RTS 7: Organisation Requirements for Trading Venues

MiFID II imposes a range of organisational requirements on trading venues that will also impact Participants. Details are provided below:

  • Cboe must require Participants to test algorithms. To facilitate this testing, Cboe will seek to simulate a number of conditions in its UAT environment, including disorderly market conditions. A schedule of simulated behaviour across symbol sets with details of the characteristics of each grouping is available on our Algo Testing page.
  • As a protection against disorderly conditions, Cboe is required to operate "throttles". Such message limits are already in place and, as an optional risk control, customers can choose to tighten their acceptable range.
  • Cboe is required to have mechanisms to manage volatility and pre- and post-trade controls, such as the order price collars that Cboe currently employs and value- and volume-based risk controls.
  • Due to a potential overlap with record keeping requirements, customers providing DMA will be required to flag relevant orders as DEA. A new flag will be made available on order entry protocols at a later date. The working draft MiFID II specifications can be found in the Document Library.
  • Cboe is required to implement new or more detailed rules governing Direct Electronic Access, encompassing both Sponsored Access and Direct Market Access.
  • Cboe is required to conduct detailed due diligence on Participants, both initially and annually thereafter.

The requirements of RTS 7 also impose a more prescriptive approach to monitoring both Participant use of the venue and Cboe's own system capacity and performance:

  • Venues must ensure that their trading system has sufficient capacity to accommodate at least twice their historical peak (expressed as the highest number of messages per second recorded in the prior five years). Cboe will monitor daily figures and ensure the system retains sufficient capacity.
  • Venues must monitor the concentration flow of orders to detect potential threats to an orderly market. Cboe already monitors this on an aggregated basis and will be introducing individual monitoring in the near term.
  • Venues must continuously monitor capacity utilisation, messages received, sent and rejected, matching engine performance and gateway latency. Cboe has systems in place for this and provides Real Time Latency Monitoring tools, which are available to our Participants.
  • Venues must have kill-switch functionality, various pre-trade controls and the ability to cancel open orders. As well as retaining direct control, Cboe provides access and real time control to Participants over a range of risk control in excess to those required.
  • Venues must have mechanisms to manage volatility. At present, Cboe operates a range of static and dynamic mechanisms.

Finally, RTS 7 will impose new requirements on the way Cboe organises itself internally including requirements relating to:

  • governance;
  • compliance functions;
  • staffing; and
  • outsourcing.

Cboe will be required to conduct a detailed self-assessment at least annually.

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