New French Algo trading rules

The new French algorithm trading rule is a forerunner to the algorithmic trading strategy notification requirements in the European Union’s Markets in Financial Instruments Directive II (MiFID II) and is intended to advance by two years the European-wide rules that will go into effect in January 2017 under MiFID II.

Notification requirements

Under new French algorithm trading requirements that came into effect on 1st January 2015, entities or individuals using algorithmic trading systems must notify the French regulator (Autorité des marchés financiers – AMF) that they are using algorithms in the case of trades involving securities issued by French companies and traded on certain regulated markets or multilateral trading facilities. In particular, foreign entities operating outside France using algorithmic trading systems for trades on securities issued by French companies are also required to notify if the trades are executed on either a French regulated market or multilateral trading facility.

The AMF has indicated in the guidance issued for clarification purposes that only the entity that uses the algorithm trading facility is subject to the notification requirements. In the case where a broker executes client orders using an algorithm trading facility, it is the broker that will be subject to the notification requirements (and not the underlying client as long as the client does not set the order execution modes according to certain market parameters).

Data storage requirements

Under Article 315-67 II of the General Regulation of the AMF, any entity using an algorithm trading strategy must put in place procedures and systems to store, for a period of five years, the algorithm trading facility used for each transaction or order, including any modification or cancellation thereof.

France is now ahead of the curve and it is left to be seen if the Financial Conduct Authority in the U.K. will follow suit. It is important to note that the new rules apply to all persons who are users of algorithmic trading strategies, including those based outside the EEA. The AMF is betting that implementing the new rules two years before the other jurisdictions in the EU is the right thing to do and will help improve transparency in the French market.

Please contact Arut Kannan or Jean-Baptiste Poulle if you need further advice on the application of the new French notification and data storage requirements.