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ESMA Compliance
Visual Trader helps Investment Firms (IFs) comply with ESMA guidelines by offering the following products and services
Best Execution

MiFID II (effective in January 2017) Article 27(6) "Member States shall require investment firms who execute client orders to summarise and make public on an annual basis, for each class of financial instruments, the top five execution venues in terms of trading volumes where they executed client orders in the preceding year and information on the quality of execution obtained."

Article 27(8) "Member States shall require investment firms to be able to demonstrate to their clients, at their request, that they have executed their orders in accordance with the investment firm’s execution policy and to demonstrate to the competent authority, at its request, their compliance with this Article."

The TCA service will enable you to have in-depth knowledge of your implicit execution costs on those markets where you trade directly. It will also detail the real costs of your trading on the remaining markets where you trade through brokers.

Visual TCA will regularly submit PDF reports on the destination and execution quality of your order flow, broken down by market, client, trader, broker, etc. All of this will allow you to know which brokers are providing the best execution or what implicit costs the clients that trade through you are supporting.

 

Algorithm testing

Guidelines ESMA 24 February 2012. Guideline 2. Organisational requirements for investment firms’ electronic trading systems (including trading algorithms). Relevant legislation. Articles 13, paragraphs (2), (4), (5) and (6), of MiFID and Articles 5 to 9, Articles 13 and 14 and Article 51 of the MiFID Implementing Directive.”

“d) Testing
- Investment firms should prior to deploying an electronic trading system or a trading algorithm and prior to deploying updates, make use of clearly delineated development and testing methodologies. For algorithms these might include performance simulations/back testing or offline testing within a trading platform testing environment (where market operators make testing available). The use of these methodologies should seek to ensure that, amongst other things, the operation of the electronic trading system or trading algorithm is compatible with the investment firm’s obligations under MiFID and other relevant Union and national laws as well as the rules of the trading platforms they use, that compliance and risk management controls embedded in the system or algorithm work as intended (including generating error reports automatically) and that the electronic trading system or algorithm can continue to work effectively in stressed market conditions. Working effectively in stressed market conditions may imply (but not necessarily) that the system or algorithm switches off under those conditions.”

Visual Trader offers entities using algorithms its Market Simulator service for testing its models, reproducing the real market in a highly realistic test environment by taking into account the priority of orders, the depth (liquidity) and the impact on the market.

It also offers the “Order Book Reverse Engineering” file service whereby each entity can download the orders, amendments or cancellations from a particular day and replicate the market's performance for that day using their own simulators. This enables the client to carry out a play-back for any past session and check the algorithm behaviour in real market conditions.

 

DMA Filters

“Guidelines ESMA 24 February 2012. Guideline 8. Organisational requirements for investment firms that provide direct market access and/or sponsored access Relevant legislation. Articles 13(2), (5) and (6) of MiFID and Articles 5, to 9, Articles 13 and 14 and Article 51 of the MiFID Implementing Directive.”

ESMA requires Investment Firms to control the orders submitted by their Clients via Direct Market Access systems (DMA). Clients are connected to the SIBE-Smart Gate via an HF Smart Gate interface. Orders do not go through the Investment Firms Order Management Systems (which would entail processing latencies) before reaching the market. Instead, the VT nanoDriver – installed directly in the SIBE-Smart Gate – allows DMA access and includes the necessary filters at ultra-low latency, so that Investment Firms monitor and control their client activity.

 

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Risk Control

Guidelines ESMA 24 February 2012. Guideline 4. Organisational requirements for investment firms to promote fair and orderly trading in an automated trading environment. Relevant legislation. Articles 13, paragraphs (2), (4), (5) and (6), of MiFID and Articles 5, 6, 7 and 9, Articles 13 and 14 and Article 51 of the MiFID Implementing Directive.”

“c) Risk management - Investment firms should be able to automatically block or cancel orders where they risk compromising the firm’s own risk management thresholds. Controls should be applied as necessary and appropriate to exposures to individual clients or financial instruments or groups of clients or financial instruments, exposures of individual traders, trading desks or the investment firm as a whole.”

VisualRisk , a risk control system created by Visual Trader, allows entities to establish risk management policies based on the composition of their portfolio and cash accounts.

VisualRisk main features are:

  • Real time control and monitoring of own account trading, portfolio status and the risk associated with each client.
  • Possibility to configure short sales, leveraging, credit associated with each account, banning the trading of certain assets, alerts and alarms associated with the risk level of each account, etc.
  • Possibility to provide an on-line interface with Back-Office systems and customer databases.
  • Completely integrated with the maX terminal, the routing system and the Visual Trader order management system.

 

Market Abuse

Guidelines ESMA 24 February 2012. Guideline 6. Organisational requirements for regulated markets and multilateral trading facilities to prevent market abuse (in particular market manipulation) in an automated trading environment.”

BME Innova, a BME Group subsidiary, offers its SICAM product to analyse and report any suspicious transactions.

 

 

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