High frequency trading. Licensing requirement

Transcription

1 High frequency trading Licensing requirement

2 Agenda I. Introduction (legislative text) II. Definition of high frequency trading III. Specific issues (Licensing requirements, Exemptions, Transitional provision) High frequency trading 30. April 2013 Seite 2

3 I. Introduction (1) High frequency trading - definition in German Banking Act (Kreditwesengesetz - KWG), Section 1 subsection 1a Sentence 2 No. 4 lit. d Proprietary trading in form of high frequency trading is: purchase or sale of financial instruments on own account as a direct or indirect member of a domestic organised market or multi-trading facility using a high frequency algorithmic trading technique which is characterised by o the use of infrastructures intending to minimise latency times, High frequency trading 30. April 2013 Seite 3

4 I. Introduction (2) o o system determination of order initiation, generating, routing or execution without human intervention for individual trades or orders and by high intraday message rates which constitute orders, quotes or cancellations, even without service function for third parties. Seite 4

5 I. Introduction (3) Article 4 No. 30a MiFID II-draft of the European Council (April 2013): High frequency algorithmic trading technique means any 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 High frequency trading 30. April 2013 Seite 5

6 I. Introduction (4) (b) system determination of order initiation, generating, routing or execution without human intervention for individual trades or orders; and (c) high message intraday rates which constitute orders, quotes or cancellations. Seite 6

7 II. Definition of high frequency trading (1) As a direct or indirect member of a domestic organised market or multi-trading facility indirect member: gets direct electronic access to the market or MTF by a direct member of the market or MTF, including access via/through other indirect members (chain of indirect members) direct electronic access (see MiFID II-draft, Article 4 No. 31): arrangement where a member or participant 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 Seite 7

8 II. Definition of high frequency trading (2) includes such an arrangement whether or not it also involves the use by the person of the infrastructure of the member or participant, or any connecting system provided by the member or participant, to transmit the orders High frequency trading 30. April 2013 Seite 8

9 II. Definition of high frequency trading (3) high frequency algorithmic trading technique infrastructure intending to minimise latency times: co-location proximity hosting high speed electronic access use of the data connection to the matching machine of the market with the largest bandwidth offered (current state: 10 Gigabit/s) examples only, future so far unknown infrastructures are included Seite 9

10 II. Definition of high frequency trading (4) high frequency algorithmic trading technique system determination of order initiation, generating, routing or execution without human intervention for individual trades or orders (see MiFID II-draft) not given, if there is need of human intervention before transmitting an order not given, if the algorithm only points the trader to a particular situation and the trader himself decides about transmitting an order Seite 10

11 II. Definition of high frequency trading (5) high frequency algorithmic trading technique high intraday message rates which constitute orders, quotes or cancellations: current state: messages per trading day (annual average), based on 2 messages per second Seite 11

12 III. Authorisation requirements Commercially or on a scale which requires a commercially organized business undertaking (Section 1 (1a) sentence 1 KWG) commercially: intention to continue the operation for a certain length of time operation is conducted with the intention of making a profit can also apply to private persons Seite 12

13 III. Exemption - section 2 (4) KWG (1) third country (non-eea) enterprises: Exemption not possible, legislative decision to regulate high frequency trading EEA-enterprises: UK-locals, UK-limited activity-enterprises - exemption possible, requires a comparable supervision in the home country Seite 13

14 III. Exemption (2) procedure exemption is chargeable, requires a written application, accompanied by the following documentation: copy of partnership agreement/articles of association proof of company registration, to the extent that such registration is required the most recent annual financial statements, including all related documentation (i.e. management report, auditor's report), to the extent that preparation of such documentation is required personal information about the applicant or about each manager of the applicant company (board member/manager): surname, all given names, maiden Seite 14

15 III. Exemption (3) - procedure name, date and place of birth, current address, nationality and family names of both parents a declaration of criminal record, available on the website description of the business activity appointment of a German receiving agent a certification from the competent authority of the home country that the entity has been granted a license for financial services, the cross-border activity in Germany raises no supervisory concerns and if such concerns should arise in the future, these will be reported to BaFin Seite 15

16 III. Exemption (4) More details: see Notes regarding the licensing requirements pursuant to section 32 (1) KWG in conjunction with section 1 (1) and (1a) of the KWG for conducting cross-border banking business and/or providing cross-border financial services N/Merkblatt/mb_050400_crossborder_en.html?nn= #doc bodyText6 Seite 16

17 III. Transitional provision Section 64p KWG transitional period of six months for submitting an application for authorisation transitional period of nine months for enterprises that are not domiciled in Germany to build up a branch branch/apply for exemption (EEA-enterprises, s. above) European passport: transitional period of six months for applying for notification also for EEA-enterprises already hold an authorisation for dealing on own account (No. 3 of Section A of Annex I to the MiFID) and intend to use the European passport (notification procedure) High frequency trading 30. April 2013 Seite 17