pre-set trading and credit

thresholds, that trading by clients using the service is properly

monitored and that appropriate risk controls prevent trading

that may create risks to the Maltese investment firm itself or

that could create or contribute to a disorderly market or could

be contrary to MAR or the rules of the trading venue

Provided that direct electronic access to a trading venue

without such controls is prohibited.

(b)

be responsible for ensuring that clients using that

service comply with the requirements of MiFID and the rules of

the trading venue;

(c)

monitor the transactions in order to identify

infringements of those rules, disorderly trading conditions or

conduct that may involve market abuse and that is to be

reported to the competent authority;

(d)

ensure that there is a binding written agreement

between the Maltese investment firm and the client regarding

the essential rights and obligations arising from the provision of

the service and that under the agreement the Maltese investment

firm retains responsibility under MiFID; and

(e)

notify the competent authority and where the

trading venue is not established in Malta, the European

regulatory authority of the trading venue at which the Maltese

investment firm provides direct electronic access accordingly.

(2)

The competent authority may require the Maltese

investment firm to provide, on a regular or ad hoc basis, a description

of the systems and controls referred to in paragraph (a) of sub-

regulation (1) and evidence that those have been applied.

(3)

The competent authority shall, on the request of a

European regulatory authority of a trading venue, in relation to which

the Maltese investment firm provides direct electronic access,

communicate without undue delay the information referred to in sub-

regulation (2) that it receives from the Maltese investment firm.

(4)

The Maltese investment firm shall arrange for records to

be kept in relation to the matters referred to in this regulation and shall

ensure that those records be sufficient to enable the competent

authority to monitor compliance with the requirements of the MiFID.

A Maltese investment firm that acts as a general clearing

member for other persons shall have in place effective systems and

controls to ensure clearing services are only applied to persons who

are suitable and meet clear criteria and that appropriate requirements

are imposed on those persons to reduce risks to the Maltese investment

firm and to the market. The Maltese investment firm shall ensure that

there is a binding written agreement between the Maltese investment

firm and the person regarding the essential rights and obligations

arising from the provision of that service.

Notwithstanding the provisions of any other law, the

provisions of regulations 3 to 8 shall also apply to members or

participants of regulated markets and MTFs that are exempt from the

licensing requirement established under article 3 of the Investment

Services Act, in accordance with regulation 3(1)(p) and (aa) of the

Investment Services Act (Exemption) Regulations.

ALGORITHMIC TRADING

(1)

Where a person falling within the scope of these

regulations fails to comply with any provisions of such regulations or

any rules issued thereunder further implementing such regulations, the

competent authority may, by notice in writing and without recourse to

a court hearing, impose on such person an administrative penalty and

other administrative measures in accordance with the provisions of the

Financial Markets Act (MiFID and MiFIR Administrative Penalties,

Measures and Investigatory Powers) Regulations, 2017 or the

Investment Services Act and Banking Act (MiFID and MiFIR

Administrative Penalties, Measures and Investigatory Powers)

Regulations, 2017.

(2)

A right of appeal to the Financial Services Tribunal shall

lie from the decisions which the competent authority shall take under

these regulations and the provisions of Part VI of the Financial

Markets Act or Article 19 of the Investment Services Act shall apply

mutatis mutandis.

For the better carrying out of the provisions of these

regulations, the competent authority may, from time to time, issue and

publish Investment Service Rules which shall be binding on

investment firms and others as may be specified therein.