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Article
Publication date: 6 June 2023

Alexander Conrad Culley

The purpose of this paper is to examine the effectiveness of UK investment firms’ implementation of the requirements in Commission Delegated Regulation 2017/589 (more commonly…

Abstract

Purpose

The purpose of this paper is to examine the effectiveness of UK investment firms’ implementation of the requirements in Commission Delegated Regulation 2017/589 (more commonly known as “Regulatory Technical Standard 6” or “RTS 6”) that govern the conduct of algorithmic trading activities.

Design/methodology/approach

A qualitative examination of 19 semi-structured interviews with practitioners working for, or with, UK investment firms engaged in algorithmic trading activities.

Findings

The paper finds that practitioners generally have a good understanding of the requirements in RTS 6. Some lack knowledge of algorithms, coding and algorithmic strategies but have used best efforts to implement RTS 6. However, regulatory fatigue, complacency, cost pressures, governance in international groups, overreliance on external knowledge and generous risk parameter calibration threaten to undermine these efforts.

Research limitations/implications

The study’s findings are limited to the participants’ insights. Some areas of the RTS 6 regime attracted little comment from participants.

Practical implications

The paper proposes the introduction of mandatory algorithmic trading qualification requirements for key staff; the lessening of the requirements in RTS 6 for automated executors; and the introduction of a recognised software vendor regime to reduce duplication and improve coordination between market participants that deploy algorithmic trading systems.

Originality/value

To the best of the author’s knowledge, the study represents the first qualitative examination of firms’ implementation of the algorithmic trading regime in the second Markets in Financial Instruments Directive 2014/65/EU.

Details

Journal of Financial Regulation and Compliance, vol. 31 no. 5
Type: Research Article
ISSN: 1358-1988

Keywords

Open Access
Article
Publication date: 10 August 2023

Adrienne Heritier

This paper aims to conceptualize and empirically illustrate the challenges that financial market regulation presents to politicians and the organization tasked with specifying…

Abstract

Purpose

This paper aims to conceptualize and empirically illustrate the challenges that financial market regulation presents to politicians and the organization tasked with specifying regulations and supervising their implementation in the interest of users and consumers of financial instruments. It analyses the problem from the viewpoint of the governor's dilemma and the control/competence conflict, the linked problem of the rent-seeking of agents/intermediators and consumers of financial instruments. Political accountability problems are enhanced by the materiality of the technologies used, i.e. algo trading.

Design/methodology/approach

The paper theoretically conceptualizes and empirically illustrates the argument.

Findings

The paper finds that regulators of digitalized financial markets are faced with considerable problems and depend on private agents when regulating financial transactions. However, the new technological instruments also offer new possibilities for securing compliance.

Research limitations/implications

Further research should focus more in-depth on the cooperation between public and private actors in the specification and implementation of regulatory details. It should further investigate the conditions which allow regulators to use RegTech in the surveillance of financial firms.

Practical implications

Since financial market transactions are opaque for most users, the creation of more transparency is crucial to hold regulators accountable in their activity of surveillance of financial firms. New algorithm-based technologies may lend important support in doing so.

Originality/value

By linking the different analytical perspectives, i.e. the governor's dilemma vis-à-vis the intermediator or agent and the possible rent-seeking of intermediators, under the condition of a highly developed technology of financial transactions as well as the market structure, the paper offers new insights into the limits as well as new opportunities of regulating financial markets allowing for political accountability of regulators and financial firms.

Details

International Trade, Politics and Development, vol. 7 no. 3
Type: Research Article
ISSN: 2586-3932

Keywords

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